U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549


                                FORM 10-KSB

(Mark One)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 [FEE REQUIRED] for the Fiscal Year Ended:  December 31, 1997

                                    OR

[  ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934 
      [NO FEE REQUIRED] for the transition period from ___________ to       
___________.

Commission File Number:  0-26588

                      BALTIC INTERNATIONAL USA, INC.
              (Name of small business issuer in its charter)

                  Texas                                76-0336843
     (State or other jurisdiction                   (IRS Employer
     of incorporation or organization)             Identification No.)

                   1990 Post Oak Boulevard, Suite 1630
                         Houston, Texas 77056
         (Address of principal executive offices, including zip code)

                              (713) 961-9299
                (Issuer's telephone number, including area code)


     Securities registered under Section 12(b) of the Exchange Act:  None

     Securities registered under Section 12(g) of the Exchange Act:

                        Common Stock, $.01 par value
                                 Warrants
                            (Title of Class)

     Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

     Check if there is no disclosure of delinquent filers in response to Item 
405 of Regulation S-B is not contained in this form, and no disclosure will be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.  [x] 

     Issuer's revenues for the year ended December 31, 1997 were $1,136,242.

     The aggregate market value of Common Stock held by non-affiliates of the 
registrant at March 27, 1998, based upon the last sales price as reported by 
Nasdaq, was $3,808,447.

     As of March 27, 1998, there were 15,586,785 shares of Common Stock 
outstanding.


     Transitional Small Business Disclosure Format (Check one):  Yes  ; No X .



                             TABLE OF CONTENTS
                                                                       Page

PART I
     Item 1.     Description of Business                                 3

     Item 2.     Description of Property                                 6

     Item 3.     Legal Proceedings                                       6

     Item 4.     Submission of Matters to a Vote of Security Holders     6


PART II
     Item 5.     Market for Common Equity and Related Stockholder 
                   Matters                                               6

     Item 6.     Management's Discussion and Analysis or Plan of 
                   Operation                                             7

     Item 7.     Financial Statements                                   10

     Item 8.     Changes in and Disagreements with Accountants on 
                   Accounting and Financial Disclosure                  10


PART III
     Item 9.     Directors, Executive Officers, Promoters and Control 
                   Persons; Compliance with Section 16(a) of the 
                   Exchange Act                                         11

     Item 10.     Executive Compensation                                13

     Item 11.     Security Ownership of Certain Beneficial Owners 
                   and Management                                       15

     Item 12.     Certain Relationships and Related Transactions        15

     Item 13.     Exhibits and Reports on Form 8-K                      16

SIGNATURES



                                   PART I

Item 1.     DESCRIPTION OF BUSINESS

     Baltic International USA, Inc. (the "Company" or "BIUSA") is a Texas 
corporation which provides and has provided capital, management, and technical 
services to start-up and established private companies located primarily in 
Eastern Europe.  In most instances, the Company is directly involved in 
management, and in all instances assists in allocation of capital either 
directly from the Company or through the investment of third parties. BIUSA 
has not taken significant profits, or management fees from these investments. 
Value is being created to a point where the Company's subsidiaries and joint 
operations become independent through a separate third party financing or sale 
to a third party.

     The Company's current subsidiaries and joint operations include:

                         Baltic International USA, Inc.

          Catering          Airlines          Distribution          Cargo

     AIRO Catering       Air Baltic         American          Baltic World Air
      Services 46%        Corporation 8%     Distributing      Freight 100%
     Riga Catering       Baltic Int'l        Company 100%
      Services 20.68%     Airlines 89%     
     Baltic Catering
      Services 50%

Note:  Percentages reflect the Company's ownership interest as of December 31, 
1997.  

     In September 1997, the Company elected to focus all new investment and 
management services on the in-flight catering operations.

AIRO Catering Services

     Management has identified a number of business opportunities presented by 
in-flight catering due to the lack of international standard kitchens in 
airports in Eastern Europe and the Newly Independent States.  Currently, many 
Western airlines flying into airports in Eastern Europe and the former Soviet 
Union back-cater their food -that is, food for both legs of the trip is carried 
on board from the originating point - increasing food costs and reducing 
revenue-producing cargo space.  The Company sees an opportunity to operate 
kitchens in Eastern European airports that provide meals to both Western and 
Eastern European carriers.

     In February 1996, the Company formed AIRO Catering Services ("AIRO") with 
TOPflight Catering AB ("TOPflight").  TOPflight operates kitchens in Malmo, 
Gothenburg and Stockholm, Sweden.  In this joint operation,  the Company 
contributed its management and operational expertise, part of its interest in 
Riga Catering Services ("RCS"), market knowledge, knowledge of the regional 
customer base and labor force for a 51% interest, while TOPflight contributed 
its technical experience in building in-flight kitchens and its interest in RCS 
for a 49% interest.  During 1997, LSG Lufthansa Services/Sky Chefs ("LSG") 
purchased 51% of TOPflight. 

