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 September 30, 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 November 14, 1997: 15,447,729 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 -
September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations -
Three Months Ended September 30, 1997 and 1996
and Nine Months Ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows -
Nine Months Ended September 30, 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 12
Item 2 - Changes in Securities 12
Item 3 - Defaults on Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
2
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
September 30, December 31,
1997 1996
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,263,556 $ 384,245
Accounts receivable 113,549 43,810
Inventory 180,425 47,741
Prepaids and deposits 82,915 166,362
---------- ----------
Total current assets 1,640,445 642,158
---------- ----------
PROPERTY AND EQUIPMENT, net 15,607 18,182
INVESTMENT IN AND ADVANCES TO JOINT OPERATIONS 4,149,952 3,446,775
OTHER ASSETS 187,430 233,791
GOODWILL, NET 216,213 238,308
---------- ----------
Total assets $ 6,209,647 $ 4,579,214
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 722,239 $ 436,760
Short-term debt, net 2,069,918 2,285,597
Commitments for guarantees on BIA liabilities 71,375 146,375
Other current liabilities 73,864 73,583
---------- ----------
Total liabilities 2,937,396 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, 18 and 34 shares issued and
outstanding 450,000 850,000
Common stock, $.01 par value, 20,000,000
shares authorized, 15,361,263 and
7,302,108 shares issued and outstanding 153,613 73,021
Additional paid-in capital 12,991,218 9,905,403
Accumulated deficit (11,304,859) (10,421,525)
Treasury stock, at cost (247,721) -
---------- ----------
Total stockholders' equity 3,272,251 1,636,899
---------- ----------
Total liabilities and stockholders' equity $ 6,209,647 $ 4,579,214
========== ==========
See accompanying notes to condensed consolidated financial statements.
3
<TABLE>
<CAPTION>
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Freight revenue $ 48,599 $ 185,737 $ 160,654 $ 454,383
Food distribution 123,019 100,256 263,549 229,574
General sales agency revenue 19,500 16,500 58,500 38,500
Net equity in earnings of
joint operations 110,663 119,141 354,332 376,657
------- ------- ------- ---------
Total operating revenues 301,781 421,634 837,040 1,099,144
------- ------- ------- ---------
OPERATING EXPENSES:
Cost of revenue 105,956 166,751 282,187 383,053
General and administrative 367,465 348,334 865,294 1,152,950
Reserve of investment in BIA - - - 612,385
------- ------- --------- ---------
Total operating expenses 473,421 515,085 1,147,481 2,148,388
------- ------- --------- ---------
LOSS FROM OPERATIONS (171,640) (93,451) (310,441) (1,049,274)
------- ------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (133,148) (20,151) (408,381) (47,513)
Interest income 3,273 17,122 3,278 19,845
Other (3,571) 55,590 66,992 352,790
------- ------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) (133,446) 52,561 (338,111) 325,122
------- ------- --------- ---------
LOSS BEFORE INCOME TAXES (305,086) (40,890) (648,552) (724,152)
INCOME TAX EXPENSE - 19,524 - 47,428
------- ------- --------- ---------
NET LOSS $ (305,086) $ (60,414) $ (648,552) $ (771,580)
------- ------- --------- ---------
LESS PREFERRED DIVIDENDS (67,778) (31,250) (234,782) (92,500)
------- ------- --------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (372,864) $ (91,664) $ (883,334) $ (864,080)
======= ======= ========= =========
PER SHARE AMOUNTS:
Net loss $ (0.03) $ (0.01) $ (0.08) $ (0.12)
Net loss attributable to
common shareholders $ (0.04) $ (0.01) $ (0.10) $ (0.14)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months
Ended September 30,
1997 1996
Cash flows from operating activities:
Net loss $ (648,552) $ (771,580)
Noncash adjustments:
Net equity in (earnings) and losses of
joint operations (354,337) 235,728
Gain on sale of assets (62,510) (297,200)
Other 188,174 51,252
Changes in assets and liabilities (32,466) (223,198)
--------- ---------
Net cash used by operating activities (909,691) (1,004,998)
--------- ---------
Cash flows from investing activities:
Investment in and advances to joint
operations (375,866) (2,012,411)
Distributions and repayments from joint
operations 110,957 203,738
Proceeds from sale of assets - 745,970
Proceeds from repayment of airBaltic
subordinated debt - 290,000
Acquisition of property and equipment (2,212) (1,769)
--------- ---------
Net cash used by investing activities (267,121) (774,472)
--------- ---------
Cash flows from financing activities:
New borrowings 55,000 500,000
Repayment of debt and long-term obligations (431,971) (155,000)
Issuance of stock, net of related costs 2,725,394 1,439,452
Purchase of treasury stock (292,300) -
Payment of dividends - (84,625)
--------- ---------
Net cash provided by financing activities 2,056,123 1,699,827
--------- ---------
Net increase (decrease) in cash and cash
equivalents 879,311 (79,643)
Cash and cash equivalents, beginning of period 384,245 139,240
--------- ---------
Cash and cash equivalents, end of period $ 1,263,556 $ 59,597
========= =========
See accompanying notes to condensed consolidated financial statements.
