U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarterly Period Ended March 31, 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 May 15, 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 -
March 31, 2000 and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended March 31, 2000 and 1999 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults on Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Balance Sheets
March 31, December 31,
2000 1999
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 179,424 $ 868,522
Accounts receivable 61,452 45,825
Note receivable 106,456 89,100
Inventory 38,255 50,638
Prepaids and deposits 13,338 10,352
----------- -----------
Total current assets 398,925 1,064,437
----------- -----------
PROPERTY AND EQUIPMENT, net 175,505 14,229
INVESTMENT IN AND ADVANCES TO JOINT OPERATIONS 1,500 1,500
GOODWILL 802,456 -
OTHER ASSETS 54,474 33,524
----------- -----------
Total assets $ 1,432,860 $ 1,113,690
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 267,432 $ 270,076
Dividends payable 428,108 388,632
Short-term debt 54,781 -
----------- -----------
Total current liabilities 750,321 658,708
LONG-TERM DEBT 404,272 -
----------- -----------
Total liabilities 1,154,593 658,708
----------- -----------
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 (13,658,582) (13,419,467)
Treasury stock, at cost (804,573) (878,579)
----------- -----------
Total shareholders' equity 278,267 454,982
----------- -----------
Total liabilities and shareholders' equity $ 1,432,860 $ 1,113,690
=========== ===========
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended March 31,
2000 1999
REVENUES:
Refrigerants $ 87,613 -
Beverage distribution 46,733 57,431
General sales agency revenue 2,726 6,752
----------- -----------
Total operating revenues 137,072 64,183
----------- -----------
OPERATING EXPENSES:
Cost of revenue 109,994 61,409
General and administrative 225,794 126,878
----------- -----------
Total operating expenses 335,788 188,287
----------- -----------
LOSS FROM OPERATIONS (198,716) (124,104)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (11,423) (8,875)
Interest income 10,950 -
Other (450) (3,173)
----------- -----------
Total other income (expense) (923) (12,048)
----------- -----------
LOSS BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS (199,639) (136,152)
INCOME TAX EXPENSE - -
----------- -----------
LOSS FROM CONTINUING OPERATIONS (199,639) (136,152)
DISCONTINUED OPERATIONS - (297,544)
----------- -----------
NET LOSS $ (199,639) $ (433,696)
=========== ===========
LOSS PER SHARE AMOUNTS (Basic and Diluted):
Continuing operations $ (0.02) $ (0.01)
Discontinued operations $ - $ (0.02)
Total $ (0.02) $ (0.03)
See accompanying notes to condensed consolidated financial statements.
BALTIC INTERNATIONAL USA, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
1999 1998
Cash flows from operating activities:
Net loss $ (199,639) $ (433,696)
Noncash adjustments:
Net equity in (earnings) and losses of joint
operations - 297,544
Gain on sale of assets - (121)
Other 20,869 2,506
Changes in current assets and current liabilities (40,075) (123,060)
----------- -----------
Net cash used by operating activities (218,845) (256,827)
----------- -----------
Cash flows from investing activities:
Advances made on note receivable (17,356) -
Acquisition cost for purchase of Advanced
Reclamation, net of cash received of $3,721 (444,937) -
Proceeds from sale of Air Baltic - 2,144,333
Acquisition of property and equipment (3,916) -
----------- -----------
Net cash provided (used) by investing
activities (466,209) 2,144,333
----------- -----------
Cash flows from financing activities:
Borrowings of debt from an officer - 12,000
Repayment of debt (4,044) (2,000,000)
----------- -----------
Net cash used by financing activities (4,044) (1,988,000)
----------- -----------
Net decrease in cash and cash equivalents (689,098) (100,494)
Cash and cash equivalents, beginning of period 868,522 110,380
----------- -----------
Cash and cash equivalents, end of period $ 179,424 $ 9,886
=========== ===========
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 three months ended March 31, 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 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.
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 $812,613 related to the purchase of ARC.
Goodwill is amortized over 20 years.
The Company has incurred operating losses since inception through
March 31, 2000. At March 31, 2000, the Company had an accumulated deficit of
$13,658,582 and current assets and current liabilities of $398,925 and
$750,321, respectively, resulting in a working capital deficit of $351,396.
Net cash used in operating activities was $218,845 in the three months ended
March 31, 2000 and $256,827 in three months ended March 31, 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 March 31,
2000, BWAF had current assets aggregating $10,960, noncurrent assets of $2,024
and current liabilities of $148,302 which are included 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 March 31, 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.
NOTE 5 - LOSS PER COMMON SHARE
The computations of loss per common share are computed using 9,787,389 and
15,586,785 weighted average shares of common stock for the three months ended
March 31, 2000 and 1999, respectively. 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 three months ended March 31, 2000 and 1999, all stock
warrants and options are considered anti-dilutive.
