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 June 30, 2000.
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 August 11, 2000: 9,975,960 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 -
June 30, 2000 and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended June 30, 2000 and 1999
and Six Months Ended June 30, 2000 and 1999 4
Condensed Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
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
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
June 30, December 31,
2000 1999
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 114,663 $ 868,522
Accounts receivable 102,308 45,825
Note receivable 109,053 89,100
Inventory 52,004 50,638
Prepaids and deposits 5,808 10,352
----------- -----------
Total current assets 383,836 1,064,437
----------- -----------
PROPERTY AND EQUIPMENT, net 163,978 14,229
GOODWILL 824,386 -
OTHER ASSETS 52,869 33,524
----------- -----------
Total assets $ 1,425,069 $ 1,113,690
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 246,348 $ 270,076
Dividends payable 467,584 388,632
Short-term debt 52,779 -
Net liabilities of discontinued operations 27,363 -
----------- -----------
Total current liabilities 794,074 658,708
LONG-TERM DEBT 402,156 -
----------- -----------
Total liabilities 1,196,230 658,708
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Warrants 252,793 256,793
Preferred stock:
Series A, convertible, $10 par value,
499,930 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,
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
9,975,960 and 9,455,960 shares outstanding 156,292 156,292
Additional paid-in capital 12,752,337 12,763,943
Accumulated deficit (13,708,010) (13,419,467)
Treasury stock, at cost (804,573) (878,579)
----------- -----------
Total shareholders' equity 228,839 454,982
----------- -----------
Total liabilities and shareholders' equity $ 1,425,069 $ 1,113,690
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES:
Refrigerants $ 374,643 $ - $ 462,256 $ -
General sales agency revenue 3,114 4,179 5,840 10,931
------- ------- ------- -------
Total operating revenues 377,757 4,179 468,096 10,931
------- ------- ------- -------
OPERATING EXPENSES:
Cost of revenue 215,050 - 271,771 -
General and administrative 152,784 98,455 363,285 203,881
------- ------- ------- -------
Total operating expenses 367,834 98,455 635,056 203,881
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS 9,923 (94,276) (166,960) (192,950)
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (11,250) (8,261) (22,673) (17,136)
Interest income 3,475 - 14,425 -
Other income (expense) - - - 121
------- ------- ------- -------
Total other income (expense) (7,775) (8,261) (8,248) (17,015)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS 2,148 (102,537) (175,208) (209,965)
INCOME TAX EXPENSE - - - -
------- ------- ------- -------
LOSS FROM CONTINUING OPERATIONS 2,148 (102,537) (175,208) (209,965)
DISCONTINUED OPERATIONS (12,100) 59,868 (34,383) (266,400)
------- ------- ------- -------
NET LOSS $ (9,952) $ (42,669) $ (209,591) $ (476,365)
======= ======= ======= =======
PER SHARE AMOUNTS (Basic and
Diluted):
Continuing operations $ (0.01) $ (0.01) $ (0.03) $ (0.02)
Discontinued operations $ - $ - $ - $ (0.02)
Total $ (0.01) $ (0.01) $ (0.03) $ (0.04)
Weighted average number of
common shares outstanding 9,975,960 15,586,785 9,881,674 15,586,785
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30,
2000 1999
Cash flows from operating activities:
Net loss $ (209,591) $ (476,365)
Noncash adjustments:
Net equity in (earnings) and losses of joint
operations - 219,475
Gain on sale of assets - (121)
Other 33,237 5,636
Changes in current assets and current liabilities (68,037) (81,969)
----------- -----------
Net cash used by operating activities (244,391) (333,344)
----------- -----------
Cash flows from investing activities:
Advances made on note receivable (19,953) -
Acquisition cost for purchase of Advanced
Reclamation, net of cash received of $3,721 (477,437) -
Proceeds from sale of Air Baltic - 2,144,333
Acquisition of property and equipment (3,916) -
----------- -----------
Net cash provided (used) by investing
Activities (501,306) 2,144,333
----------- -----------
Cash flows from financing activities:
Borrowings of debt from officers and directors - 88,000
Repayment of debt (8,162) (2,000,000)
----------- -----------
Net cash used by financing activities (8,162) (1,912,000)
----------- -----------
Net decrease in cash and cash equivalents (753,859) (101,011)
Cash and cash equivalents, beginning of period 868,522 110,380
----------- -----------
Cash and cash equivalents, end of period $ 114,663 $ 9,369
=========== ===========
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 that are, in the opinion of management, necessary for a fair
presentation of financial results for the six months ended June 30, 2000 and
1999, 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, 1999. 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 that 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. In June 200, the Company
cease the operations of American Distributing Company ("ADC"), a wholly owned
subsidiary, 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.