     In December 1997, the Company entered into a share purchase and shareholder
agreement with LSG.  The primary purpose of the agreement is to identify AIRO as
the vehicle for the development of new LSG in-flight kitchens in Eastern Europe 
and the Republics of the former Soviet Union.  Under the agreement, the Company 
sold 5% of the stock of AIRO to LSG in return for the LSG commitments and 
$600,000 in cash.  Following the share purchase, the Company controls 46% of 
AIRO and LSG controls 54%.  The agreement provides that the Company will remain 
as the day-to-day operating partner of AIRO, and AIRO will become part of the 
worldwide network of LSG in all aspects consistent with other LSG in-flight 
catering operations.

     In March 1998, the Company transferred its remaining direct interest in RCS
of 20.68% to AIRO as part of a capital contribution made by the partners of 
AIRO.  As part of this capital contribution, TOPflight and LSG made their pro 
rata share contributions consisting of cash of $1,100,000 and services with a 
value of $197,990.

     AIRO currently operates in Riga, Latvia through Riga Catering Services 
which was started by the Company, and which caters all carriers serving Riga 
International Airport including Scandinavian Airlines System Denmark-Norway-
Sweden ("SAS"), Lufthansa and Air Baltic. AIRO opened a new kitchen in 
Tallinn, Estonia in January 1998.  AIRO hasfinalized a contract to open an 
in-flight catering kitchen in Kiev, Ukraine.  The contract provides for a 
20-year building lease to AIRO with at least five years exclusivity.  This 
kitchen is expected to open by mid 1998.  

Riga Catering Services

     On April 2, 1996, the catering operations of Baltic Catering Services 
("BCS") were acquired by RCS, previously owned by TOPflight, in exchange for 
shares in RCS.  In March 1998, the Company transferred its remaining direct 
interest in RCS of 20.68% to AIRO as part of a capital contribution made by the 
partners of AIRO.  RCS is currently owned 58.5% by AIRO and 41.5% by the 
principals of the Company's partner in BCS.

Baltic Catering Services

     The business of BCS after the transfer of the catering business to RCS is 
primarily the operation of a restaurant in the Riga Airport.  The Company 
expects to liquidate BCS during 1998.

Air Baltic Corporation

     In 1992, the Company developed Baltic International Airlines ("BIA") - 
the first independent airline in the former Soviet Union.  In October 1995, 
the Company sold the scheduled passenger service operations of its 49% 
interest in BIA, to the newly created national airline of Latvia, Air Baltic. 
Air Baltic is owned 51.07% by the Republic of Latvia, 28.51% by SAS, 8.02% by 
the Company, 6.2% by SwedFund International AB and 6.2% by Investeringsfonden.  
SAS is the operator of this airline.

     From its hub at Riga Airport, Air Baltic currently provides regularly 
scheduled service to and from Copenhagen, Frankfurt, Helsinki, Kiev, London, 
Minsk, Riga, Stockholm, Tallinn, Vilnius and Warsaw.  Additional routes, 
including Moscow, are planned for 1998.

     Air Baltic operates three AVRO RJ70 and one SAAB 340 aircraft.  The AVRO 
RJ70 has a configuration of 70 seats and the SAAB 340 aircraft has a 
configuration of 34 single-class seats.

     Air Baltic is pursuing a strategy of operating a fleet of low cost 
Western aircraft for expansion to the East from its hub in Riga as well as 
Western Europe.  Cockpit, cabin crew, and maintenance personnel have been and 
are being trained in Western operations. Air Baltic is able to offer passenger 
service equivalent to service offered by major Western carriers.  All flights 
provide a multi-course meal to business passengers as well as a full selection 
of newspapers and periodicals.

     Air Baltic has full operational independence on the basis of its own 
operating licenses and manuals, all of which meet international aviation 
standards and conform to SAS and FAA standards.  Air Baltic provides routine and
scheduled servicing and maintenance for its aircraft using its own personnel who
have been trained by SAS and have met appropriate certification of the Ministry 
of Transportation of the Republic of Latvia.

     Management considers the Company's investment in Air Baltic to be a 
strategic as well as a high-quality financial investment.  As an owner in one of
the Baltic States' largest and most modern national airlines, the Company is 
able to leverage its credibility in the pursuit of other business opportunities 
in the region.  In addition, the Company serves as the general sales agent in 
North America for Air Baltic.

Baltic International Airlines

     The Company currently owns a 89% interest in BIA.  BIA currently has no 
substantive operations.  The Company believes that maintaining BIA's airline 
certification, the goodwill of BIA's debtors and the availability of BIA's tax 
holiday in Latvia are beneficial to the Company.

American Distributing Company

     American Distributing Company ("ADC") is a wholly-owned subsidiary of the 
Company.  It distributes Millerr, Bartles & Jaymesr, and various staple food 
products in the Baltic States.  This business commenced in December 1995 as a 
successor to the Company's distribution activities which began in 1993.  The 
Company has a distribution system, offices and a 12 person staff in Riga, 
Latvia.  ADC opened a new office in Vilnius, Lithuania in May 1997.

Baltic World Air Freight

     Through its wholly-owned subsidiary Baltic World Air Freight ("BWAF"), the 
Company is positioned to take advantage of the growth of air and intermodal 
transportation in the Baltic States.  Currently BWAF has cargo market agreements
with Air Baltic and Austrian Airlines.

