U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 2, 2000
BALTIC INTERNATIONAL USA, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-26588 76-0336843
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
5151 San Felipe, Suite 1661, Houston, Texas 77056
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (713) 961-9299
<PAGE> 2
Item 2 Acquisition of Assets
On February 2, 2000, the Registrant purchased Advanced Reclamation
Company, L.L.C. ("ARC") from the Nicol Family Partnership. Baltic
purchased all of the units of ARC for cash of $400,000, a total of
500,000 Baltic common shares, a note payable to seller of an
additional $400,000 and an earnout agreement. The earnout
agreement provides for an equal split of ARC's annual profits in
excess of $225,000 between the Company and the Nicol Family
Partnership for a period of three years ending December 31, 2002.
Item 7 Financial Statements and Exhibits
(a) Financial statements of business acquired
The audited financial statements of Advanced Reclamation Company,
L.L.C. as of December 31, 1999 and the year then ended are
attached hereto as an exhibit.
(b) Pro forma financial information
The required pro forma financial information relating to the
Company acquisition of Advanced Reclamation Company, L.L.C. as of
December 31, 1999 and the year then ended is attached hereto as
an exhibit.
(c) Exhibits
10.1 Unit Purchase Agreement (incorporated herein by reference
as included as Exhibit 10.1 to Form 8-K filed on
February 17, 2000, File No. 0-26588)
99.1 Audited Financial Statements of Advanced Reclamation
Company, L.L.C. as of December 31, 1999 and the year
then ended
99.2 Pro Forma Condensed Financial Statements of Baltic
International USA, Inc. as of December 31, 1999 and the
year then ended
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BALTIC INTERNATIONAL USA, INC.
By: /s/ David A. Grossman
--------------------------------
DAVID A. GROSSMAN, President and
Chief Financial Officer
Dated: April 13, 2000
EXHIBITS
Exhibit
No.
10.1 Unit Purchase Agreement (incorporated herein by reference as included
as Exhibit 10.1 to Form 8-K filed on February 17, 2000, File No. 0-26588)
99.1 Audited Financial Statements of Advanced Reclamation Company, L.L.C.
as of December 31, 1999 and the year then ended
99.2 Pro Forma Condensed Financial Statements of Baltic International USA,
Inc. as of December 31, 1999 and the year then ended
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Managers
Advanced Reclamation Company, L.L.C.:
We have audited the accompanying balance sheet of Advanced Reclamation Company,
L.L.C. as of December 31, 1999, and the related statements of operations,
member's equity, and cash flows for the year ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Reclamation Company,
L.L.C. as of December 31, 1999, and the results of their operations and their
cash flows for the year ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Houston, Texas
April 12, 2000
ADVANCED RECLAMATION COMPANY, L.L.C.
Balance Sheet
December 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 3,721
Accounts receivable, net of allowance of $10,724 49,452
Inventory 15,870
Prepaids and deposits 16,943
----------
Total current assets 85,986
PROPERTY AND EQUIPMENT, net 168,072
OTHER ASSETS 20,748
----------
Total assets $ 274,806
==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 112,044
Short-term debt and current portion of long-term debt 58,746
----------
Total current liabilities 170,790
LONG-TERM DEBT, net 6,351
----------
Total liabilities 177,141
----------
COMMITMENTS AND CONTINGENCIES -
MEMBER'S EQUITY 97,665
----------
Total liabilities and member's equity $ 274,806
==========
See accompanying notes to financial statements.
ADVANCED RECLAMATION COMPANY, L.L.C.
Statement of Operations
Year Ended
December 31, 1999
NET REVENUES $ 805,736
COST OF SALES 432,284
----------
Gross profit 373,452
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 421,823
----------
LOSS FROM OPERATIONS (48,371)
----------
OTHER EXPENSE - Interest expense (2,709)
----------
NET LOSS $ (51,080)
==========
Statement of Member's Equity
Year Ended
December 31, 1999
MEMBER'S EQUITY at January 1, 1999 $ 75,362
Equity contributions 173,650
Distributions (100,267)
Net loss (51,080)
----------
MEMBER'S EQUITY at December 31, 1999 $ 97,665
==========
See accompanying notes to financial statements.