5
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 nine
months ended September 30, 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 the
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 September 30, 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 as of
September 30, 1997. However, as discussed in Note 4, in October 1997,
the Company refinanced its $2,000,000 loan to a maturity date of January
29, 1999. Management believes that the refinancing of the debt along
with the Company's equity financing completed during the third quarter
discussed in Note 5 and the sale of 5% of AIRO to LSG Lufthansa
Services/Sky Chefs discussed in Note 6 should enable the Company to fund
its capital obligations and meet its liquidity needs for the next twelve
months. 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.
6
NOTE 2 - INVESTMENTS IN AND ADVANCES TO JOINT OPERATIONS
The investment in and advances to joint operations are as follows:
September 30, December 31,
1997 1996
Joint operations accounted for using
cost method:
airBaltic $1,918,000 $1,918,000
BIA 1,200,690 1,186,824
LAMCO 40,000 40,000
--------- ---------
Subtotal 3,158,690 3,144,824
--------- ---------
Joint operations accounted for using
equity method:
BCS 44,298 43,097
AIRO 720,022 110,956
RCS 226,942 147,898
--------- ---------
Subtotal 991,262 301,951
--------- ---------
Total $4,149,952 $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:
September 30, December 31,
1997 1996
Current assets $ 765,074 $ 641,263
Property and other assets, net 1,535,182 551,105
--------- ---------
Total assets $2,300,256 $1,192,368
========= =========
Current liabilities $ 591,768 $ 518,345
Other liabilities - 195,540
Stockholders' equity 1,708,488 478,483
--------- ---------
Total liabilities and stockholders'
equity $2,300,256 $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:
<TABLE>
<CAPTION>
Combined 100% Basis:
Three Months Ended September 30, Nine Months Ended September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $ 876,351 $ 832,110 $ 2,267,316 $ 2,090,967
========== ========== ========== ==========
Income from operations $ 275,391 $ 293,060 $ 695,738 $ 850,902
========== ========== ========== ==========
Earnings $ 287,874 $ 290,812 $ 901,860 $ 845,202
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Company Percentage Interest:
Three Months Ended September 30, Nine Months Ended September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $ 356,250 $ 349,173 $ 934,925 $ 935,550
========== ========== ========== ==========
Income from operations $ 105,666 $ 120,062 $ 270,883 $ 379,197
========== ========== ========== ==========
Earnings $ 110,663 $ 119,141 $ 354,332 $ 376,657
========== ========== ========== ==========
</TABLE>
7
NOTE 3 - LOSS PER COMMON SHARE
The computations of loss per common share are computed using
10,023,196 and 6,795,816 weighted average shares of common stock for the
three months ended September 30, 1997 and 1996, respectively, and
8,423,048 and 6,215,284 weighted average shares of common stock for the
nine months ended September 30, 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 and nine
month periods ending on the balance sheet date exceeds the exercise
price and the Company had earnings for the period.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which
establishes the disclosure requirements of basic and diluted earnings
per share. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the earnings. This pronouncement is effective for periods ending
December 15, 1997. The Company has not determined the impact of this
statement on the earnings per share amounts computed for 1997 or 1996.
NOTE 4 - DEBT
In July 1997, the Company entered into a promissory note with
ORESA Ventures N.V. in connection with a $500,000 loan to the Company.
