Item 1. BUSINESS
Baltic International USA, Inc. ("Baltic") is a Texas corporation that has
provided capital, management, and technical services to start-up and
established private companies. In most instances, we are directly involved in
management, and in all instances assists in allocation of capital either
directly from us or through the investment of third parties. Baltic has not
taken significant profits or management fees from these investments.
During 1999, we decided to sell most of our business interests in Eastern
Europe and to focus on utilizing our assets to achieve profitability by
acquiring business operations based in the United States. We have limited cash
resources available for investment purposes.
Current Status as a Shell Company
Since March 2003, we have been classified as a "shell company". Rule
12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act") defines "shell company," as a company (other than an asset-backed
issuer), which has "no operations; and either no or nominal assets; assets
consisting of solely cash and cash equivalents; or assets consisting of any
amount of cash and cash equivalents and nominal other assets."
We currently plan to investigate and, if such investigation warrants,
acquire a target company or business seeking the perceived advantages of being
a publicly held corporation. Our principal business objective for the next 12
months and beyond, will be to achieve long-term growth potential through a
combination with a business rather than immediate, short-term earnings. We
will not restrict our potential candidate target companies to any specific
business, industry or geographical location and, thus, may acquire any type of
business.
The analysis of new business opportunities has and will be undertaken by
or under the supervision of our executive officers. As of the date of this
filing, we have not entered into any definitive agreement with any party, nor
have there been any specific discussions with any potential business
combination candidate regarding business opportunities for us. In our efforts
to analyze potential acquisition targets, we will consider the following kinds
of factors:
(a) Potential for growth, indicated by new technology, anticipated market
expansion or new products;
(b) Competitive position as compared to other firms of similar size and
experience within the industry segment as well as within the industry
as a whole;
(c) Strength and diversity of management, either in place or scheduled
for recruitment;
(d) Capital requirements and anticipated availability of required funds,
to be provided by us or from operations, through the sale of
additional securities, through joint ventures or similar arrangements
or from other sources;
(e) The cost of participation by us as compared to the perceived tangible
and intangible values and potentials;
(f) The extent to which the business opportunity can be advanced;
(g) The accessibility of required management expertise, personnel, raw
materials, services, professional assistance and other required
items; and
(h) Other relevant factors.
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In applying the foregoing criteria, no one of which will be controlling,
our management will attempt to analyze all factors and circumstances and make a
determination based upon reasonable investigative measures and available data.
Potentially available business opportunities may occur in many different
industries, and at various stages of development, all of which will make the
task of comparative investigation and analysis of such business opportunities
extremely difficult and complex. Due to the limited capital we have available
for investigation, we may not discover or adequately evaluate adverse facts
about the opportunity to be acquired.
Form of Acquisition
The manner in which we participate in an opportunity will depend upon the
nature of the opportunity, our respective needs and desires as well as those of
the promoters of the opportunity, and the relative negotiating strength of us
and such promoters.
It is likely that we will acquire our participation in a business
opportunity through the issuance of common stock or other securities. This
could result in substantial additional dilution to the equity of those who were
our shareholders prior to such reorganization. Our present shareholders will
likely not have control of a majority of our voting shares following a
reorganization transaction. As part of such a transaction, all or a majority
of our directors may resign and new directors may be appointed without any vote
by shareholders.
In the case of an acquisition, the transaction may be accomplished upon
the sole determination of our management without any vote or approval by
shareholders. In the case of a statutory merger or consolidation directly
involving the Company, it will likely be necessary to call a shareholders'
meeting and obtain the approval of the holders of a majority of the outstanding
shares. The necessity to obtain such shareholder approval may result in delay
and additional expense in the consummation of any proposed transaction and will
also give rise to certain appraisal rights to dissenting shareholders. Most
likely, management will seek to structure any such transaction so as not to
require shareholder approval.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial cost for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable. Furthermore, even if an agreement is reached for the
participation in a specific business opportunity, the failure to consummate
that transaction may result in our loss of the related costs incurred.
Employees
We currently employ no persons on a full-time basis and one person on a
part-time basis. We have in the past, and will continue in the future, to
employ independent contractors and to make extensive use of our outside
directors and others as consultants. None of our employees and our
subsidiaries and joint operations are represented by a labor organization.
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Item 1A. RISK FACTORS
Our business is subject to numerous risk factors, including the following:
WE HAVE MINIMAL ASSETS AND HAVE HAD NO OPERATIONS AND GENERATED NO REVENUES FOR
APPROXIMATELY THE LAST THREE YEARS.