In February 2000, the Company purchased Advanced Reclamation Company
("ARC") from the Nicol Family Partnership for $400,000 in cash, a total of
500,000 common shares of the Company, a note payable to seller of an additional
$400,000 and an earnout agreement. The note payable matures on January 1, 2005,
has an interest rate of 10% with interest due quarterly and is collateralized
by the fixed assets of ARC. The note payable has a prepayment provision such
that prepayments of principal are to be made equal to the ARC's annual pretax
profits in excess of $225,000. However, the prepayments are not to exceed
$120,000 for any year. The earnout agreement provides for an equal split of
ARC's annual pretax profits in excess of $225,000 between the Company and the
Nicol Family Partnership for a period of three years ending December 31, 2002.
The Company recorded goodwill of $845,113 related to the purchase of ARC.
Goodwill is amortized over 20 years.
Prior to the quarter ended June 30, 2000, the Company had incurred
operating losses since inception. At June 30, 2000, the Company had an
accumulated deficit of $13,708,010 and current assets and current liabilities
of $383,836 and $794,074, respectively, resulting in a working capital deficit
of $410,238. Net cash used in operating activities was $244,391 in the six
months ended June 30, 2000 and $333,344 in six months ended June 30, 1999. The
Company currently has limited cash resources available and has obligations due
or past due.
Management believes that the Company will be able to achieve a
satisfactory level of liquidity to meets its business plan and capital needs
through December 31, 2000. Additionally, management believes the Company has
the ability to obtain additional financing from key officers, directors and
certain investors. Management also believes that the Company can continue to
defer certain amounts payable by the Company that are either currently payable
or past due. 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 - NEW ACCOUNTING PRONOUNCEMENTS
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 4 - DISCONTINUED OPERATIONS
In August 1998, the Company ceased the operations of BWAF. At June 30,
2000, BWAF had current assets aggregating $10,960, noncurrent assets of $2,024
and current liabilities of $148,302 that are included as part of the net
liabilities of discontinued operations in the Company's consolidated financial
statements.
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. The Company recognized
a gain of $1,457,059 on these sales. At June 30, 2000, the Company has
receivables from AIRO aggregating $777,831. When these receivables are
received, additional gains will be recorded by the Company. The consolidated
statements reflect the operating results of the discontinued operations
separately from continuing operations. Amounts for prior periods have been
restated. The net equity in losses from joint operations in 1999 has been
included in discontinued operations.
In June 2000, the Company ceased the operations of ADC. The consolidated
statements reflect the operating results of the discontinued operations
separately from continuing operations. Amounts for prior periods have been
restated. Operating results for the discontinued operations of ADC were:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating revenues $ 4,306 $ 71,027 $ 51,039 $ 128,459
Loss from operations $ (5,204) $ (17,612) $ (27,037) $ (43,041)
Net loss $ (12,100) $ (18,202) $ (34,383) $ (46,925)
</TABLE>
At June 30, 2000, ADC had current assets aggregating $24,812, noncurrent
assets of $3,454 and current liabilities of $56,688 that are included as part
of the net liabilities of discontinued operations in the Company's consolidated
financial statements.
NOTE 5 - 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 period exceeds the
exercise price and the Company had earnings for the period. For the periods
ended June 30, 2000 and 1999, all stock warrants and options are considered
anti-dilutive. Supplemental disclosures for loss per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic and diluted
Net loss to be used to
compute loss per share:
Net loss $ (9,952) $ (42,669) $ (209,591) $ (476,365)
Less preferred dividends (39,476) (39,476) (78,952) (78,856)
----------- ----------- ----------- -----------
Net loss attributable to
common shareholders $ (49,428) $ (82,145) $ (288,543) $ (555,221)
=========== =========== =========== ===========
Weighted average number
of shares:
Average common
shares outstanding 9,975,960 15,586,785 9,881,674 15,586,785
=========== =========== =========== ===========
Basic and diluted loss
per common share $ (0.01) $ (0.01) $ (0.03) $ (0.04)
=========== =========== =========== ===========
</TABLE>
NOTE 6 - SEGMENT INFORMATION
Reportable segments are based on internal organizational structure and are
comprised of Refrigerants, Catering, Airlines and Distribution. As a result of
the acquisition of ARC in 2000, the Company added the segment of Refrigerants
for the operations of ARC. Segment financial information is summarized as
follows:
<TABLE>
<CAPTION>
Corporate
Refrigerants Catering Airlines Distribution and Other Total
<S> <C> <C> <C> <C> <C> <C>
Second Quarter
2000
Revenues $ 374 643 $ - $ 3,114 $ - $ - $ 377,757
Income (loss) before income taxes
and discontinued operations 60,891 - 3,114 - (61,857) 2,148
Discontinued operations - - - (12,100) - (12,100)
Net income (loss) 60,891 - 3,114 (12,100) (61,857) (9,952)
1999
Revenues $ - $ - $ 4,179 $ - $ - $ 4,179
Income (loss) before income taxes
and discontinued operations - - (1,121) - (101,416) (102,537)
Discontinued operations - 78,069 - (18,201) - 59,868
Net income (loss) - 78,069 (1,121) (18,201) (101,416) (42,669)
First Six Months
2000
Revenues $ 462,256 $ - $ 5,840 $ - $ - $ 468,096
Income (loss) before income taxes
and discontinued operations (1,512) - 5,840 - (179,536) (175,208)
Discontinued operations - - - (34,383) - (34,383)
Net income (loss) (1,512) - 5,840 (34,383) (179,536) (209,591)
Total assets at end of period 428,507 - - - 996,562 1,425,069
1999
Revenues $ - $ - $ 10,931 $ - $ - $ 10,931
Income (loss) before income taxes
and discontinued operations - - 3,208 - (213,173) (209,965)
Discontinued operations - (219,475) - (46,925) - (266,400)
Net income (loss) - (219,475) 3,208 (46,925) (213,173) (476,365)
Total assets at end of period - 912,407 - 147,065 163,325 1,222,797
</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.