Principal and interest at an annual rate of 13% was paid off in
September 1997.
In October 1997, the Company entered into a promissory note with
ORESA Ventures N.V. in connection with a $2,000,000 loan to the Company.
Principal and interest at an annual rate of 13% will be due on January
29, 1999. The proceeds from this loan were used to repay the principal
of another loan to the Company which was to mature in November 1997.
The Company reissued 469,442 shares of its treasury shares to pay the
accrued interest of the repaid loan.
NOTE 5 - EQUITY TRANSACTIONS
During the three months ended September 30, 1997, shareholders
converted an aggregate of nine shares of Series B Convertible Redeemable
Preferred Stock into 500,237 shares of the Company's common stock.
During the quarter ended September 30, 1997, the Company acquired
625,993 shares of its common stock through private purchases at a cost
of $292,300. The Company reissued 114,107 of these treasury shares to
creditors in satisfaction of liabilities in the aggregate amount of
$65,333.
In August and September 1997, the Company sold an aggregate of
6,250,000 shares of common stock to Celox S.A. and ORESA Ventures N.V.
for $2,500,000. In connection with these private placements, the
Company issued warrants to purchase 6,250,000 shares at an exercise
price of $0.65 per share, which warrants are currently exercisable and
expire in August 2002. In connection with the subscription agreements
for these private placements, the shareholders have declared their
intentions not to offer for resale the shares for at least 24 months
from the date of purchase.
NOTE 6 - SALE OF CATERING INTEREST
In July 1997, the Company entered into a memorandum of
understanding to execute a share purchase and shareholder agreement with
LSG Lufthansa Services/Sky Chefs ("LSG"). The primary purpose of the
agreement is to identify AIRO as the vehicle for the development of new
LSG in-flight kitchens in Eastern Europe and the Republics of the former
Soviet Union. Under the agreement, the Company will transfer 5% of its
51% ownership of AIRO in return for the LSG commitments and $600,000 in
cash. The agreement provides that the Company will remain as the day-
to-day operating partner of AIRO, and AIRO will become part of the
worldwide network of LSG in all aspects consistent with other LSG in-
flight catering operations. Management expects to complete this
transaction during the fourth quarter of 1997. During 1997, LSG
previously purchased 51% of TOPflight Catering AB, the Company's partner
in AIRO, which has a 49% interest in AIRO. Therefore, following the
share purchase, the Company will control 46% of AIRO and LSG will
control 54%.
8
BALTIC INTERNATIONAL USA, INC.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussions contain forward-looking information.
Readers are cautioned that such information involves risks and
uncertainties, including those created by general market conditions,
competition and the possibility of events may occur which limit the
ability of the Company to maintain or improve its operating results or
execute its primary growth strategy. Although the Company believes that
the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate, and there can
therefore be no assurance that the forward-looking statements included
herein will prove to be accurate. The inclusion of such information
should not be regarded as a representation by the Company or any other
person that the objectives and plans of the Company will be achieved.
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 September 30, 1997 and 1996
For the quarter ended September 30, 1997, the Company had revenues
of $301,781 compared with $421,634 for the quarter ended September 30,
1996. The 28% decrease is due to decreases in freight revenue and net
equity in earnings of catering operations. The decrease in freight
revenue is due to a shift in the frequency of destinations flown by
airBaltic, which now include code share arrangements with other airlines
of some destinations. The decrease in net equity in earnings of joint
operations is principally due to the start-up costs associated with
AIRO's headquarters.
The Company's operating expenses for the quarter ended
September 30, 1997 were $473,421 compared to $515,085 for the same
quarter in 1996. The decrease is due to decrease in cost of revenue
resulting from lower freight revenue. General and administrative
expenses increased to $367,465 in 1997 from $348,334 in the same quarter
of 1996.
Interest expense increased to $133,148 in the third quarter of
1997 from $20,151 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.
Nine months Ended September 30, 1997 and 1996
For the nine months ended September 30, 1997, the Company had
revenues of $837,040 compared with $1,099,144 for the nine months ended
September, 1996. Year-to-date revenues were impacted by the same
factors that affected the third quarter results.
