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, 1999.
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.)
5151 San Felipe, Suite 1661, 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 15, 1999: 9,445,960 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, 1999 and December 31, 1998 3
Condensed Statements of Operations -
Three Months Ended September 30, 1999 and 1998
and Nine Months Ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Defaults on Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
September 30, December 31,
1999 1998
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,519 $ 110,380
Accounts receivable 129,311 163,880
Note receivable 60,000 -
Inventory 31,666 66,589
Prepaids and deposits 10,640 8,144
----------- -----------
Total current assets 235,136 348,993
----------- -----------
PROPERTY AND EQUIPMENT, net 28,221 35,211
INVESTMENT IN AND ADVANCES TO JOINT OPERATIONS 488,371 3,276,094
OTHER ASSETS 35,774 33,899
----------- -----------
Total assets $ 787,502 $ 3,694,197
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 849,738 $ 934,663
Short-term debt, net 104,000 2,050,000
----------- -----------
Total liabilities 953,738 2,984,663
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Warrants 252,793 1,306,610
Preferred stock$10 par value, 500,000 shares
authorized:
Series A, convertible, 123,000 shares
issued and outstanding 1,230,000 1,230,000
Series B, convertible, $25,000 stated value,
14 shares issued and outstanding 350,000 350,000
Common stock, $.01 par value, 40,000,000 shares
authorized, 15,629,229 shares issued and
9,455,960 and 15,586,785 shares issued and
outstanding 156,292 156,292
Additional paid-in capital 12,763,943 11,717,776
Accumulated deficit (14,040,685) (14,030,604)
Treasury stock, at cost (878,579) (20,540)
----------- -----------
Total shareholders' equity (deficit) (166,236) 709,534
----------- -----------
Total liabilities and shareholders' equity $ 787,502 $ 3,694,197
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES:
Beverage distribution $ 62,439 $ 116,767 $ 190,898 $ 400,758
General sales agency revenue 9,114 19,500 20,045 58,500
Net equity in earnings (losses)
of joint operations 30,028 (575) (189,447) 38,576
------- ------- ------- -------
Total operating revenues 101,581 135,692 21,496 497,834
------- ------- ------- -------
OPERATING EXPENSES:
Cost of revenue 66,311 124,723 190,498 386,737
General and administrative 109,555 166,940 360,749 680,391
------- ------- ------- -------
Total operating expenses 175,866 291,663 551,247 1,067,128
------- ------- ------- -------
LOSS FROM OPERATIONS (74,285) (155,971) (529,751) (569,294)
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (8,543) (66,250) (25,679) (199,313)
Interest income 1,731 16,207 1,731 56,683
Other income (expense) 665,809 77 662,046 (425)
------- ------- ------- -------
Total other income (expense) 658,997 (49,966) 638,098 (143,055)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 584,712 (205,937) 108,347 (712,349)
INCOME TAX EXPENSE - - - -
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 584,712 (205,937) 108,347 (712,349)
DISCONTINUED OPERATIONS - (206,823) - (224,441)
------- ------- ------- -------
NET INCOME (LOSS) $ 584,712 $ (412,760) $ 108,347 $ (936,790)
======= ======= ======= =======
PER SHARE AMOUNTS
Basic:
Continuing operations $ 0.05 $ (0.02) $ 0.00 $ (0.05)
Discontinued operations $ - $ (0.01) $ - $ (0.02)
Total $ 0.05 $ (0.03) $ 0.00 $ (0.07)
Diluted:
Continuing operations $ 0.03 $ (0.02) $ 0.00 $ (0.05)
Discontinued operations $ - $ (0.01) $ - $ (0.02)
Total $ 0.03 $ (0.03) $ 0.00 $ (0.07)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 108,347 $ (936,790)
Noncash adjustments:
Net equity in (earnings) losses of joint
operations 189,447 (38,576)
Gain on sale of assets (671,057) -
Other 6,990 211,399
Changes in current assets and current liabilities (164,921) 202,631
----------- -----------
Net cash used by operating activities (531,194) (561,336)
----------- -----------
Cash flows from investing activities:
Investment in and advances to joint operations - (24,338)
Distributions and repayments from joint operations - 8,673
Proceeds from sale of assets 2,394,333 -
Acquisition of property and equipment - (19,473)
----------- -----------
Net cash provided (used) by investing
activities 2,394,333 (35,138)
----------- -----------
Cash flows from financing activities:
Borrowings of debt from officers and directors 118,000 -
Repayment of debt (2,088,000) (33,711)
Purchase of preferred stock - (59,761)
Preferred dividends paid - (102,489)
----------- -----------
Net cash used by financing activities (1,922,000) (195,961)
----------- -----------
Net decrease in cash and cash equivalents (106,861) (792,435)
Cash and cash equivalents, beginning of period 110,380 965,992
----------- -----------
Cash and cash equivalents, end of period $ 3,519 $ 173,557
=========== ===========
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Notes to Condensed Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
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, 1999
and 1998, 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, 1998. 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 2 - 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 owned an
8.02% interest in Air Baltic Corporation SIA ("Air Baltic"), the national
airline of Latvia. On January 4, 1999, the Company sold its interest in Air
Baltic to Scandinavian Airlines System Denmark-Norway-Sweden for $2,144,333 in
cash. Through October 1999, the Company had catering operations through its
interest in AIRO Catering Services ("AIRO"). In July 1999, the Company sold a
23% interest in AIRO for consideration that included $250,000 cash and in
October 1999, the Company sold the remaining 23% of AIRO for $1,145,000 in cash
and forgiveness of approximately $200,000 in debt. American Distributing
Company ("ADC"), a wholly owned subsidiary, began operations on December 1,
1995 as a beverage and food distribution company. In August 1998, the Company
ceased operations as a cargo marketing and sales company to Air Baltic and
other airlines through its wholly owned subsidiary, Baltic World Air Freight
("BWAF").