ADVANCED RECLAMATION COMPANY, L.L.C.
Statement of Cash Flows
Year Ended
December 31, 1999
Cash flows from operating activities:
Net loss $ (51,080)
Noncash adjustments:
Depreciation and amortization 20,197
Increase/decrease in current assets and liabilities:
Accounts receivable 34,665
Inventory 1,011
Prepaid and other assets (20,609)
Accounts payable and accrued liabilities (16,014)
----------
Net cash used by operating activities (31,830)
----------
Cash flows from investing activities:
Acquisition of property and equipment (86,787)
----------
Net cash used by investing activities (86,787)
----------
Cash flows from financing activities:
Borrowings of debt 50,882
Repayment of debt and long-term obligations (9,427)
Equity contributions 173,600
Distributions (94,400)
----------
Net cash provided by financing activities 120,655
----------
Net increase in cash and cash equivalents 2,088
Cash and cash equivalents, beginning of period 1,633
----------
Cash and cash equivalents, end of period $ 3,721
==========
See accompanying notes to financial statements.
ADVANCED RECLAMATION COMPANY, L.L.C.
Notes to Financial Statements
NOTE 1 - BUSINESS OPERATIONS
Advanced Reclamation Company, L.L.C. (the "Company") is a limited liability
company formed under the laws of Texas in 1996. The period of duration of the
Company is 30 years until May 2, 2026. The Company was wholly owned by the
Nicol Family Partnership ("NFP") until January 1, 2000. The Company was sold
to Baltic International USA, Inc. ("Baltic") as discussed in Note 9. The
Company is primarily engaged in the recovery and reclamation of used
refrigerants. These services are performed at the Company's facility and at
customer sites and consist of system decontamination to remove moisture, oils
and other contaminants and recovery and reclamation of the refrigerants used in
commercial air conditioning and refrigeration systems. Most of the off-site
services are provided to the petrochemical industry throughout South Texas.
The Company operates as a single segment.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Sales are recorded by the Company when products are shipped to customers or
services are performed. Expenses are recognized when the goods and services
are acquired or provided.
Cash equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Costs of
maintenance and repairs are charged to expense when incurred.
Long-lived assets
The Company periodically evaluates the carrying value of long-lived assets for
potential impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Income taxes
The Company files a partnership tax return and is not a taxable entity for
federal income tax purposes. Such taxes are liabilities of the individual
members. Accordingly, there is no provision for income taxes in the
accompanying financial statements.
Use of estimates
In conformity with generally accepted accounting principles, management of the
Company has made a number of estimates and assumptions relating to the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses to prepare the
Company's financial statements. Actual results could differ from these
estimates.
Credit concentration
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash, cash equivalents and trade receivables. The
Company considers such risk in placing its cash and cash equivalents in
financial institutions and other instruments. The Company performs ongoing
credit evaluations of its customers' financial condition. The Company had
three customers that accounted for 15%, 13% and 12%, respectively, of total net
sales in 1999.
Contingencies
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines and penalties and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment and/or remediation can be reasonably estimated.
New accounting pronouncement
In June 1998, the Financial Accountings Standards Board issued Statement of
Financial Accounting Standards No. 133 ("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 financial statements. The Company is required to adopt SFAS No.
133 not later than the first quarter of 2001.