Government Regulation

Republic of Latvia Law on Foreign Investment

     In November 1991, the Republic of Latvia adopted the Law on Foreign 
Investment ("Foreign Investment Law"), which was designed to encourage the 
participation by foreigners in the establishment of Latvian joint operations.  
The Foreign Investment Law generally provides certain preferential tax 
advantages to ventures formed under the Foreign Investment Law beginning in 
the year in which profits are first generated from the operations of such 
ventures.  In addition, the Foreign Investment Law permits non-Latvian 
entities to own up to a 100% interest in most Latvian business entities, 
including airlines.

     Pursuant to the Foreign Investment Law, ventures having foreign 
participation of at least 30% (with a minimum investment of at least $50,000) 
are exempt from profit taxes for a period of two years, and thereafter for the 
following two years, profit taxes for such ventures are reduced by 50%.  
Ventures having foreign participation in excess of 50% (equal to at least 
$1,000,000) are exempt from profit taxes for a period of three years, and 
thereafter for the following five years, profit taxes for such ventures are 
reduced by 50%.  In addition, ventures which are active in certain industries 
deemed to be "preferential" by the government of the Republic of Latvia and 
having foreign participation of at least 30% (with a minimum investment of at 
least $50,000) are entitled to a three-year tax holiday from the payment of 
profit taxes, and thereafter for the following two years, profit taxes for 
these "preferential" ventures are reduced by 50%.

     The business of BIA, and also of Air Baltic, is deemed to be a 
preferential industry, entitling it to a three-year profit tax holiday 
beginning the first year in which it generates profits and a 50% reduction in 
profit taxes for the following two years.  To date, Air Baltic and BIA have 
not generated any profits in any year.

Republic of Latvia Law on Limited Liability Companies

     The formation and operation of joint venture-limited liability companies 
within the Republic of Latvia is regulated and governed by the Republic of 
Latvia Law on Limited Liability Companies ("Company Law").  A joint 
venture-limited liability company is recognized as a separate legal entity 
under the Company Law for purposes of transacting business in the Republic of 
Latvia, and accordingly, a joint venture-limited liability company can incur 
its own obligations and liabilities with respect to its business operations.  
Furthermore, the capital shareholders of a joint venture-limited liability 
company are afforded limited liability with respect to any acts or obligations 
of the joint venture-limited liability company.  Accordingly, the Company will 
not be liable, because of its status as owner of a joint venture-limited 
liability company interest or as owner of any subsidiary registered as a 
Latvian limited liability company, for any obligations incurred by its 
subsidiaries and joint operations resulting from their respective business 
operations.

Political, Economic and Social Climate of Destination Countries

     The Company's subsidiaries and joint operations intend to expand 
operations to geographic areas which are subject to evolving political, 
economic and social climates, including other Baltic States and other 
republics of the former Soviet Union.  Failure to improve political, economic 
or social stability in these regions could have an adverse effect on future 
operations and expansion efforts.

Competition

     The Company's business ventures face competition from other companies 
and individuals who have also recognized the Baltic States and Newly 
Independent States as a developing market.  Air Baltic, as a passenger service 
carrier, faces competition from other airlines, many of which have longer 
operating histories, greater name recognition, greater financial resources, 
more extensive facilities and equipment and better marketing resources.  Other 
businesses that the Company currently operates, or may operate in the future, 
presently compete and will compete with other entities, many of which may have 
greater financial, marketing and technical resources.

Employees

     The Company currently employs 3 persons on a full-time basis in the 
Houston office.  The Company has in the past, and will continue in the future, 
to employ independent contractors and to make extensive use of its outside 
directors and others as consultants.  Air Baltic currently employs 
approximately 200 persons on a full time basis, including pilots, mechanics, 
cabin crews, airport services and administrative personnel.  AIRO employs 35 
persons, RCS employs an aggregate of approximately 60 persons, BWAF employs 5 
persons and ADC employs 12 persons.  None of the employees of the Company and 
its subsidiaries and joint operations are represented by a labor organization.  
The Company believes its relationships with all of these employees are 
satisfactory.

Item 2.     DESCRIPTION OF PROPERTY

     The Company leases approximately 3,500 square feet of office space in 
Houston, Texas for a monthly rental of approximately $3,000.  Air Baltic, 
BWAF, ADC, BCS and RCS each lease office space at Riga International Airport.  
AIRO leases space in Stockholm, Sweden.  The Company believes that its 
facilities are adequate for its current operations.  The facilities of the 
Company's other business ventures are satisfactory for current purposes.

Item 3.     LEGAL PROCEEDINGS

     None.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.


                                 PART II

Item 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is listed on the Nasdaq SmallCap Market under 
the symbol "BISA."  Public trading of units (consisting of one share of Common 
Stock and one warrant) ("Units") on Nasdaq commenced on April 28, 1994.  The 
Units became separable and public trading of the Common Stock on Nasdaq 
commenced on June 27, 1994.  The following table sets forth the high and low 
sales prices of the Common Stock for the periods indicated:


                            1997                       1996

                      High         Low           High           Low

First Quarter       $0.750       $0.375         $2.875        $1.000
Second Quarter       0.500        0.375          2.750         0.813
Third Quarter        1.031        0.375          1.156         0.563
Fourth Quarter       0.656        0.344          1.188         0.344

     On March 27, 1998, the last sales price for the Common Stock was $0.531, 
and the Company believes there were approximately 1,000 beneficial holders of 
its Common Stock.