Supplemental disclosures for loss per share are as follows:
Three Months Ended March 31,
2000 1999
Basic and diluted
Net loss to be used to compute loss per share:
Net loss $ (199,639) $ (433,696)
Less preferred dividends (39,476) (39,380)
------------ ------------
Net loss attributable to common shareholders $ (239,115) $ (473,076)
============ ============
Weighted average number of shares:
Average common shares outstanding 9,787,389 15,586,785
============ ============
Basic and diluted loss per common share $ (0.02) $ (0.03)
============ ============
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>
First Quarter
2000
Revenues $ 87,613 $ - $ 2,726 $ 46,733 $ - $ 137,072
Income (loss) before income taxes
and discontinued operations (62,403) - 2,726 (22,283) (117,679) (199,639)
Discontinued operations - - - - - -
Net income (loss) (62,403) - 2,726 (22,283) (117,679) (199,639)
Total assets at end of period 256,772 - - 39,659 1,136,429 1,432,860
1999
Revenues $ - $ - $ 6,752 $ 57,431 $ - $ 64,183
Income (loss) before income taxes
and discontinued operations - - 4,329 (28,724) (111,757) (136,152)
Discontinued operations - (297,544) - - - (297,544)
Net income (loss) - (297,544) 4,329 (28,724) (111,757) (433,696)
Total assets at end of period - 834,338 - 161,846 129,541 1,125,725
</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 are derived from its equity in the net income of
its joint operations and from revenue generated by BWAF and ADC.
Quarter Ended March 31, 2000 and 1999
For the quarter ended March 31, 2000, the Company had revenues of $137,072
compared with $64,183 for the quarter ended March 31, 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. Management believes that the refrigerant revenue for the
first quarter will be low compared to remainder of 2000 due to the change in
ownership of ARC in the first quarter and the seasonality of the refrigerant
business.
The Company's operating expenses for the quarter ended March 31, 2000 were
$335,788 compared to $188,287 for the same quarter in 1999. The increase is
due to acquisition of ARC with the added cost of revenue and general and
administrative expenses for the refrigerant operation.
Interest expense increased to $11,423 in the first quarter of 2000 from
$8,875 in 1999, reflecting the new debt incurred in connection with the
purchase of ARC in 2000.
The Company had a net loss of $199,639 for the quarter ended March 31,
2000 compared to a net loss of $433,696 for the quarter ended March 31, 1999.
This decrease is primarily due to the adoption of AICPA SOP 98-5, "Reporting on
the Costs of Start-Up Activities" in 1999 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.
Liquidity and Capital Resources
The Company had $179,424 in cash at March 31, 2000, compared to $868,522
at December 31, 1999. Significant payments made in the first quarter of 2000
include $440,000 in connection with the purchase of ARC and $87,000 paid to
officers for deferred compensation previously accrued.
At March 31, 2000, the Company had working capital deficit of $351,396 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 three months ended March 31,
2000 was $218,845 as compared to $256,827 for the same period of 1999. Net
cash used by investing activities was $466,209 for the three months ended
March 31, 2000 compared to net cash provided of $2,144,333 for the three months
ended March 31, 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 $4,044 for the three months ended March 31,
2000 compared to $1,988,000 for the three months ended March 31, 1999. Such
decrease was primarily due to the repayment of the note payable to a
shareholder in 1999.
The Company has incurred losses since inception through March 31, 2000.
At March 31, 2000, the Company had an accumulated deficit of $13,658,582 and
current assets and current liabilities of $398,925 and $750,321, respectively,
resulting in a working capital deficit of $351,396. 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) The Company filed a Current Report on Form 8-K dated February 2,
2000 pursuant to which the Company purchased Advanced Reclamation
Company, L.L.C. from the Nicol Family Partnership.
BALTIC INTERNATIONAL USA, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BALTIC INTERNATIONAL USA, INC.
(Registrant)
Date: May 19, 2000 By: /s/ Robert L. Knauss
---------------------- ----------------------------------
Robert L. Knauss
Chairman of the Board and
Chief Executive Officer
Date: May 19, 2000 By: /s/ David A. Grossman
---------------------- ----------------------------------
David A. Grossman
President, Chief Financial Officer
and Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 179,424 9,886
<SECURITIES> 0 0
<RECEIVABLES> 167,908 159,133
<ALLOWANCES> 0 0
<INVENTORY> 38,255 47,957
<CURRENT-ASSETS> 398,925 227,033
<PP&E> 175,505 32,705
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,432,860 1,125,725
<CURRENT-LIABILITIES> 750,321 889,267
<BONDS> 0 0
0 0
1,580,000 1,580,000
<COMMON> 156,292 156,292
<OTHER-SE> (1,458,025) (1,499,834)
<TOTAL-LIABILITY-AND-EQUITY> 1,432,860 1,125,725
<SALES> 137,072 64,183
<TOTAL-REVENUES> 137,072 64,183
<CGS> 109,994 61,409
<TOTAL-COSTS> 335,788 188,287
<OTHER-EXPENSES> 450 3,173
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,423 8,875
<INCOME-PRETAX> (199,639) (136,152)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (199,639) (136,152)
<DISCONTINUED> 0 (297,544)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (199,639) (433,696)
<EPS-BASIC> (0.02) (0.03)
<EPS-DILUTED> (0.02) (0.03)
</TABLE>
