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, 1997.
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 Number: 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 (IRS Employer
incorporation or organization) Identification No.)
1990 Post Oak Blvd., Suite 1630, Houston, Texas 77056
(Address of principal executive offices)
(713) 961-9299
(Issuer's telephone number)
Check 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 14, 1997: 7,593,586 shares.
Transitional Small Business Disclosure Format (Check one): Yes [ ];No [X].
BALTIC INTERNATIONAL USA, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Condensed Balance Sheets -
March 31, 1997 and December 31, 1996 3
Condensed Statements of Operations -
Three Months Ended March 31,1997 and 1996 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults on Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
March 31, December 31,
1997 1996
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 152,138 $ 384,245
Accounts receivable 118,209 43,810
Inventory 70,846 47,741
Prepaids and deposits 180,331 166,362
---------- ----------
Total current assets 521,524 642,158
---------- ----------
PROPERTY AND EQUIPMENT, net 16,204 18,182
INVESTMENT IN AND ADVANCES TO JOINT OPERATIONS 3,628,058 3,446,775
OTHER ASSETS 187,430 233,791
GOODWILL, NET 230,943 238,308
---------- ----------
Total assets $4,584,159 $4,579,214
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 629,636 $ 436,760
Short-term debt, net 2,339,361 2,285,597
Commitments for guarantees on BIA liabilities 146,375 146,375
Other current liabilities 61,902 73,583
---------- ----------
Total liabilities 3,177,274 2,942,315
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock:
Series A, 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,
$25,000 stated value, 70 shares authorized,
30 and 34 shares issued and outstanding 750,000 850,000
Common stock, $.01 par value, 20,000,000 shares
authorized, 7,593,586 and 7,302,108 shares
issued and outstanding 75,936 73,021
Additional paid-in capital 10,029,414 9,905,403
Accumulated deficit (10,678,465) (10,421,525)
----------- -----------
Total stockholders' equity 1,406,885 1,636,899
----------- -----------
Total liabilities and stockholders' equity $ 4,584,159 $ 4,579,214
=========== ===========
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended March 31,
1997 1996
REVENUES:
Freight revenue $ 53,782 $ 63,309
Food distribution 61,529 -
General sales agency revenue 19,500 -
Net equity in earnings of joint operations 157,889 82,821
--------- ---------
Total operating revenues 292,700 146,130
--------- ---------
OPERATING EXPENSES:
Cost of revenue 77,053 27,666
General and administrative 293,558 387,249
Reserve of investment in BIA - 612,385
--------- ---------
Total operating expenses 370,611 1,027,300
--------- ---------
LOSS FROM OPERATIONS (77,911) (881,170)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (133,252) (13,240)
Interest income 4 15
Other 3,921 297,200
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (129,327) 283,975
--------- ---------
LOSS BEFORE INCOME TAXES (207,238) (597,195)
INCOME TAX EXPENSE - -
--------- ---------
NET LOSS $(207,238) $(597,195)
--------- ---------
LESS PREFERRED DIVIDENDS (49,702) (30,625)
--------- ---------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(256,940) $(627,820)
========= =========
PER SHARE AMOUNTS:
Net loss $ (0.03) $ (0.10)
Net loss attributable to common shareholders $ (0.03) $ (0.11)
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,
1997 1996
Cash flows from operating activities:
Net loss $ (207,238) $ (597,195)
Noncash adjustments:
Net equity in (earnings) and losses
of joint operations (157,889) 529,564
Gain on sale of assets - (297,200)
Other 63,107 23,494
Changes in assets and liabilities 65,220 (493,784)
--------- ---------
Net cash used by operating activities (236,800) (835,121)
--------- ---------
Cash flows from investing activities:
Investment in and advances to joint
operations (1,974) (1,122,385)
Distributions and repayments from joint
operations - 35,000
Proceeds from sale of assets - 745,970
Proceeds from repayment of airBaltic
subordinated debt - 290,000
Acquisition of property and equipment - (501)
--------- ---------
Net cash used by investing activities (1,974) (51,916)
--------- ---------
Cash flows from financing activities:
Repayment of debt and long-term obligations - (80,000)
Issuance of stock, net of related costs 6,667 1,239,152
--------- ---------
Net cash provided by financing activities 6,667 1,159,152
--------- ---------
Net increase (decrease) in cash and
cash equivalents (232,107) 272,115
Cash and cash equivalents,
beginning of period 384,245 139,240
--------- ---------
Cash and cash equivalents, end of period $ 152,138 $ 411,355
========= =========
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 prepared by 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, 1997 and 1996, 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, 1996.