The Company's operating expenses for the nine months ended
September 30, 1997 were $1,147,481 compared to $2,148,388 for 1996. In
addition to the factors affecting the second quarter operating expenses,
the decrease is 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.
As a result of the changes in revenues and expenses discussed
above, the operating loss for the Company decreased 70% to $310,441 for
the first nine months of 1997 from $1,049,274 for the first nine months
of 1996. However, the Company had a net loss (including interest
expense and non-recurring gains discussed below) of $648,552 for the
nine months ended September 30, 1997 compared to a net loss of $771,580
for the nine months ended September 30, 1996.
Interest expense increased to $408,381 for the first nine months
of 1997 from $47,513 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.
The Company recorded a gain of $297,200 on the sale of the 12%
airBaltic stock during the first quarter of 1996. The Company recorded
a gain of $62,510 on the transfer of 2.82% of RCS to AIRO during the
second quarter of 1997.
9
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 Nine Months Ended September 30, 1997
Proportionate Pro forma
Company Share of Combined
(As reported) Joint Operations Eliminations Company
Operating revenues $ 837,040 $ 934,925 $(354,332) $1,417,633
Operating expenses 1,147,481 664,042 - 1,811,523
--------- --------- -------- --------
Income (loss) from
operations (310,441) 270,883 (354,332) (393,890)
Other income (expense) (338,111) 9,032 - (329,079)
--------- --------- -------- --------
Income (loss) before
income taxes (648,552) 279,915 (354,332) (722,969)
Benefit for income
taxes - 74,417 - 74,417
--------- --------- -------- --------
Net income (loss) $ (648,552) $ 354,332 $(345,332) $ (648,552)
========= ========= ======== ========
Liquidity and Capital Resources
The Company had $1,263,556 in cash at September 30, 1997, compared
to $384,245 at December 31, 1996.
At September 30, 1997, the Company had a working capital deficit
of $1,269,951 as compared to $2,300,157 at December 31, 1996. The
decrease in the working capital deficit is due primarily to a increase
in cash of $879,311 and a decrease in short-term debt of $215,679 and
partially offset by an increase in accounts payable and accrued
liabilities of $285,479.
Net cash used in operating activities for the nine months ended
September 30, 1997 was $909,691 as compared to $1,004,998 for the same
period of 1996. Such decrease was primarily due to the higher payments
of outstanding liabilities made in 1996 as compared to 1997. Net cash
used by investing activities was $267,121 for the nine months ended
September 30, 1997 compared to $774,472 for the nine months ended
September 30, 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 $2,056,123 for the
nine months ended September 30, 1997 compared to $1,699,827 for the nine
months ended September 30, 1996. The increase was primarily due to the
net proceeds of $2,725,394 raised from the issuance of common stock
during 1997 (see Note 5 to the condensed consolidated financial
statements) compared to the net proceeds of $1,090,200 raised from the
issuance of the Series B Convertible Redeemable Preferred Stock and net
proceeds of $349,252 raised from the issuance of common stock during
1996.
In October 1997, the Company entered into a promissory note with
ORESA Ventures N.V. in connection with a $2,000,000 loan to the Company.
Principal and interest at an annual rate of 13% will be due on
January 29, 1999. The proceeds from this loan were used to repay the
principal of another loan to the Company which was to mature in November
1997.
Management believes that the refinancing of the debt along with
the Company's equity financing completed during the third quarter of
1997 and the sale of 5% of AIRO to LSG Lufthansa Services/Sky Chefs (see
Note 6 to the condensed consolidated financial statements) should enable
the Company to fund its capital obligations and meet its liquidity needs
for the next twelve months.
10
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 September 30, 1997
Proportionate Pro forma
Company Share of Combined
(As reported) Joint Operations Eliminations Company
Current assets $1,640,445 $ 327,342 $ - $1,967,787
Investments in and
advances to joint
operations 4,149,952 - (991,262) 3,158,690
Property and other
assets, net 419,250 737,044 61,042 1,217,336
--------- --------- -------- ---------
Total assets $6,209,647 $1,064,386 $(930,220) $6,343,813
========= ========= ======== =========
Current liabilities $2,937,396 $ 290,794 $(156,628) $3,071,562
Stockholders' and
partners' equity 3,272,251 773,592 (773,592) 3,272,251
--------- --------- -------- ---------
Total liabilities and
equity $6,209,647 $1,064,386 $(930,220) $6,343,813
========= ========= ======== =========
11
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) The following exhibits are filed as part of this Report:
Exhibit No. Identification of Exhibit
10.46 Compensatory plan for Robert Knauss, James Goodchild
and David Grossman
10.47 Promissory note agreement with ORESA Ventures N.V.
(b) The Company filed a Current Report on form 8-K dated August 15,
1997 to satisfy certain continued listing requirements
necessary in order to maintain the listing of its common
stock on The NASDAQ Small Cap Market.