The Company also owns 89% 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 Air Baltic effective October 1,
1995, and BIA has not conducted any substantive business operations since that
date.
The Company has incurred operating losses since inception through
September 30, 1999 and thereafter. At September 30, 1999, the Company had an
accumulated deficit of $14,040,685 and current assets and current liabilities
of $235,136 and $953,738, respectively, resulting in a working capital deficit
of $718,602. Net cash used in operating activities was $531,194 in the nine
months ended September 30, 1999 and $561,336 in nine months ended September 30,
1998.
Management believes that the Company will be able to achieve a
satisfactory level of liquidity to meets its business plan and capital needs.
During March 1999 through August 1999, the Company borrowed an aggregate
principal amount of $118,000 as bridge financing from officers and directors of
the Company. In connection with these borrowings, the Company issued warrants
to purchase 11,800 shares of common stock at exercise prices of $0.10 to $0.15
per share. The Company's sale of its remaining 23% interest in AIRO in October
1999 resulted in increased cash of $1,145,000 and debt forgiveness of
approximately $200,000. From this cash, the Company repaid all remaining notes
payable. Management also believes that the Company can continue to defer
certain amounts payable by the Company which are either currently payable or
payable in the near future. However, there can be no assurance the Company
will be successful to meet its liquidity needs.
The above factors raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated 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 3 - DISCONTINUED OPERATIONS
In August 1998, the Company ceased the operations of BWAF. The
consolidated statements reflect the operating results of the discontinued
operations separately from continuing operations. The unamortized goodwill
resulting from the acquisition of the remaining 50% interest in BWAF was
written off in the third quarter of 1998. Amounts for prior periods have been
restated. Operating results for the discontinued operations were:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating revenues $ - $ 4,590 $ - $ 99,061
Loss from operations $ - $ (30,057) $ - $ (47,675)
Net loss $ - $ (30,057) $ - $ (47,675)
</TABLE>
At September 30, 1999, BWAF had current assets aggregating $11,542, noncurrent
assets of $3,789 and current liabilities of $144,822 which are included in the
Company's consolidated financial statements. The Company recorded a loss in
the third quarter of 1998 from the disposal of the operation for the write-off
of the goodwill and the estimated costs to liquidate BWAF.
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" as of December 31, 1998. SFAS No. 131
requires that segment reporting for public reporting purposes be conformed to
the segment reporting used by management for internal purposes. This standard
also requires disclosures about products and services, geographic areas and
major customers.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" which requires at adoption the Company to write-off any
unamortized start-up costs as a cumulative change in accounting principle and,
going forward, expense all start-up activity costs as they are incurred. The
Company adopted SOP 98-5 in the first quarter of 1999 and the adoption had a
negative effect on its net equity in earnings of joint operations of $298,877
as a result of the write-off of AIRO's unamortized start-up costs.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. Changes in
the derivative's fair value will be accounted for based upon their intended use
and designation. Since the Company's holdings in such instruments are minimal,
adoption of this standard is not expected to have a material effect on the
consolidated financial statements. The Company is required to adopt SFAS No.
133 not later than the first quarter of fiscal 2001.