We have had no operations nor any revenues or earnings from operations
since March 2003. We have no significant assets or financial resources. We
will, in all likelihood, sustain operating expenses without corresponding
revenues, at least until the consummation of a business combination. This may
result in us incurring a net operating loss which will increase continuously
until we can consummate a business combination with a target company. There is
no assurance that we can identify such a target company and consummate such a
business combination.
THERE MAY BE CONFLICTS OF INTEREST BETWEEN OUR MANAGEMENT AND OUR NON-
MANAGEMENT SHAREHOLDERS.
Conflicts of interest create the risk that management may have an
incentive to act adversely to the interests of other investors. A conflict of
interest may arise between our management's personal pecuniary interest and its
fiduciary duty to our shareholders. Further, our management's own pecuniary
interest may at some point compromise its fiduciary duty to our shareholders.
THE NATURE OF OUR PROPOSED OPERATIONS IS HIGHLY SPECULATIVE.
The success of our proposed plan of operation will depend to a great
extent on the operations, financial condition and management of the identified
target company. While management will prefer business combinations with
entities having established operating histories, there can be no assurance that
we will be successful in locating candidates meeting such criteria. In the
event we complete a business combination, of which there can be no assurance,
the success of our operations will be dependent upon management of the target
company and numerous other factors beyond our control.
THE COMPETITION FOR BUSINESS OPPORTUNITIES AND COMBINATIONS IS GREAT.
We are and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A
large number of established and well-financed entities, including venture
capital firms, are active in mergers and acquisitions of companies which may be
merger or acquisition target candidates for us. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than us and, consequently, we will be at a competitive
disadvantage in identifying possible business opportunities and successfully
completing a business combination. Moreover, we will also compete with
numerous other small public companies in seeking merger or acquisition
candidates.
IT WILL BE IMPRACTICABLE FOR US TO CONDUCT AN EXHAUSTIVE INVESTIGATION PRIOR TO
ANY BUSINESS COMBINATION, WHICH MAY LEAD TO A FAILURE TO MEET OUR FIDUCIARY
OBLIGATIONS TO OUR SHAREHOLDERS.
Our limited funds and the fact that we only have two part-time officers
will likely make it impracticable to conduct a complete and exhaustive
investigation and analysis of a target company. The decision to enter into a
business combination, therefore, will likely be made without detailed
feasibility studies, independent analysis, market surveys or similar
information which, if we had more funds available to it, would be desirable.
We will be particularly dependent in making decisions upon information provided
by the principals and advisors associated with the business entity seeking our
participation. Management may not be able to meet its fiduciary obligation to
us and our shareholders due to the impracticability of completing thorough due
diligence of a target company. By our failure to complete a thorough due
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diligence and exhaustive investigation of a target company, we are more
susceptible to derivative litigation or other shareholder suits. In addition,
this failure to meet our fiduciary obligations increases the likelihood of
plaintiff success in such litigation.
WE HAVE NO CURRENT AGREEMENTS IN PLACE FOR A BUSINESS COMBINATION OR OTHER
TRANSACTION, AND WE CURRENTLY HAVE NO STANDARDS FOR POTENTIAL BUSINESS
COMBINATIONS.
We have no current arrangement, agreement or understanding with respect to
engaging in a business combination with a specific entity. There can be no
assurance that we will be successful in identifying and evaluating suitable
business opportunities or in concluding a business combination. Management has
not identified any particular industry or specific business within an industry
for evaluation by us. There is no assurance that we will be able to negotiate
a business combination on terms favorable to us. We have not established a
specific length of operating history or a specified level of earnings, assets,
net worth or other criteria which we will require a target company to have
achieved, or without which we would not consider a business combination with
such business entity. Accordingly, we may enter into a business combination
with a business entity having no significant operating history, losses, limited
or no potential for immediate earnings, limited assets, negative net worth or
other negative characteristics.
ANY FUTURE BUSINESS COMBINATION IS HIGHLY DEPENDENT ON THE ACTIONS OF OUR TWO
OFFICERS, WHO MAY ONLY HAVE A LIMITED AMOUNT OF TIME AVAILABLE TO CONCENTRATE
US.
While seeking a business combination, management anticipates devoting only
a limited amount of time per month to our business. Our officers have not
entered into a written employment agreement with us and they are not expected
to do so in the foreseeable future. We have not obtained key man life
insurance on our officers. Notwithstanding the combined limited experience and
time commitment of management, loss of the services of our officers would
adversely affect development of our business and likelihood of continuing
operations.
THERE IS SUBSTANTIAL DOUBT AS TO WHETHER WE CAN CONTINUE AS A GOING CONCERN.
