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, 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 November 14, 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 -
September 30, 2000 and December 31, 1999 3
Condensed Statements of Operations -
Three Months Ended September 30, 2000 and 1999
and Nine Months Ended September 30, 2000 and 1999 4
Condensed Statements of Cash Flows -
Nine Months Ended September 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
September 30, December 31,
2000 1999
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,270 $ 868,522
Accounts receivable 102,156 45,825
Note receivable 109,492 89,100
Inventory 17,527 50,638
Prepaids and deposits 3,476 10,352
----------- -----------
Total current assets 274,921 1,064,437
PROPERTY AND EQUIPMENT, net 157,095 14,229
GOODWILL 814,640 -
OTHER ASSETS 51,184 33,524
----------- -----------
Total assets $ 1,297,840 $ 1,113,690
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 235,527 $ 270,076
Dividends payable 507,156 388,632
Short-term debt 95,624 -
Net liabilities of discontinued operations 27,819 -
----------- -----------
Total current liabilities 866,126 658,708
LONG-TERM DEBT 400,000 -
----------- -----------
Total liabilities 1,266,126 658,708
----------- -----------
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 (13,905,135) (13,419,467)
Treasury stock, at cost (804,573) (878,579)
----------- -----------
Total shareholders' equity 31,714 454,982
----------- -----------
Total liabilities and shareholders' equity $ 1,297,840 $ 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 September 30, Nine Months Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES:
Refrigerants $ 250,242 $ - $ 712,498 $ -
General sales agency revenue 2,324 9,114 8,164 20,045
-------- -------- --------- --------
Total operating revenues 252,566 9,114 720,662 20,045
-------- -------- --------- --------
OPERATING EXPENSES:
Cost of revenue 241,394 - 513,165 -
General and administrative 156,601 78,944 519,886 282,825
-------- -------- --------- --------
Total operating expenses 397,995 78,944 1,033,051 282,825
-------- -------- --------- --------
INCOME (LOSS) FROM OPERATIONS (145,429) (69,830) (312,389) (262,780)
-------- -------- --------- --------
OTHER INCOME (EXPENSE):
Interest expense (14,871) (8,543) (37,544) (25,679)
Interest income 2,747 1,731 17,172 1,731
Other income (expense) - (121) - -
-------- -------- --------- --------
Total other income (expense) (12,124) (6,933) (20,372) (23,948)
-------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (157,553) (76,763) (332,761) (286,728)
INCOME TAX EXPENSE - - - -
-------- -------- --------- --------
LOSS FROM CONTINUING OPERATIONS (157,553) (76,763) (332,761) (286,728)
DISCONTINUED OPERATIONS - 661,475 (34,383) 395,075
-------- -------- --------- --------
NET LOSS $(157,553) $ 584,712 $ (367,144) $ 108,347
======== ======== ========= ========
PER SHARE AMOUNTS (Basic and
Diluted):
Continuing operations $ (0.02) $ (0.01) $ (0.05) $ (0.03)
Discontinued operations $ - $ 0.06 $ 0.00 $ 0.03
Total $ (0.02) $ 0.05 $ (0.05) $ 0.00
</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,
2000 1999
Cash flows from operating activities:
Net income (loss) $ (367,144) $ 108,347
Noncash adjustments:
Net equity in (earnings) losses of joint
operations - 189,447
Gain on sale of assets - (671,057)
Other 54,866 6,990
Changes in current assets and current liabilities (39,756) (164,921)
----------- -----------
Net cash used by operating activities (352,034) (531,194)
----------- -----------
Cash flows from investing activities:
Advances made on note receivable (20,392) -
Acquisition cost for purchase of Advanced
Reclamation, net of cash received of $3,721 (477,437) -
Proceeds from sale of assets - 2,394,333
Acquisition of property and equipment (8,916) -
----------- -----------
Net cash provided (used) by investing
activities (506,745) 2,394,333
----------- -----------
Cash flows from financing activities:
Borrowings of debt from officers and directors 117,060 118,000
Repayment of debt (84,533) (2,088,000)
----------- -----------
Net cash provided (used) by financing
activities 32,527 (1,922,000)
----------- -----------
Net decrease in cash and cash equivalents (826,252) (106,861)
Cash and cash equivalents, beginning of period 868,522 110,380
----------- -----------
Cash and cash equivalents, end of period $ 42,270 $ 3,519
=========== ===========
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 nine months ended September 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 measurements 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 2000, 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.
The Company has incurred operating losses since inception. At
September 30, 2000, the Company had an accumulated deficit of $13,905,135 and
current assets and current liabilities of $274,921 and $866,126, respectively,
resulting in a working capital deficit of $591,205. Net cash used in operating
activities was $352,034 in the nine months ended September 30, 2000 and
$531,194 in nine months ended September 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements and requires adoption no
later than the fourth quarter of 2000. The Company is currently evaluating the
impact of SAB 101 to determine what effect, if any, it may have on the
Company's financial position and results of operations.