NOTE 5 - INVESTMENTS IN AND ADVANCES TO JOINT OPERATIONS
The investment in and advances to joint operations are as follows:
September 30, December 31,
1999 1998
Joint operations accounted for using
cost method:
Air Baltic $ - $2,144,212
BIA - -
--------- ---------
Subtotal - 2,144,212
--------- ---------
Joint operations accounted for using
equity method:
BCS 5,000 5,000
AIRO 483,371 1,126,882
--------- ---------
Subtotal 488,371 1,131,882
--------- ---------
Total $ 488,371 $3,276,094
========= =========
In July 1999, the Company sold a 23% interest in AIRO to ORESA Ventures
N.V. and Celox S.A. in exchange for an aggregate of 6,250,000 shares of the
Company's common stock, warrants to purchase 6,250,000 shares of the Company's
common stock and $250,000 in cash. In October 1999, the Company sold the
remaining 23% of AIRO to ORESA Ventures N.V. and Celox S.A. for $1,145,000 in
cash and forgiveness of approximately $200,000 in debt.
At September 30, 1999 and December 31, 1998, the Company had loans
aggregating $577,000 to AIRO that mature on December 31, 2000. These loans
bear interest at rates of 8% to 10% per year. At September 30, 1999 and
December 31, 1998, the Company had accrued interest receivable of $117,553 and
$20,081, respectively, related to these loans. At September 30, 1999 and
December 31, 1998, the Company had accounts receivable from AIRO for
reimbursement of expenses paid by the Company of $55,548 and 41,002,
respectively. The Company recorded a reserve at September 30, 1999 against
these loans and receivables in the amount of $385,972 due to the uncertainty of
the repayment of the loans prior to maturity.
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,
1999 1998
Current assets $ 1,787,869 $ 1,089,182
Property and other assets, net 6,213,993 6,468,654
---------- ----------
Total assets $ 8,001,862 $ 7,557,836
========== ==========
Current liabilities $ 2,765,385 $ 2,157,576
Minority interest 513,066 603,134
Equity 4,723,411 4,797,126
---------- ----------
Total liabilities and equity $ 8,001,862 $ 7,557,836
========== ==========
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>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Combined 100% Basis:
Operating revenues $ 1,944,193 $ 1,571,277 $ 5,031,519 $ 3,902,785
Income from operations $ 430,268 $ 150,835 $ 908,540 $ 553,257
Cumulative effect of change
in accounting for start-up
costs $ - $ - $ (651,574) $ -
Net income (loss) $ 131,184 $ (42,899) $ (548,328) $ (26,330)
Company Percentage Interest:
Operating revenues $ 445,026 $ 722,810 $ 1,861,182 $ 1,796,402
Income from operations $ 98,489 $ 88,290 $ 410,089 $ 304,432
Cumulative effect of change
in accounting for start-up
costs $ - $ - $ (298,877) $ -
Net income (loss) $ 30,028 $ (575) $ (189,447) $ 38,576
</TABLE>
NOTE 6 - INCOME (LOSS) PER COMMON SHARE
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. Supplemental disclosures for loss per
share are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Combined 100% Basis:
Operating revenues $ 1,944,193 $ 1,571,277 $ 5,031,519 $ 3,902,785
Basic:
Net income (loss) to
be used to compute
basic loss per share:
Net income (loss) $ 584,712 $ (412,760) $ 108,347 $ (936,790)
Less preferred dividends (39,572) (39,572) (118,428) (119,544)
--------- --------- --------- ---------
Net income (loss)
attributable to
common shareholders $ 545,140 $ (452,332) $ (10,081) $(1,056,334)
========= ========= ========= =========
Weighted average
number of shares:
Average common
shares outstanding 10,198,636 15,586,785 13,770,999 15,561,754
========== ========== ========== ==========
Basic income (loss)
per common share $ 0.05 $ (0.03) $ 0.00 $ (0.07)
========= ========= ========= =========
Diluted:
Net income (loss) to
be used to compute
diluted loss per
share $ 584,712 $ (452,332) $ (10,081) $(1,056,334)
========= ========= ========= =========
Weighted average
number of shares:
Average common
shares outstanding 10,198,636 15,586,785 13,770,999 15,561,754
Impact of
convertible
preferred stock 8,752,982 - - -
---------- ---------- ---------- ----------
Average common shares
outstanding, assuming
dilution 18,951,618 15,586,785 13,770,999 15,561,754
========== ========== ========== ==========
Diluted income (loss)
per common share $ 0.03 $ (0.03) $ 0.00 $ (0.07)
========= ========= ========= =========
</TABLE>
NOTE 7 - EQUITY TRANSACTIONS
During the nine months ended September 30, 1998, the Company purchased two
shares of its Series B Convertible Redeemable Preferred Stock from a
shareholder for an aggregate $70,000 including accrued dividends. No such
transactions occurred in 1999.