We have not generated any revenues since March 2003, nor have we had any
operations since March 2003. We had an accumulated deficit of $18,039,184 as
of December 31, 2019. These factors among others indicate that we may be
unable to continue as a going concern, particularly in the event that we cannot
obtain additional financing and/or attain profitable operations. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty and if we cannot continue as a
going concern, your investment in us could become devalued or even worthless.
REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE AN ACQUISITION.
Section 13 of the Exchange Act requires companies subject thereto to
provide certain information about significant acquisitions including audited
financial statements for the company acquired and a detailed description of the
business operations and risks associated with such company's operations. The
time and additional costs that may be incurred by some target companies to
prepare such financial statements and descriptive information may significantly
delay or essentially preclude consummation of an otherwise desirable
acquisition by us. Additionally, acquisition prospects that do not have or are
unable to obtain the required audited statements may not be appropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable.
WE HAVE NOT CONDUCTED ANY MARKET RESEARCH REGARDING ANY POTENTIAL BUSINESS
COMBINATIONS.
We have neither conducted, nor have others made available to it, market
research indicating that demand exists for the transactions contemplated by us.
Even in the event demand exists for a transaction of the type contemplated by
us, there is no assurance we will be successful in completing any such business
combination.
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WE DO NOT PLAN TO DIVERSIFY OUR OPERATIONS IN THE EVENT OF A BUSINESS
COMBINATION.
Our proposed operations, even if successful, will in all likelihood result
in our engaging in a business combination with only one target company.
Consequently, our activities will be limited to those engaged in by the
business entity which we will merge with or acquire. Our inability to
diversify its activities into a number of areas may subject us to economic
fluctuations within a particular business or industry and therefore increase
the risks associated with our operations.
ANY BUSINESS COMBINATION WILL LIKELY RESULT IN A CHANGE IN CONTROL AND IN OUR
MANAGEMENT.
A business combination involving the issuance of our common stock will, in
all likelihood, result in shareholders of a target company obtaining a
controlling interest in the Company. Any such business combination may require
our shareholder to sell or transfer all or a portion of their common stock.
REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING BUSINESS COMBINATION.
Our primary plan of operation is based upon a business combination with a
business entity which, in all likelihood, will result in our issuing securities
to shareholders of such business entity. The issuance of previously authorized
and unissued common stock would result in a reduction in percentage of shares
owned by our present shareholders and could therefore result in a change in
control of our management.
FEDERAL AND STATE TAXATION RULES COULD ADVERSELY EFFECT ANY BUSINESS
COMBINATION WE MAY UNDERTAKE.
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination we may undertake. Currently, such
transactions may be structured so as to result in tax-free treatment to both
companies, pursuant to various federal and state tax provisions. We intend to
structure any business combination so as to minimize the federal and state tax
consequences to both us and the target company; however, there can be no
assurance that such business combination will meet the statutory requirements
of a tax-free reorganization or that the parties will obtain the intended tax-
free treatment upon a transfer of stock or assets. A non-qualifying
reorganization could result in the imposition of both federal and state taxes
which may have an adverse effect on both parties to the transaction.
WE MAY BE FORCED TO RELY ON UNAUDITED FINANCIAL STATEMENTS IN CONNECTION WITH
ANY BUSINESS COMBINATION.
We will require audited financial statements from any business entity we
propose to acquire. No assurance can be given; however, that audited
financials will be available to us prior to a business combination. In cases
where audited financials are unavailable, we will have to rely upon unaudited
information that has not been verified by outside auditors in making our
decision to engage in a transaction with the business entity. The lack of the
type of independent verification which audited financial statements would
provide increases the risk that we, in evaluating a transaction with such a
target company, will not have the benefit of full and accurate information
about the financial condition and operating history of the target company.
This risk increases the prospect that a business combination with such a
business entity might prove to be an unfavorable one for us.
WE MAY BE SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH WOULD ADVERSELY AFFECT
OUR OPERATIONS.
Although we will be subject to the reporting requirements under the
Exchange Act, management believes we will not be subject to regulation under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
since we will not be engaged in the business of investing or trading in
securities. If we engage in business combinations which result in our holding
passive investment interests in a number of entities, we could be subject to
regulation under the Investment Company Act. If so, we would be required to
register as an investment company and could be expected to incur significant
registration and compliance costs. We have obtained no formal determination
from the Securities and Exchange Commission as to our status under the
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Investment Company Act and, consequently, violation of the Act could subject us
to material adverse consequences.