     The Company has not paid, and does not currently intend to pay, cash 
dividends on its Common Stock.  The current policy of the Company's Board of 
Directors is to retain earnings, if any, to provide funds for operation and 
expansion of the Company's business.  Such policy will be reviewed by the 
Board of Directors of the Company from time to time in light of, among other 
things, the Company's earnings and financial position.

     In February 1998, the new listing requirements for Nasdaq became 
effective.  There are several aspects to the new requirements:  the Company 
must be current on all SEC reports, have an independent auditor, have at least 
two outside directors, have an independent audit committee, etc.  The Company 
meets all of the new rules except for a provision requiring the common stock 
to be traded at a bid price above $1.00 for at least 10 days in the most 
recent 90 days.  The Company has received an extension until May 28, 1998 to 
meet this requirement.  If this requirement is not met by then, the Company 
would be delisted from the Nasdaq Small Cap Market and would then be traded on 
the Bulletin Board maintained by the NASD.


Item 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     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 following discussion should be read in conjunction with the 
financial statements and notes thereto included elsewhere herein.

General

     In 1996 and 1997, the Company continued its strategy of making 
investments in businesses in the Baltic States and further developing its 
existing activities in such region.

     In September 1997, the Company shifted its focus to concentrate on its 
in-flight catering operations.

     In February 1996, the Company and TOPflight contributed their interests 
in Riga Catering Services to form AIRO Catering Services in exchange for a 51% 
interest and 49% interest respectively in AIRO.  AIRO was formed to build and 
acquire catering kitchens in Eastern Europe and the former Soviet Union.  In 
April 1997, LSG purchased a 51% interest in TOPflight.  In December 1997, the 
Company entered into an agreement to sell 5% interest in AIRO to LSG in return 
for LSG commitments and $600,000 in cash.  Following the share purchase 
transaction with LSG, the Company  controls 46% of AIRO and LSG controls 54%.

     In January 1996, the Company sold 12% of Air Baltic stock to SAS for 
$1.7 million in cash and the assumption by SAS of the remaining subordinated 
debt obligation of the Company to Air Baltic.  The Company retains an 8.02% 
interest in Air Baltic.

     The Company's revenues have historically been derived from its equity in 
the net income of its joint operations; fees for management services rendered 
pursuant to a management agreement between BIA and the Company; and 
commissions due from sales of airline tickets under the agreement between Air 
Baltic and the Company.  A significant portion of the operational activities 
of the Company are reflected in the net equity in earnings and losses of joint 
operation investments, as the Company uses the equity method to record its 
interest in its joint operations owned 50% or less or greater than 50% owned 
companies in which the Company does not have control.  The Company's interests 
relating to joint operation activities resulted in income of $361,688 for 1997 
and a loss of $391,918 for 1996.

     Current Latvian law does not restrict the repatriation of cash to 
foreign participants in joint operations and recent amendments to the Latvian 
foreign investment law have reaffirmed the structure permitting repatriation 
of profits.  However, there can be no assurances that repatriation of profits 
in the future will not be restricted.  Since the Company's joint operations 
currently generate revenues in United States dollars or in other major 
currencies, repatriation of cash has not been historically affected by 
exchange rate differentials between the Latvian Lat and the United States 
dollar.

Results of Operations

     Years Ended December 31, 1997 and 1996.  Revenues for 1997 decreased by 
$177,015, or 13%, to $1,136,242 compared to $1,313,257 for 1996.  This 
decrease is due to decreases in freight revenue and net equity in earnings of 
catering operations, partially offset by an increase in food distribution 
revenue.  The decrease in freight revenue is due to a shift in the frequency 
of destinations flown by Air Baltic, which now include code share arrangements 
with other airlines of some destinations.  The decrease in net equity in 
earnings of joint operations is principally due to the start-up costs 
associated with AIRO's headquarters.  The increase in food distribution 
revenue is due to the sale of beer products to distributors in countries other 
than Latvia.

     Operating expenses decreased 32% to $1,904,689 for 1997 compared to 
$2,812,962 for 1996.  This decrease was due to a decrease in costs related to 
freight, personnel and consulting and net equity in losses of BIA, partially 
offset by an increase in food distribution costs and general and 
administrative expenses.  The decrease in cost of freight revenue results from 
lower freight revenue in 1997 as compared to 1996.  The decrease in the net 
equity in losses of BIA is due to no reserve being required in 1997 on the 
investment in BIA similar to the reserve of $812,385 for 1996.

     As a result of the changes in revenues and expenses discussed above, the 
operating loss for the Company decreased 49% to $768,447 for 1997 from 
$1,499,705 for 1996.  The Company had a net loss (including interest expense 
and non-recurring gains discussed below) of $798,458 for 1997 compared to a 
net loss of $1,248,543 for 1996.

     Interest expense increased by $375,713 or 285% to $507,747 for 1997 from 
$132,034 in 1996, reflecting the increased interest costs and amortization of 
debt costs and discount for borrowings incurred during the second and fourth 
quarters of 1996.  This interest expense is related to debt used for a capital 
contribution to Air Baltic and the expansion of the Company's activities.