NOTE 8 - SEGMENT INFORMATION
As discussed in Note 4, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" as of December 31,
1998. Reportable segments are based on internal organizational structure and
are comprised of Catering, Airlines, Distribution and Cargo. Segment financial
information is summarized as follows:
<TABLE>
<CAPTION>
Corporate
Catering Airlines Distribution Cargo and Other Total
<S> <C> <C> <C> <C> <C> <C>
Third Quarter
1999
Revenue:
Net sales $ - $ 9,114 $ 62,439 $ - $ - $ 71,553
Equity in earnings of joint operations 30,028 - - - - 30,028
---------- ---------- -------- -------- ---------- ----------
Total revenue 30,028 9,114 62,439 - - 101,581
---------- ---------- -------- -------- ---------- ----------
Net income (loss) 30,028 6,514 (39,609) - 587,779 584,712
1998
Revenue:
Net sales $ - $ 19,500 $ 116,767 $ - $ - $ 136,267
Equity in earnings (losses) of
joint operations (575) - - - - (575)
---------- ---------- -------- -------- ---------- ----------
Total revenue (575) 19,500 116,767 - - 135,692
---------- ---------- -------- -------- ---------- ----------
Net income (loss) (575) 19,500 (31,514) (206,823) (193,348) (412,760)
First Nine Months
1999
Revenue:
Net sales $ - $ 20,045 $ 190,898 $ - $ - $ 210,943
Equity in earnings (losses) of
joint operations (189,447) - - - - (189,447)
---------- ---------- -------- -------- ---------- ----------
Total revenue (189,447) 20,045 190,898 - - 21,496
---------- ---------- -------- -------- ---------- ----------
Net income (loss) (189,447) 9,722 (86,535) - 374,607 108,347
Total assets at end of period 488,371 - 129,144 15,331 154,656 787,502
1998
Revenue:
Net sales $ - $ 58,500 $ 400,758 $ - $ - $ 459,258
Equity in earnings of joint operations 38,576 - - - - 38,576
---------- ---------- -------- -------- ---------- ----------
Total revenue 38,576 58,500 400,758 - - 497,834
---------- ---------- -------- -------- ---------- ----------
Net income (loss) 38,576 58,500 (80,817) (224,441) (728,608) (936,790)
Total assets at end of period 1,059,560 3,299,865 258,565 38,803 295,254 4,952,047
</TABLE>
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 have historically been derived from its equity in
the net income of its joint operations and from revenue generated by BWAF and
ADC. During 1999, the Company decided to focus on utilizing its assets to
achieve profitability by acquiring business operations based in the United
States. The Company is currently performing due diligence on several potential
acquisitions. However, there are no assurances that the Company can complete
any acquisitions.
Quarter Ended September 30, 1999 and 1998
For the quarter ended September 30, 1999, the Company had revenues of
$101,581 compared with $135,692 for the quarter ended September 30, 1998. The
25% decrease is due to the decrease in beverage distribution resulting from
increased competition from other distributors of import beer products which
decreased ADC's market share. This decrease is partially offset by the
increase in net equity in earnings of catering operations. The increase in net
equity in earnings of joint operations is principally due to the three catering
kitchens being in full operation in 1999 and AIRO reducing its general and
adminstrative costs in 1999.
The Company's operating expenses for the quarter ended September 30, 1999
were $175,866 compared to $291,663 for the same quarter in 1998. This decrease
is principally due to the decrease in general and administrative expenses to
$109,555 in 1999 from $166,940 in the same quarter of 1998 resulting from the
Company's continued efforts to reduce its expenses.
Interest expense decreased to $8,543 in the third quarter of 1999 from
$66,250 in 1998, reflecting the repayment by the Company of the $2 million loan
from a shareholder that was repaid in January 1999.
In July 1999, the Company recorded a gain of $671,057 on the sale of 23%
interest in AIRO to two shareholders.
In August 1998, the Company discontinued the operations of BWAF and
recorded a loss from the disposal of the operation in the third quarter of
1998. The unamortized goodwill resulting from the acquisition of the remaining
50% interest in BWAF was written off in the third quarter of 1998.
Nine months Ended September 30, 1999 and 1998
For the nine months ended September 30, 1999, the Company had revenues of
$21,496 compared with $497,834 for the nine months ended September 30, 1998.