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 was organized to identify, form and participate in
aviation-related and other business ventures in Eastern Europe. The
Company currently owns an 8.02% interest in airBaltic Corporation SIA
("airBaltic"), the national airline of Latvia. The Company is also
engaged in providing services to airBaltic and other airlines through
its interest in Riga Catering Services ("RCS"), a Riga, Latvia-based
aviation catering company. In 1996, the Company transferred its
catering operations of Baltic Catering Services ("BCS") to RCS. The
Company will expand its catering operations through its 51% interest in
AIRO Catering Services ("AIRO"). The Company also serves as a cargo
marketing and sales company to airBaltic and other airlines through its
wholly owned subsidiary, Baltic World Air Freight ("BWAF"). American
Distributing Company ("ADC"), a wholly owned subsidiary, began
operations on December 1, 1995 as a food and beverage distribution
company.
The Company also owns 49% 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
airBaltic effective October 1, 1995, and BIA has not conducted any
substantive business operations since that date. The Company made
significant investment in and advances to BIA which has incurred losses
of approximately $12,700,000 from inception through March 31, 1997.
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.
The above 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 - INVESTMENTS IN AND ADVANCES TO JOINT OPERATIONS
The investment in and advances to joint operations are as follows:
March 31, December 31,
1997 1996
Joint operations accounted for using
cost method:
airBaltic $1,918,000 $1,918,000
BIA 1,188,798 1,186,824
LAMCO 40,000 40,000
--------- ---------
Subtotal 3,146,798 3,144,824
--------- ---------
Joint operations accounted for using
equity method:
BCS 44,298 43,097
AIRO 200,015 110,956
RCS 236,947 147,898
--------- ---------
Subtotal 481,260 301,951
--------- ---------
Total $3,628,058 $3,446,775
========= =========
A condensed summary of the financial position (100% basis) of the
combined joint operations accounted for using the equity method of
accounting is as follows:
March 31, December 31,
1997 1996
Current assets $ 662,247 $ 641,263
Property and other assets, net 529,403 551,105
--------- ---------
Total assets $1,191,650 $1,192,368
========= =========
Current liabilities $ 335,442 $ 518,345
Other liabilities - 195,540
Stockholders' equity 856,208 478,483
--------- ---------
Total liabilities and stockholders'
equity $1,191,650 $1,192,368
========= =========
A summary of the results of operations of the combined joint operations
accounted for using the equity method of accounting is as follows:
Combined 100% Basis:
Three Months Ended March 31,
1997 1996
Operating revenues $ 651,147 $ 506,030
========= =========
Income from operations $ 197,519 $ 165,641
========= =========
Earnings $ 381,332 $ 165,641
========= =========
Company Percentage Interest:
Three Months Ended March 31,
1997 1996
Operating revenues $ 261,865 $ 253,015
========= =========
Income from operations $ 81,882 $ 82,821
========= =========
Earnings $ 157,889 $ 82,821
========= =========
NOTE 3 - LOSS PER COMMON SHARE
The computations of loss per common share are computed using
7,532,659 and 5,858,842 weighted average shares of common stock for the
three months ended March 31, 1997 and 1996, 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 4 - EQUITY TRANSACTIONS
During the three months ended March 31, 1997, shareholders
converted an aggregate of four shares of Series B Convertible Redeemable
Preferred Stock into 251,184 shares of the Company's common stock.
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 operations and from revenue generated by BWAF and
ADC.
Quarter Ended March 31, 1997 and 1996
For the quarter ended March 31, 1997, the Company had revenues of
$292,700 compared with $146,130 for the quarter ended March 31, 1996.
The 100% increase is due to increases in food distribution revenue, net
equity in earnings of catering operations and general sales agency
revenue. The increase in net equity in earnings of joint operations is
principally due to the reversal of a reserve recorded on the final
determination of RCS' income tax status for 1996. This determination
was received during 1997 in favor of RCS.
The Company's operating expenses for the quarter ended March 31,
1997 were $370,611 compared to $1,027,300 for the same quarter in 1996.
The decrease is primarily due to no reserve being required in 1997 on the
investment in BIA similar to the reserve of $612,385 for the first quarter
of 1996. General and administrative expenses decreased to $293,588 in 1997
from $387,249 in the same quarter of 1996. This decrease was due primarily
to decreased personnel and consulting costs.
As a result of the increase in revenues and decrease in operating
expenses discussed above, the operating loss for the Company decreased
91% to $77,911 for the first quarter of 1997 from $881,170 for the first
quarter of 1996.
Interest expense increased to $133,252 in the first quarter of
1997 from $13,240 in 1996, reflecting the increased interest costs and
amortization of debt costs and discount for borrowings incurred during
the second and fourth quarters of 1996. This interest expense is
related to debt used for a capital contribution to airBaltic and the
expansion of the Company's activities.
The Company recorded a gain of $297,200 on the sale of the 12%
airBaltic stock during the first quarter of 1996. No such gain was
recorded in 1997.
The Company had a net loss of $207,238 for the quarter ended March
31, 1997 compared to a net loss of $597,195 for the quarter ended March
31, 1996.