     Interest income increased to $32,450 for 1997 from $3,800 for 1996.  
This increase is due primarily to interest earned on loans to AIRO and the 
temporary investment of excess cash from financing activities in 1997 with no 
such interest in 1996.

     In December 1997, the Company sold 5% of the stock of AIRO to LSG for 
certain LSG commitments and $600,000 in cash.  A gain of $569,926 was 
recognized on this sale.

     On January 10, 1996, the Company sold 12% of the common stock of Air 
Baltic to SAS for $1.7 million in cash and the assumption by SAS of the 
Company's future debt funding obligation to Air Baltic of $2,175,000.  SAS 
assumed and funded the Company's share of the subordinated debt after 
agreement of the terms of the share purchase were reached in January 1996.  A 
gain of $297,200 was recognized on this sale.  The Company retains an 8.02% 
interest in Air Baltic.

      The Company's consolidated financial statements included elsewhere 
herein present the Company's share of the joint operations other than Air 
Baltic using the equity method of accounting in accordance with generally 
accepted accounting principles.  The Company's interests in Air Baltic, BIA 
and LAMCO are accounted for using the cost method.  The following table 
presents a pro forma condensed combined statement of operations of the 
Company assuming its proportionate share of the joint operations accounted 
for using the equity method is combined with the Company.  Management 
believes this presentation is informative of the Company's results of 
operations given that a significant portion of the Company's business is 
conducted through the joint operations.

<TABLE>
<CAPTION>
            Pro forma Condensed Combined Statement of Operations
                For the Year Ended December 31, 1997

                                           Proportionate
                                              Share of                  Pro forma
                                Company         Joint                   Combined
                             (As reported)   Operations   Eliminations  Company
<S>                           <C>           <C>           <C>           <C>
Operating revenues             $1,136,242    $1,251,768    $(361,688)    $2,026,322
Operating expenses              1,904,689       928,731            -      2,833,420
                               ----------    ----------    ---------     ----------
Income (loss) from operations    (768,447)      323,037     (361,688)      (807,098)
Other income (expense)            (30,011)        2,484            -        (27,527)
                               ----------    ----------    ---------     ----------
Income (loss) before 
  income taxes                   (798,458)      325,521     (361,688)      (834,625)
Provision for income taxes              -       (36,167)           -        (36,167)
                               ----------    ----------    ---------     ----------
Net income (loss)              $ (798,458)   $  361,688    $(361,688)    $ (798,458)
                               ==========    ==========    =========     ==========
</TABLE>

     Year 2000 System Requirements.  The Company is performing an analysis of 
its systems in order to determine the impact of year 2000 issues.  Management 
is unable to predict at this time the full impact year 2000 issues will have 
on the Company's operations or future financial condition.  However, the 
Company does not expect that such costs to modify its programs and systems 
will be material to its financial condition or results of operations.  The 
Company does not currently have information concerning the year 2000 
compliance of its suppliers and customers.  In the event the Company's major 
suppliers or customers do not successfully and timely achieve year 2000 
compliance, the Company's operations could be adversely affected.

Liquidity and Capital Resources

     At December 31, 1997 the Company had working capital of $693,699 
compared to a working capital deficit of $2,300,157 at December 31, 1996.  The 
increase in working capital is due primarily to the refinancing of $2,000,000 
of debt which now matures in January 1999.  The Company had stockholders' 
equity of $3,263,200 at December 31, 1997.

     Net cash used by operating activities was $1,136,596 for 1997, compared 
to $2,082,722 for 1996.  The decrease in cash used by operating activities in 
1997 was primarily due to decreases in the net loss and payments for 
commitments on guarantees on BIA liabilities as most of these liabilities were 
repaid on 1996.  Net cash used by investing activities was $93,014 for 1997, 
compared to $834,100 for 1996.  The decrease in cash used by investing 
activities was attributable to the decrease in advances made to BIA partially 
offset by the decrease in the proceeds from the sale of assets.  Net cash 
provided by financing activities was $1,811,357 for the 1997, compared to 
$3,161,827 for 1996 due to a decrease in financing requirements.

     The Company's consolidated balance sheet included elsewhere herein 
presents the Company's share of the joint operations using the equity method 
of accounting in accordance with generally accepted accounting principles.  
The Company's interests in Air Baltic, BIA and LAMCO are accounted for using 
the cost method.  The following table presents a pro forma condensed 
combined balance sheet of the Company assuming its proportionate share of 
the joint operations accounted for using the equity method is combined with 
the Company.  Management believes this presentation is informative of the 
Company's financial condition since the majority of the Company's underlying 
investment in its joint operations consists of net current assets.