NOTE 3 - INVENTORIES
Inventories at December 31, 1999 consist of the following:
Refrigerants $ 6,839
Cylinders and drums 9,031
----------
Total inventories $ 15,870
==========
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment at December 31, 1999 is summarized as follows:
Depreciable lives Amount
Machinery and equipment 5-15 years $ 99,040
Vehicles 5-10 years 100,689
Office furniture and equipment 3-10 years 14,161
----------
Gross property and equipment 213,890
Accumulated depreciation (45,818)
----------
Property and equipment, net $ 168,072
==========
NOTE 5 - NOTES PAYABLE
Notes payable consists of the following:
December 31, 1999
Note payable to a bank, secured by a vehicle,
interest rate of 7.5%, due on September 21, 2001
and a U.S. Treasury Note with a principal balance
of $250,000 owned by the member $ 14,286
Note payable to a bank, secured by a vehicle,
interest rate of 8.5%, due on September 10, 2000 48,811
Note payable to a company owned by the member,
unsecured, noninterest bearing, due on demand 2,000
----------
Total debt 65,097
Less current portion and short-term debt, net (58,746)
----------
Long-term debt, net $ 6,351
==========
All of the Company's long-term debt is due in 2001.
NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES
During 1999, the Company distributed a vehicle to the member as an equity
distribution. The book value of the vehicle was $5,867 at the date of
distribution. During 1999, cash paid for interest and income taxes was $2,441
and $0, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases its office and warehouse facilities pursuant to an operating
lease expiring in 2002. The following is a schedule of future minimum rental
payments under operating leases:
Year Amount
2000 $ 40,800
2001 40,800
2002 13,600
----------
Total $ 95,200
==========
Total rental expense was $68,172 for the year ended December 31, 1999.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Some of the Company's products and services are regulated by the Federal Clean
Air Act (the "Clean Air Act") and the regulations promulgated thereunder by
the Environmental Protection Agency ("EPA"), as well as certain state
environmental regulations. As such, the Company's business is affected by the
requirements of the Clean Air Act, the EPA and other regulations and the degree
of enforcement thereof.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company paid administrative costs to a company owned by NFP for record
keeping and other administrative activities. The Company paid $5,800 of such
expense for the year ended December 31, 1999.
At December 31, 1999, the Company had $15,000 of accrued distributions payable
to NFP.
NOTE 9 - SUBSEQUENT EVENT
In February 2000, NFP sold the Company to Baltic effective January 1, 2000 for
$400,000 in cash, a total of 500,000 common shares of Baltic, a note payable to
NFP for 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 the Company. The note
payable has a prepayment provision such that prepayments of principal are to be
made equal to the Company'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 the Company's annual pretax profits in
excess of $225,000 between Baltic and NFP for a period of three years ending
December 31, 2002.
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based upon
our historical consolidated financial statements and those of Advanced
Reclamation Company, L.L.C. ("ARC"). You should read this pro forma
financial information in connection with the historical financial statements.
With respect to our acquisition of ARC, the unaudited pro forma condensed
financial statements give effect to our acquisition of ARC applying the
purchase method of accounting and adjustments that are directly attributable to
the ARC acquisition and are anticipated to have a continuing impact.
We have prepared the unaudited pro forma condensed financial statements based
upon currently available information and assumptions that we have deemed
appropriate. This pro forma information may not be indicative of what actual
results would have been, nor does the data purport to represent our and ARC's
combined financial results for future periods.
We are currently in the process of allocating the purchase price among the
assets acquired and the liabilities assumed. The allocation of the purchase
price to the assets and liabilities acquired reflected in this pro forma
financial data is preliminary. The final purchase price and its allocation are
expected to be completed within one year following the ARC acquisition.
Accordingly, the actual financial position and results of operations may differ
from these pro forma amounts.