The Company's consolidated financial statements included elsewhere
herein present the Company's share of the joint operations using the equity
method of accounting in accordance with generally accepted accounting
principles. The Company's interests in airBaltic, BIA and LAMCO are
accounted for using the cost method. The following table presents a pro forma
condensed combined statement of operations of the Company assuming its
proportionate share of the joint operations accounted for using the equity
method is combined with the Company. Management believes this presentation
is informative of the Company's results of operations given that a significant
portion of the Company's business is conducted through the joint operations.
Pro forma Condensed Combined Statement of Operations
For the Year Ended March 31, 1997
Proportionate Pro forma
Company Share of Combined
(As reported) Joint Operations Eliminations Company
Operating revenues $ 292,700 $ 261,865 $(157,889) $ 396,676
Operating expenses 370,611 179,983 - 550,594
--------- --------- -------- --------
Income (loss) from
operations (77,911) 81,882 (157,889) (153,918)
Other income (expense) (129,327) - - (129,327)
--------- --------- -------- --------
Income (loss) before
income taxes (207,238) 81,882 (157,889) (283,245)
Benefit for income
taxes - 76,007 - 76,007
--------- --------- -------- --------
Net income (loss) $ (207,238) $ 157,889 $(157,889) $(207,238)
========= ========= ======== ========
Liquidity and Capital Resources
The Company had $152,138 in cash at March 31, 1997, compared to
$384,245 at December 31, 1996.
At March 31, 1997, the Company had a working capital deficit of
$2,655,750 as compared to $2,300,157 at December 31, 1996. The increase
in the working capital deficit is due primarily to a decrease in cash of
$232,107, an increase in accounts receivable of $74,399, and an increase
in accounts payable and accrued liabilities of $192,876.
Net cash used in operating activities for the three months ended
March 31, 1997 was $236,800 as compared to $835,121 for the same period
of 1996. Such decrease was primarily due to the improved results from
operations. Net cash used in investing activities was $1,974 for the
three months ended March 31, 1997 compared to $51,916 for the three
months ended March 31, 1996. The decrease was due primarily to the
decrease in advances to BIA offset by proceeds from the sale of
airBaltic shares in 1996. Net cash provided by financing activities was
$6,667 for the three months ended March 31, 1997 compared to $1,159,152
for the three months ended March 31, 1996. The decrease was due to the
proceeds of $1,090,200 raised from the issuance of the Series B
Convertible Redeemable Preferred Stock during the first quarter of 1996
with no such stock issuances made in 1997.
The Company's consolidated balance sheet included elsewhere herein
presents the Company's share of the joint operations using the equity
method of accounting in accordance with generally accepted accounting
principles. The Company's interests in airBaltic, BIA and LAMCO are
accounted for using the cost method. The following table presents a pro
forma condensed combined balance sheet of the Company assuming its
proportionate share of the joint operations accounted for using the
equity method is combined with the Company. Management believes this
presentation is informative of the Company's financial condition since
the majority of the Company's underlying investment in its joint
operations consists of net current assets.
Pro forma Condensed Combined Balance Sheet
As of March 31, 1997
Proportionate Pro forma
Company Share of Combined
(As reported) Joint Operations Eliminations Company
Current assets $ 521,524 $ 289,219 $ - $ 810,743
Investments in and
advances to joint
operations 3,628,058 - (481,260) 3,146,798
Property and other
assets, net 434,577 230,144 108,341 773,062
--------- --------- -------- ---------
Total assets $4,584,159 $ 519,363 $(372,919) $4,730,603
========= ========= ======== =========
Current liabilities $3,177,274 $ 159,073 $ (12,629) $3,323,718
Stockholders' and
partners' equity 1,406,885 360,290 (360,290) 1,406,885
--------- --------- -------- ---------
Total liabilities and
equity $4,584,159 $ 519,363 $(372,919) $4,730,603
========= ========= ======== =========
The Company requires 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) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
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, 1997 BY: /s/ Robert L. Knauss
------------------ -------------------------------------
Robert L. Knauss,
Chairman of the Board and
Chief Executive Officer
Date: May 20, 1997 BY: /s/ James W. Goodchild
------------------ -------------------------------------
James W. Goodchild,
Chief Operating and Financial
Officer
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 152,138
<SECURITIES> 0
<RECEIVABLES> 118,209
<ALLOWANCES> 0
<INVENTORY> 70,846
<CURRENT-ASSETS> 521,524
<PP&E> 16,204
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 3,177,274
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1,980,000
<COMMON> 75,936
<OTHER-SE> (649,051)
<TOTAL-LIABILITY-AND-EQUITY> 4,584,159
<SALES> 134,811
<TOTAL-REVENUES> 292,700
<CGS> 77,053
<TOTAL-COSTS> 370,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,252
<INCOME-PRETAX> (207,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (207,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207,238)
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