                Pro forma Condensed Combined Balance Sheet
                           As of December 31, 1997



                                    Proportionate
                                      Share of                  Pro forma
                        Company         Joint                   Combined
                      (As reported)  Operations   Eliminations  Company

Current assets          $1,446,643   $  363,984   $  (20,081)    $1,790,546
Investments in and 
  advances to joint 
  operations             4,316,168            -   (1,000,641)     3,315,527
Property and other 
assets, net                253,333    1,526,562       80,986      1,860,881
                        ----------   ----------   ----------     ----------
Total assets            $6,016,144   $1,890,546   $ (939,736)    $6,699,954
                        ==========   ==========   ==========     ==========

Current liabilities     $  752,944   $1,547,891   $ (597,081)    $1,703,754
Long-term debt           2,000,000            -            -      2,000,000
Stockholders' and 
  partners' equity       3,263,200      342,655     (342,655)     3,263,200
                        ----------   ----------   ----------     ----------
Total liabilities and 
  equity                $6,016,144   $1,890,546    $(939,736)    $6,966,954
                        ==========   ==========   ==========     ==========

     The Company has financed its growth primarily from the issuance of stock 
and borrowings.  During 1997 and 1996, the Company borrowed an aggregate 
principal amount of $2,540,000 and $2,510,000, respectively, including bridge 
financing and bank debt.  The majority of the borrowings for 1996 consisted of 
a loan in the amount of $2,000,000 that the Company entered into in November 
1996.  This loan was refinanced in October 1997 with a shareholder and is now 
due in January 1999 and is secured by an option agreement that the Company 
entered into with SAS during 1996 in which the Company has the right to put 
the shares that it owns of Air Baltic to SAS for $2,144,333 during the period 
from June 1, 1997 to February 28, 1999.  Under this option agreement, SAS has 
the right to call the Company's Air Baltic shares for a price ranging from 
$3,329,962 to $5,089,012 during the same period.  During 1997 and 1996, the 
Company issued 7,000,000 and 169,149 shares of Common Stock, respectively, for 
net proceeds of an aggregate of $2,510,501 and $93,537, respectively, pursuant 
to private sales and the exercise of outstanding stock options.  Additionally 
in 1997 and 1996, the Company issued 623,128 and 410,929 shares of Common 
Stock, respectively,  for payment of accounts payable of $317,763 and $401,001 
respectively.  In February and March 1996, the Company issued 50 shares of 
Series B Convertible Redeemable Preferred Stock for net proceeds of 
$1,090,200. 

     In connection with the private placements in 1997, the Company issued 
warrants to purchase 6,800,000 shares at an exercise price of $0.65 per 
share of Common Stock, which warrants are currently exercisable and expire 
in August 2002.  In connection with the subscription agreements for private 
placements for 6,250,000 of these shares sold, the shareholders have 
declared their intentions not to offer for resale the shares for at least 24 
months from the date of purchase.

     Management believes that the Company will be able to achieve a 
satisfactory level of liquidity to meets its business plan and capital needs 
for the next 12 months.  It is not expected that the internal sources of 
liquidity will improve until net cash is provided by operating activities, 
and, until such time, the Company will rely upon external sources for 
liquidity.  There can be no assurance that the Company will be able to obtain 
additional financing on reasonable terms, if at all, in the future.  In April 
1998, the Company obtained a line of credit in the aggregate of $800,000 from 
two shareholders to provide additional liquidity.  This line of credit matures 
on December 31, 1999 and any outstanding balance will bear interest at a rate 
of 13%.  The Company does not anticipate needing to draw on this line of 
credit in 1998.

     The Company advanced $15,866 and $2,980,009 to BIA during the years 
ended December 31, 1997 and 1996, respectively.  The Company does not 
anticipate any further advances to BIA which would adversely impact earnings.  
The Company may convert advances to increase its percentage ownership of BIA, 
if appropriate.  In March 1997, the Company's Latvian partner in BIA agreed to 
contribute real estate and a promissory note with a combined value of at least 
$1,000,000 to BIA.  In May 1997, the Company capitalized $6.3 million of BIA's 
debt to the Company which was previously reserved by the Company.  BIA will 
assign the promissory note from the Latvian partner to the Company.  
Management believes that the Latvian partner's contribution will be made 
during 1998.  The Company has agreed with the Latvian partner that it will 
forgive the promissory note of the Latvian partner in exchange for the 
transfer of the Latvian partner's ownership in BIA.  BIA will then become a 
wholly owned subsidiary of the Company.

Inflation

     Inflation has not had a significant impact on the Company during the 
last two years.  However, an extended period of inflation could be expected to 
have an impact on the Company's earnings by causing operating expenses to 
increase.  It is likely that the Company's subsidiaries and joint operations 
would attempt to pass increased expenses to customers.  If the Company's 
subsidiaries and joint operations are unable to pass through increased costs, 
their operating results could be adversely affected which would adversely 
affect the Company's operating results.

Item 7.     FINANCIAL STATEMENTS

     The information required hereunder is included in this report as set 
forth in the "Index to Financial Statements" on page F-1.

Item 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
            FINANCIAL DISCLOSURE
     
     On August 30, 1996, BDO Seidman, LLP ("Former Accountant") informed the 
Company that it was resigning from its position as the Company's accounting 
firm, and on November 8, 1996, the Company approved the engagement of Arthur 
Andersen LLP ("Current Accountant") as the Company's independent accountant.

     The Former Accountant's report on the Company's financial statements for 
1995 and the Current Accountant's report on the Company's financial statements 
for 1996 contained a qualified opinion to reflect that incurred losses from 
operations and the Company's financial position raise substantial doubt about 
the ability of the Company to continue as a going concern.  There have been no 
disagreements with either the Former Accountant or the Current Accountant on 
any matter of accounting principles or practices, financial statement 
disclosure, or auditing scope or procedure.