Quarter Ended June 30, 2000 and 1999
For the quarter ended June 30, 2000, the Company had revenues of $377,757
compared with $4,179 for the quarter ended June 30, 1999. The increase is due
to acquisition of Advanced Reclamation Company in February 2000. Additionally,
the Company sold its interest in the catering operations of AIRO in 1999 and
ceased the beverage and food distribution operations of ADC in June 2000.
The Company's operating expenses for the quarter ended June 30, 2000 were
$367,834 compared to $98,455 for the same quarter in 1999. The increase is
primarily due to the acquisition of ARC effective January 1, 2000. As a result
of the purchase of ARC, the Company added the refrigerant management business
to our operations.
The quarter ended June 30, 2000 is the first period for the Company to
have a profit from operations.
Interest expense increased to $11,250 in the second quarter of 2000 from
$8,261 in 1999, reflecting the additional debt of the Company resulting from
the acquisition of ARC.
The Company had a net loss of $9,952 for the three months ended June 30,
2000 compared to a net loss of $42,669 for the same period in 1999.
Six months Ended June 30, 2000 and 1999
For the six months ended June 30, 2000, the Company had revenues of
$468,096 compared with $10,931 for the six months ended June 30, 1999. This
increase is due to the factors that affected the second quarter results
discussed above.
The Company's operating expenses for the six months ended June 30, 2000
were $635,056 compared to $203,881 for 1999. Year-to-date operating expenses
were impacted by the same factors that affected the second quarter results.
The Company had a net loss of $209,591 for the six months ended June 30,
2000 compared to a net loss of $476,365 for the six months ended June 30, 1999.
Liquidity and Capital Resources
The Company had $114,663 in cash at June 30, 2000, compared to $868,522 at
December 31, 1999. Significant payments made in the first six months of 2000
include $440,000 in connection with the purchase of ARC and $87,000 paid to
officers for deferred compensation previously accrued.
At June 30, 2000, the Company had working capital deficit of $410,238 as
compared to working capital of $405,729 at December 31, 1999. The decrease in
the working capital is due primarily to the cash paid for the purchase of ARC.
Net cash used in operating activities for the six months ended June 30,
2000 was $244,391 as compared to $333,344 for the same period of 1999. Net
cash used by investing activities was $501,306 for the six months ended
June 30, 2000 compared to net cash provided of $2,144,333 for the six months
ended June 30, 1999. The decrease in net cash provided by investing activities
is due to the sale of the interest in Air Baltic in 1999. Net cash used by
financing activities was $8,162 for the six months ended June 30, 2000 compared
to $1,912,000 for the six months ended June 30, 1999. Such decrease was
primarily due to the repayment of the note payable to a shareholder in 1999.
Prior to the quarter ended June 30, 2000, the Company had incurred
operating losses since inception. At June 30, 2000, the Company had an
accumulated deficit of $13,708,010 and current assets and current liabilities
of $383,836 and $794,074, respectively, resulting in a working capital deficit
of $410,238. The Company currently has limited cash resources available and
has obligations due or past due.
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.
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
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
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: August 14, 2000 By: /s/ Robert L. Knauss
---------------------- ----------------------------------
Robert L. Knauss
Chairman of the Board and
Chief Executive Officer
Date: August 14, 2000 By: /s/ David A. Grossman
---------------------- ----------------------------------
David A. Grossman
Chief Financial Officer and
Corporate Secretary