12
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: November 19, 1997 BY: /s/ Robert L. Knauss
--------------------------- --------------------------
Robert L. Knauss,
Chairman of the Board and
Chief Executive Officer
Date: November 19, 1997 BY: /s/ David A., Grossman
--------------------------- --------------------------
David A. Grossman
Chief Financial Officer and
Corporate Secretary
13
EXHIBIT 10.46
Baltic International USA, Inc.
1990 Post Oak Boulevard, Suite 1630
Houston, Texas 77056-3813
Telephone: (713) 961-9299 Fax: (713) 961-9298
I. COMPENSATION COMMITTEE - APPROVAL OF STOCK OPTION PLAN
WHEREAS, the members of the Compensation Committee believe it is
in the best interest of BIUSA (the Company) to provide the following
stock option plan to the individuals named below, and
WHEREAS, these named individuals have agreed there will be no
salary increase to them through 1998, and
WHEREAS, this stock option plan will provide an incentive for the
named individuals to remain with the company during this time of
transition, and
WHEREAS, this plan requires the individuals to demonstrate their
support for the Company.
NOW THEREFORE THE COMMITTEE APPROVES THE FOLLOWING STOCK OPTION
PLAN;
1. The plan shall apply to Robert Knauss, James Goodchild, and David
Grossman.
2. Each of the named individuals shall be granted twice the number of
restricted shares from treasury stock of the company, and 4 times the
number of qualified stock options for each share of BIUSA stock they
purchase within 30 days from the date of approval of the plan.
3. The price of the options and restricted shares shall be determined
by the date of the approval of this plan. The restricted shares and
options will vest over a two year time frame - 50% will vest in six
months, and 50% will vest in 24 months. Shares and options, which have
not yet vested, are lost if an employee voluntarily leaves employment or
is fired for cause. Vesting is accelerated if the company is sold, or
if there is a change of control or change in the officers of the
company.
4. Under this plan Robert Knauss and James Goodchild may purchase up to
$50,000 in stock, and David Grossman up to $10,000.
5. The appropriate officers of the company are authorized to take all
necessary action, and prepare all necessary documents to carry out the
purpose and intent of this plan.
Date: August 25, 1997
/s/ Ted Reynolds /s/ Juris Padegs
- ------------------------ -------------------------
Ted Reynolds, Chairman Juris Padegs
/s/ Morris A. Sandler
-------------------------
Morris Sandler
EXHIBIT 10.47
PROMISSORY NOTE AGREEMENT
$2,000,000 October 2, 1997 Houston, Texas
For value received, in the form of a US $2,000,000 loan, BALTIC
INTERNATIONAL USA, INC., a Texas Corporation, having its principal
office and place of business in Houston, Texas (the Maker) hereby
promises to pay to the order of ORESA Ventures N.V., Scharlooweg, 81 at
Caracao, Netherlands Antilles (the "Payee") the original principal
amount of US $2,000,000 with interest on the unpaid principal of the
Note, from the date hereof, at the rate of 13% interest per annum. All
payments to be made in lawful money of the United States of America at
such place as the Payee may designate. The Maker will apply the
proceeds from this Note to the repayment of the principal of the
outstanding debt of the Maker under a Note Agreement dated November 11,
1996 to Rauscher, Pierce & Clark, Inc., as agent.
The principal amount and all accrued interest are due and payable on
upon maturity. The initial maturity date is August 1, 1998 which is 30
days prior to the maturity date of the Option Agreement between the
Maker and Scandinavian Airlines System dated August 16, 1996, as amended
October 25, 1996, for all of the shares of Maker in Air Baltic
Corporation. The maturity date will be automatically extended to be the
date which is 30 days prior to the maturity of the Option Agreement
resulting from any extension of the Option Agreement, but no later than
February 28, 1999.