                                 PART III

Item 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

     The following table gives certain information with respect to the 
executive officers and directors of the Company:

     Name                    Age     Position
     ----                    ---     --------
     Robert L. Knauss (3)     67     Chairman of the Board and Chief Executive 
                                      Officer, Director - Class III
     James W. Goodchild (4)   42     President and Chief Operating Officer and 
                                      Director - Class II
     David A. Grossman        34     Chief Financial Officer and Corporate 
                                      Secretary
     Homi M. Davier (1)       49     Director - Class I
     Paul R. Gregory (2)      57     Director - Class I
     Adolf af Jochnick (1)    68     Director - Class II
     Jonas af Jochnick (3)    60     Director - Class III
     Juris Padegs (1)(3)      66     Director - Class III
     Ted Reynolds (2)         67     Director - Class II
     Morris Sandler (2)       51     Director - Class I
___________________________
(1)     Member of the Audit Committee.
(2)     Member of the Compensation Committee.
(3)     Member of the Nominating Committee.
(4)     Mr. Goodchild resigned as President and Chief Operating Officer in 
        March 1998.  He remains as a director of the Company.

     Mr. Knauss has served as chief executive officer since January 1994.  
Mr. Knauss served as Dean of the University of Houston Law Center from 1981 
through December 1993.  He was formerly Dean of the Vanderbilt Law School.  
He was involved in establishing the relationship between the University of 
Houston Law Foundation and the former Soviet Union in 1991 whereby the 
University of Houston Law Foundation assisted the former Soviet Union in 
creating the Petroleum Legislation Project.  He has served as a director of 
Equus II, Inc. since 1984 and as one of the two United States directors for 
the Mexico Fund since 1985.  He was elected as a director of Philip Services 
Corp. in 1997 following the merger of Allwaste, Inc. and Philip Services 
Corp.  Securities of the Mexico Fund, Philip Services Corp. and Equus 
Investments, Inc. are registered under the Exchange Act.  Mr. Knauss is a 
graduate of Harvard University and the University of Michigan Law School.  
Mr. Knauss has traveled extensively to the former Soviet Union.

     Mr. Goodchild has been senior credit officer of AMRESCO Builders 
Group, Inc. since March 1998.  He served as president of the Company from 
September 1997 and as chief operating officer of the Company from October 
1994 until March 1998.  He served as chief financial officer of the Company 
from September 1993 until September 1997.  Mr. Goodchild served as the 
Company's vice president of finance and development from July 1992 to August 
1993.  From August 1989 through June 1992, Mr. Goodchild attended the 
University of Houston where he acquired a B.A. degree in Russian and Soviet 
Studies, and a B.A. degree in International Relations.  He is fluent in 
Russian.  Mr. Goodchild was project administrator of  the Russian Petroleum 
Legislation Project from July 1992 to December 1992.  From 1984 to March 
1989, he was employed with MCorp, formerly a Dallas-based bank holding 
company, where he served as senior vice president and manager of credit 
administration of MCorp's Collection Bank.  Additionally, Mr. Goodchild 
acquired a B.S. degree in finance from the University of Houston in 1978.

     Mr. Grossman has served as chief financial officer since September 
1997 and as corporate secretary since December 1996.  He served as 
comptroller from November 1995 until September 1997.  From 1985 to 1995, he 
was an audit senior manager for Deloitte & Touche LLP.  Mr. Grossman was 
certified as a CPA in 1986.  Mr. Grossman graduated from Indiana University 
in 1985 with a B.S. degree in accounting.

     Mr. Davier served as president of the Company from March 1991 until 
August 1995.  Mr. Davier has served as a director and as the Company's 
managing director to BIA from June 1991 to August 1995.  He served as senior 
traffic assistant of Air India from 1971 to 1975, and assisted in the start-up 
of Gulf Air in Oman from 1975 to 1978 and in the start-up of the Middle 
Eastern operations of Air Bangladesh and Sabena Belgian Airlines from 1978 to 
1980.  Mr. Davier has served as chairman of the board and president of 
Capricorn Travel and Tours, Inc. since April 1983.  He is the founder and 
president of Capricorn Computers, established in 1985, which developed and 
markets the Capri 2020, a revenue accounting and management report system for 
travel agencies.  He has been chief executive officer of Travel Stop, a 
Houston-based retail travel outlet, since 1990.  Mr. Davier graduated from 
Hislop College in Nagpur, India.

     Dr. Gregory served as treasurer, on a part-time basis, of the Company 
since its inception in March 1991 until August 1995.  Dr. Gregory is the 
Cullen Professor of Economics and Finance at the University of Houston where 
he has been a faculty member since 1972.  He was involved in creating the 
Petroleum Legislation Project with Russia and he served as project 
coordinator of the Russian Securities Project in conjunction with the 
Russian State Committee for Property Management and the various Russian 
stock exchanges.  He serves as advisor to a number of major United States 
corporations on their Russian business activities, and has been active in 
the former Soviet Union for 25 years.  He has served as chairman of the 
board of Amsovco International Consultants, Inc. since 1988.  He has also 
served as a consultant to the World Bank.  Dr. Gregory graduated from 
Harvard University with a Ph.D. in economics and is fluent in Russian and 
German.  Dr. Gregory is the author of a text on the Soviet and Russian 
economies.