In addition to the factors that affected the third quarter results, the
decrease in year-to-date revenues was due to the adoption of AICPA SOP 98-5,
"Reporting on the Costs of Start-Up Activities" which requires at adoption the
Company to write-off any unamortized start-up costs as a cumulative change in
accounting principle and, going forward, expense all start-up activity costs as
they are incurred. The Company's share of the write-off of AIRO's start-up
costs as of January 1, 1999 was $298,877.
The Company's operating expenses for the nine months ended September 30,
1999 were $551,247 compared to $1,067,128 for 1998. The decrease is due to the
decrease in general and administrative expenses and the decrease in cost of
revenue.
Interest expense decreased to $25,679 for the first nine months of 1999
from $199,313 in 1998, reflecting the decreased outstanding borrowings.
The Company recorded a gain of $62,510 on the transfer of 2.82% of RCS to
AIRO during the second quarter of 1998.
In August 1998, the Company discontinued the operation of BWAF as
discussed above.
Liquidity and Capital Resources
The Company had $3,519 in cash at September 30, 1999, compared to $110,380
at December 31, 1998. In October 1999, the Company sold its remaining 22.9%
interest in AIRO to two former shareholders for $1,145,000 in cash and
forgiveness of about $200,000 in debt.
At September 30, 1999, the Company had a working capital deficit of
$718,602 as compared to working capital of $2,635,670 at December 31, 1998.
The decrease in the working capital deficit is due primarily to repayment of a
$2,000,000 note payable to a shareholder from the proceeds of the sale of the
Company's interest in Air Baltic in January 1999.
Net cash used in operating activities for the nine months ended
September 30, 1999 was $531,194 as compared to $561,336 for the same period of
1998. Such decrease was primarily due to the higher payments of outstanding
liabilities made in 1999 as compared to 1998. Net cash provided by investing
activities was $2,394,333 for the nine months ended September 30, 1999 compared
to net cash used of $35,138 for the nine months ended September 30, 1998. The
increase in net cash provided by investing activities was due primarily to the
sale of the Company's interest in Air Baltic and 23% interest in AIRO. Net
cash used by financing activities was $1,922,000 for the nine months ended
September 30, 1999 compared to $195,961 for the nine months ended September 30,
1998. The increase was primarily due to the increase in repayment of debt in
1999. During the first nine months of 1998, the Company purchased two shares
of its Series B Convertible Redeemable Preferred Stock from a shareholder for
an aggregate $70,000 including accrued dividends and paid dividends of $92,250
to the shareholders of the Convertible Redeemable Series A Preferred Stock with
no such payments in the first nine months of 1999.
The Company has incurred operating losses since inception through
September 30, 1999 and thereafter. At September 30, 1999, the Company had an
accumulated deficit of $14,040,685 and current assets and current liabilities
of $235,136 and $953,738, respectively, resulting in a working capital deficit
of $718,602. The Company currently has limited cash resources available and
has obligations due or becoming due in the near future.
The above factors raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated 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.
Year 2000 System Requirements
Company's State of Readiness. The Company is performing an analysis of
its systems in order to determine the impact of Year 2000 issues. Management
is unable to predict at this time the full impact that Year 2000 issues will
have on the Company's operations or future financial condition. The Company
does not currently have information concerning the Year 2000 compliance of all
of its suppliers and customers.
Costs to Address the Company's Year 2000 Issues. The Company expects that
such costs to modify its programs and systems will be less than $10,000.
Risks of the Company's Year 2000 Issues. Although management believes it
is unlikely, it is possible the Company could experience an adverse impact that
could be material to the results of operations or the financial position of the
Company as a result of potential failure by major customers or suppliers, or a
delay or oversight in the Company's effort, to address Year 2000 issues. In
addition, if the suppliers fail to provide their services, such failure could
also have an adverse impact on the results of operations or financial position
of the Company. However, management believes that if the Company's current
suppliers fail to provide their services, the Company will be able to find
replacement suppliers to meet its needs.
Company's Contingency Plans. The Company expects to establish contingency
plans, in the event all systems and critical suppliers have not been made Year
2000 compliant, during 1999. If the computer systems fail, management believes
that the Company can maintain its systems using manual methods until the proper
systems are in place.
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 July 12,
1999 pursuant to which the Company entered into an agreement to
sell a 23% interest in AIRO Catering Services to ORESA Ventures
N.V. and Celox S.A.
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 15, 1999 By: /s/ Robert L. Knauss
---------------------- ----------------------------------
Robert L. Knauss
Chairman of the Board and
Chief Executive Officer
Date: November 15, 1999 By: /s/ David A. Grossman
---------------------- ----------------------------------
David A. Grossman
President, Chief Financial Officer
and Corporate Secretary
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