OUR BUSINESS WILL HAVE NO REVENUES UNLESS AND UNTIL WE MERGE WITH OR ACQUIRE AN
OPERATING BUSINESS.
We have had no revenues from operations for approximately the past four
years. We have had no operations for approximately the past four years. We
may not realize any revenues unless and until we successfully merge with or
acquire an operating business.
THE COMPANY MAY ISSUE MORE SHARES IN CONNECTION WITH A MERGER OR ACQUISITION,
WHICH WOULD RESULT IN SUBSTANTIAL DILUTION.
Our Certificate of Incorporation authorizes the issuance of a maximum of
40,000,000 shares of common stock and a maximum of 500,000 shares of preferred
stock. Any merger or acquisition effected by us may result in the issuance of
additional securities without shareholder approval and may result in
substantial dilution in the percentage of our common stock held by our then
existing shareholders. Moreover, the common stock issued in any such merger or
acquisition transaction may be valued on an arbitrary or non-arm's-length basis
by our management, resulting in an additional reduction in the percentage of
common stock held by our then existing shareholders. Our Board of Directors
has the power to issue any or all of such authorized but unissued shares
without shareholder approval. To the extent that additional shares of common
stock or preferred stock are issued in connection with a business combination
or otherwise, dilution to the interests of our shareholders will occur and the
rights of the holders of common stock might be materially adversely affected.
WE CANNOT ASSURE YOU THAT FOLLOWING A BUSINESS COMBINATION WITH AN OPERATING
BUSINESS, OUR COMMON STOCK WILL BE LISTED ON NASDAQ OR ANY OTHER SECURITIES
EXCHANGE.
Following a business combination, we may seek the listing of our common
stock on NASDAQ or the American Stock Exchange. However, we cannot assure you
that following such a transaction, we will be able to meet the initial listing
standards of either of those or any other stock exchange, or that we will be
able to maintain a listing of our common stock on either of those or any other
stock exchange. After completing a business combination, until our common
stock is listed on the NASDAQ or another stock exchange, we expect that our
common stock would be eligible to trade on the OTC Bulletin Board, or another
over-the-counter quotation system," where our shareholders may find it more
difficult to dispose of shares or obtain accurate quotations as to the market
value of our common stock. In addition, we would be subject to an SEC rule
that, if it failed to meet the criteria set forth in such rule, imposes various
practice requirements on broker-dealers who sell securities governed by the
rule to persons other than established customers and accredited investors.
Consequently, such rule may deter broker-dealers from recommending or selling
our common stock, which may further affect its liquidity. This would also make
it more difficult for us to raise additional capital following a business
combination. Additionally, there can be no assurances that we will be able to
obtain listing on the OTC Bulletin Board, which failure could cause our common
stock become worthless.
WE HAVE PREFERRED STOCK AUTHORIZED, WHICH PREFERRED STOCK MAY BE ISSUED BY OUR
BOARD OF DIRECTORS WITHOUT FURTHER SHAREHOLDER APPROVAL AND WHICH MAY HAVE
RIGHTS AND PREFERENCES GREATER THAN OUR COMMON STOCK.
Our Certificate of Incorporation authorizes the issuance of up to 500,000
shares of preferred stock with designations, rights and preferences determined
from time to time by its Board of Directors. Accordingly, our Board of
Directors is empowered, without shareholder approval, to issue preferred stock
with dividend, liquidation, conversion, voting, or other rights which could
adversely affect the voting power or other rights of the holders of the common
stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although we have no present intention to
issue any shares of its authorized preferred stock, there can be no assurance
that the Company will not do so in the future.
THE CORONAVIRUS COULD HAVE AN ADVERSE IMPACT ON OUR OPERATIONS.
The introduction in late 2019 of SARS-CoV-2, also known as the pathogen
that causes COVID-19, coronavirus disease, or simply, the "coronavirus", has
had a substantial detrimental impact on markets and economic forecasts for
governments and businesses worldwide, and could have a materially adverse
impact upon our operations, although the extent of the impact cannot be
determined at the present time. The World Health Organization has declared the
coronavirus a pandemic, underscoring the global nature of the spread of the
virus and, as of the date of filing of this Annual Report on Form 10-K, the
President of the United States has declared a national emergency to enable
federal and state governments to access federal emergency funds and resources.
National, state, and local governments across the United States have already
implemented significant travel, movement, and assembly restrictions, as well as
restrictions on the movement of goods, all of which are expected to have a
material adverse impact upon consumer and business demand. If the coronavirus
continues to spread, or if the economic disruption caused thus far by the
coronavirus continues, our operations and financial condition, including our
access to liquidity, could be materially adversely affected.