Condensed financial information for the unaudited pro forma consolidated
balance sheet as of December 31, 1999 assuming this transaction occurred on
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Actual ARC Pro Forma
December 31, December 31, Pro Forma December 31,
1999 1999 Adjustments 1999
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 868,522 $ 3,721 $ (400,000) (a) $ 472,243
Accounts receivable 45,825 49,452 - 5,277
Note receivable 89,100 - - 89,100
Inventory 50,638 15,870 - 66,508
Prepaids and deposits 10,352 16,943 (1,220) (b) 26,075
------------ ------------ ------------ ------------
Total current assets 1,064,437 85,986 (401,220) 749,203
PROPERTY AND EQUIPMENT, net 14,229 168,072 - 182,301
INVESTMENTS IN AND ADVANCES
TO JOINT OPERATIONS 1,500 - - 1,500
GOODWILL - - 761,555 (c) 761,555
OTHER ASSETS 33,524 20,748 - 54,272
------------ ------------ ------------ ------------
Total assets $ 1,113,690 $ 274,806 $ 360,335 $ 1,748,831
============ ============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and
accrued liabilities $ 270,076 $ 112,044 $ - $ 382,120
Dividends payable 388,632 - - 388,632
Short-term debt, net - 58,746 (2,000) (b) 56,746
------------ ------------ ------------ ------------
Total current liabilities 658,708 170,790 (2,000) 827,498
LONG-TERM DEBT - 6,351 400,000 (a) 406,351
------------ ------------ ------------ ------------
Total liabilities 658,708 177,141 398,000 1,233,849
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Warrants 252,793 - - 252,793
Preferred stock:
Series A 1,230,000 - - 1,230,000
Series B 350,000 - - 350,000
Common stock 156,292 - - 156,292
Additional paid-in capital 12,763,943 - (11,160) (a) 12,752,783
Accumulated deficit (13,419,467) - - (13,419,467)
Treasury stock, at cost (878,579) - 71,160 (a) (807,419)
Member's equity - 97,665 (97,665) (d) -
------------ ------------ ------------ ------------
Total shareholders' equity 454,982 97,665 (37,665) 514,982
------------ ------------ ------------ ------------
Total liabilities and
shareholders' equity $ 1,113,690 $ 274,806 $ 360,335 $ 1,748,831
============ ============ ============ ============
</TABLE>
Condensed financial information for the unaudited pro forma consolidated income
statement for the year ended December 31, 1999 assuming this transaction
occurred on January 1, 1999 is as follows:
<TABLE>
<CAPTION>
Actual ARC Pro Forma
December 31, December 31, Pro Forma December 31,
1999 1999 Adjustments 1999
<S> <C> <C> <C> <C> <C>
REVENUES:
Beverage distribution $ 238,039 $ - $ - $ 238,039
Refrigerant revenue - 805,736 - 805,736
General sales agency revenue 23,661 - - 23,661
------------ ------------ ------------ ------------
Total operating revenues 261,700 805,736 - 1,067,436
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of revenue 233,301 432,284 - 665,585
Personnel and consulting 214,375 164,566 - 378,941
Legal and professional 85,675 401 - 86,076
Other general and administrative 178,698 256,856 (52,468) (e) 383,086
------------ ------------ ------------ ------------
Total operating expenses 712,049 854,107 (52,468) 1,513,688
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (450,349) (48,371) 52,468 (446,252)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (25,800) (2,709) (40,000) (f) (68,509)
Interest income 10,360 - - 10,360
Other income (expense) (23,377) - - (23,377)
------------ ------------ ------------ ------------
Total other income (expense) (38,817) (2,709) (40,000) (81,526)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES AND DISCONTINUED
OPERATIONS (489,166) (51,080) 12,468 (527,778)
INCOME TAX EXPENSE - - - -
DISCONTINUED OPERATIONS 1,258,303 - - 1,258,303
------------ ------------ ------------ ------------
NET INCOME $ 769,137 $ (51,080) $ 12,468 $ 730,525
============ ============ ============ ============
INCOME PER SHARE AMOUNTS:
Basic and diluted $ 0.05 $ 0.05
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the unaudited pro forma
financial statements:
(a) Reflects the purchase of ARC for cash of $400,000, a total of 500,000
Baltic common shares and a note payable to seller of an additional
$400,000.
(b) Reflects the elimination of receivables from and payables to related
parties of ARC that were eliminated as part of the acquisition of ARC.
(c) Reflects the goodwill for the purchase of ARC.
(d) Reflects the elimination of ARC's equity account.
(e) Reflects the impact of goodwill amortization of $38,078 for the year
less the elimination of $5,800 of administrative costs reimbursed to a
related party of the former owner and $84,746 of personal expenses
incurred by the former owner.
(f) Reflects the interest expense accrual for the loan used to purchase ARC.