NOTE 4 - DISCONTINUED OPERATIONS
In August 1998, the Company ceased the operations of BWAF. At
September 30, 2000, BWAF had current assets aggregating $0, noncurrent assets
of $2,024 and current liabilities of $137,342 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 September 30, 2000, the Company has
receivables from AIRO aggregating $791,506. 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 September 30, Nine Months Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating revenues $ - $ 62,439 $ 51,039 $ 190,898
Loss from operations $ - $ (34,483) $ (26,487) $ (77,524)
Net loss $ - $ (39,610) $ (33,833) $ (86,535)
</TABLE>
At September 30, 2000, ADC had current assets aggregating $3,777,
noncurrent assets of $3,454 and current liabilities of $45,902 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 September 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 September 30, Nine Months Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Basic and diluted
Net income (loss) to be used
to compute income (loss)
per share:
Net income (loss) $ (157,553) $ 584,712 $ (367,144) $ 108,342
Less preferred dividends (39,572) (39,572) (118,524) (118,428)
----------- ----------- ----------- -----------
Net income (loss)
attributable to common
shareholders $ (197,125) $ 545,140 $ (485,668) $ (10,081)
=========== =========== =========== ===========
Weighted average number
of shares:
Average common
shares outstanding 9,975,960 10,198,636 9,913,332 13,770,999
=========== =========== =========== ===========
Basic and diluted income
(loss) per common share $ (0.02) $ 0.05 $ (0.05) $ 0.00
=========== =========== =========== ===========
</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>
Third Quarter
2000
Revenues $ 250 242 $ - $ 2,324 $ - $ - $ 252,566
Income (loss) before income taxes
and discontinued operations (110,027) - 2,324 - (49,850) (157,553)
Discontinued operations - - - - - -
Net income (loss) (110,027) - 2,324 - (49,850) (157,553)
1999
Revenues $ - $ - $ 9,114 $ - $ - $ 9,114
Income (loss) before income taxes
and discontinued operations - - 6,514 - (83,277) (76,763)
Discontinued operations - 701,085 - (39,610) - 661,475
Net income (loss) - 701,085 6,514 (39,610) (83,277) 587,712
First Nine Months
2000
Revenues $ 712,498 $ - $ 8,164 $ - $ - $ 720,662
Income (loss) before income taxes
and discontinued operations (111,539) - 8,164 - (229,386) (332,761)
Discontinued operations - - - (34,383) - (34,383)
Net income (loss) (111,539) - 8,164 (34,383) (229,386) (367,144)
Total assets at end of period 287,846 - - - 1,009,994 1,297,840
1999
Revenues $ - $ - $ 20,045 $ - $ - $ 20,045
Income (loss) before income taxes
and discontinued operations - - 9,722 - (296,450) (286,728)
Discontinued operations - 481,610 - (86,535) - 395,075
Net income (loss) - 481,610 9,722 (86,535) (296,450) 108,347
Total assets at end of period - 488,371 - 129,144 169,987 787,502
</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 September 30, 2000 and 1999
For the quarter ended September 30, 2000, the Company had revenues of
$252,566 compared with $9,114 for the quarter ended September 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 September 30, 2000
were $397,995 compared to $78,944 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.
Interest expense increased to $14,871 in the third quarter of 2000 from
$8,543 in 1999, reflecting the additional debt of the Company resulting from
the acquisition of ARC.
In July 1999, the Company recorded a gain of $671,057 on the sale of 23%
interest in AIRO to two former shareholders. This gain is included in
discontinued operations.
Nine Months Ended September 30, 2000 and 1999
For the nine months ended September 30, 2000, the Company had revenues of
$720,662 compared with $20,045 for the nine months ended September 30, 1999.
This increase is due to the factors that affected the third quarter results
discussed above.
The Company's operating expenses for the nine months ended September 30,
2000 were $1,033,051 compared to $282,825 for 1999. Year-to-date operating
expenses were impacted by the same factors that affected the third quarter
results.
Interest expense increased to $37,544 for the first nine months of 2000
from $25,679 in 1999, reflecting the additional debt of the Company resulting
from the acquisition of ARC.
Liquidity and Capital Resources
The Company had $42,270 in cash at September 30, 2000, compared to
$868,522 at December 31, 1999. Significant payments made in the first nine
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 September 30, 2000, the Company had working capital deficit of $591,205
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 and operating losses.
Net cash used in operating activities for the nine months ended
September 30, 2000 was $352,034 as compared to $531,194 for the same period of
1999. Net cash used by investing activities was $506,745 for the nine months
ended September 30, 2000 compared to net cash provided of $2,394,333 for the
nine months ended September 30, 1999. The decrease in net cash provided by
investing activities is primarily due to the sale of the interest in Air Baltic
in 1999. Net cash provided by financing activities was $32,527 for the nine
months ended September 30, 2000 compared to net cash used of $1,922,000 for the
nine months ended September 30, 1999. Such change was primarily due to the
repayment of the note payable to a shareholder in 1999.
The Company has incurred operating losses since inception. At
September 30, 2000, the Company had an accumulated deficit of $13,905,135 and
current assets and current liabilities of $274,921 and $866,126, respectively,
resulting in a working capital deficit of $591,205. 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.
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
September 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: November 15, 2000 By: /s/ Robert L. Knauss
---------------------- ----------------------------------
Robert L. Knauss
Chairman of the Board and
Chief Executive Officer
Date: November 15, 2000 By: /s/ David A. Grossman
---------------------- ----------------------------------
David A. Grossman
Chief Financial Officer and
Corporate Secretary