Security
The promissory Note is secured by:
(1) The Option Agreement between the Maker and Scandinavian
Airlines System dated August 16, 1996, as amended October 25, 1996, for
all of the shares of Maker in Air Baltic Corporation. The Promissory
Note will be paid immediately if the Option Agreement is exercised by
either the Maker or Scandinavian Airlines System.
(2) The Maker's shares of AIRO Catering Services, Ltd., a
British Virgin Islands corporation ("AIRO") less shares equal to a 5%
interest in AIRO as these shares will be sold to LSG Lufthansa Service
Europa/Afrika GmbH. The Maker and Payee agree that if financing
activities of AIRO require a pledge of the AIRO shares by all
shareholders of AIRO, the Payee will not reasonably withhold the Maker's
AIRO shares from being pledged for such financing of AIRO. In the event
that the AIRO shares are released as security from this Note, the
principal amount of this Note will be fully collateralized by either the
Option Agreement through an increase in the Maker's put value or the
Maker will provide a cash or other security agreeable to the Payee for
the difference between the principal of the loan and the Maker's put
value of the Option Agreement.
Representations and Warranties
The Maker is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas, and has all requisite
corporate powers to own assets and carry on its business as now being or
to be conducted.
The Maker warrants and represents that no other pledge or lien exists
over the assets mentioned under Security above.
Taxes
All payments payable by the Maker under this agreement shall be paid
free of any restriction or condition, free and clear of any withholding
tax and without deduction or withholding on account of any other amount.
If the borrower is required by law to make any deduction or withholding
on account of any tax from any payment due to the Payee then the Maker
will pay the Payee such additional amounts as will result in the receipt
of the Payee of the full amount that would otherwise be due.
This Agreement has been duly and validly authorized by all requisite
corporate proceedings, and when executed will be a valid and legally
binding obligation of the Maker and enforceable against the Maker.
The Maker agrees to pay all expenses incurred by the Payee, including
reasonable attorney's fees if this Note is placed in the hands of an
attorney for collection.
The Maker will keep all security interests free from any adverse lien,
and will immediately notify the Payee of any material change in any of
the security interests.
Miscellaneous
The Promissory Note is an obligation of the Maker only, and except for
any willful fraud or misconduct, no recourse shall be had for repayments
against any shareholder, director or officer of the Maker.
The Note may be prepaid in whole or in part without premium or penalty.
In the event of any default, the principal amount of the loan and all
accrued interest may be declared payable.
/s/ Jonas af Jochnick /s/ James W. Goodchild
- --------------------------- ---------------------------
ORESA Ventures N.V. Baltic International USA, Inc.
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 3-MOS 9-MOS
[FISCAL-YEAR-END] DEC-31-1997 DEC-31-1997
[PERIOD-END] SEP-30-1997 SEP-30-1997
[CASH] 1263556 1263556
[SECURITIES] 0 0
[RECEIVABLES] 113549 113549
[ALLOWANCES] 0 0
[INVENTORY] 180425 180425
[CURRENT-ASSETS] 1640445 1640445
[PP&E] 15607 15607
[DEPRECIATION] 0 0
[TOTAL-ASSETS] 6209647 6209647
[CURRENT-LIABILITIES] 2937396 2937396
[BONDS] 0 0
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 1680000 2080000
[COMMON] 153613 73021
[OTHER-SE] 1438628 1438628
[TOTAL-LIABILITY-AND-EQUITY] 6209647 6209647
[SALES] 19500 58500
[TOTAL-REVENUES] 301781 837040
[CGS] 105956 282187
[TOTAL-COSTS] 473421 1147481
[OTHER-EXPENSES] 0 0
[LOSS-PROVISION] 0 0
[INTEREST-EXPENSE] 133148 408381
[INCOME-PRETAX] (305086) (648552)
[INCOME-TAX] 0 0
[INCOME-CONTINUING] (305086) (648552)
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 0
[CHANGES] 0 0
[NET-INCOME] (305086) (648552)
[EPS-PRIMARY] (0.04) (0.10)
[EPS-DILUTED] (0.04) (0.10)
</TABLE>