     Mr. Adolf af Jochnick, an American citizen, has been general counsel 
of Oriflame International, S.A. since 1990.  He is admitted to the Bar in 
New York and Connecticut.  Mr. Jochnick holds an LLB from Harvard Law 
School, an MA from the University of Kansas and a BA from the University of 
Stockholm, Sweden.

     Mr. Jonas af Jochnick, a Swedish citizen, has been chairman of the 
board and chief executive officer of ORESA Ventures S.A., a venture capital 
company concentrating on Eastern Europe and listed on the Stockholm stock 
exchange, since January 1995.  Since June 1990, he has been chairman of the 
board and chief executive officer of Oriflame Eastern Europe, S.A. and vice 
chairman of Oriflame International S.A.  The two Oriflame companies both 
manufacture cosmetic and skin care products which are marketed on a global 
basis.  Oriflame International is listed on the London Stock exchange.  Mr. 
Jochnick holds a law degree from the University of Stockholm, Sweden and an 
MBA from Harvard Business School.

     Mr. Padegs served as a managing director of Scudder, Stevens & Clark, 
an international investment and management firm from 1985 to 1996, has been 
employed with Scudder, Stevens & Clark since 1964 and is now Advisory 
Managing Director at that firm.  He is the chairman and director of the 
Korea Fund and the Brazil Fund.  He was born in Latvia and holds a Bachelor 
of Arts and a law degree from Yale University.  Mr. Padegs is fluent in 
Latvian and German.  In July 1994, he was appointed by President Clinton to 
the board of the Baltic American Enterprise Fund, a $50 million fund to 
promote private enterprise in the Baltic States.

     Mr. Reynolds has been president of Houston Grain Company since 1983 
and vice president of Mid-America Grain Commodities since 1976.  He also 
formed and is owner of Red River Grain Company.  He is actively involved in 
various international business transactions.  Mr. Reynolds is a graduate of 
Texas Christian University.

     Mr. Sandler is a principal of Pennwood Capital Corporation, a venture 
capital investment and management firm.  He has been a consultant to Global 
TeleSystems Group, Inc. ("GTS"), an independent telecommunications company 
in Russia, since 1995.  Prior to that, he served as executive vice president 
from February 1994 to November 1995 and acting chief operating officer from 
April 1993 to February 1994 of GTS.  From 1990 to 1994, he was an employee 
of Alan B. Slifka and Company.  Mr. Sandler received a B.A. degree from 
Cornell University in 1969, and an M.B.A. from the University of Chicago 
Graduate School of Business in 1976.

     Directors are divided into three classes with three directors in each 
class.  The Class I directors hold office until the 1998 Annual Meeting of 
Shareholders, the Class II directors hold office until the 1999 Annual 
Meeting of Shareholders, and the Class III directors hold office until the 
2000 Annual Meeting of Shareholders and until their successors are elected 
and qualified.  The Audit Committee reviews and reports to the Board on the 
financial results of the Company's operations and the results of the audit 
services provided by the Company's independent accountants, including the 
fees and costs for such services.  The Compensation Committee reviews 
compensation paid to management and recommends to the Board of Directors 
appropriate executive compensation.  The Nominating Committee selects 
director nominees for election to the Board of Directors.  Officers are 
elected annually and serve at the discretion of the Board of Directors.  
There is no family relationship between or among any of the directors and 
executive officers of the Company, except for Jonas af Jochnick and Adolf af 
Jochnick who are brothers.

Director Compensation

     Outside directors are entitled to receive options to purchase 10,000 
shares of Common Stock in their first year of service and options to purchase 
5,000 shares of Common Stock per year thereafter as compensation and 
reimbursement of out-of-pocket expenses to attend board meetings.  In December 
1996, Messrs. Davier, Gregory, Padegs, Reynolds and Sandler each received 
options to purchase 5,000 shares of Common Stock at a price of $0.8125 per 
share.  Such options expire in December 2001.  In December 1997, Adolf af 
Jochnick and Jonas af Jochnick each received options to purchase 10,000 shares 
of common stock at a price of $0.40625 per share and Messrs. Davier, Gregory, 
Padegs, Reynolds and  Sandler each received options to purchase 5,000 shares of 
common stock at a price of $0.40625 per share.  Such options expire in December 
2002. 

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Securities Exchange Act of 1934 requires the 
Company's directors and executive officers and persons who own more than ten 
percent of a registered class of the Company's equity securities to file reports
with the Securities and Exchange Commission relating to transactions and 
holdings in the Company's common stock.  The Company believes that during the 
fiscal year ended December 31, 1997 all such filing requirements were satisfied.

Item 10.     EXECUTIVE COMPENSATION

     The following table sets forth information with respect to the chief 
executive officer and the only other executive officer of the Company who 
received total annual salary and bonus for the fiscal year ended December 31, 
1997 in excess of $100,000:

<TABLE>
<CAPTION>
                          Summary Compensation Table


                                                                      Long-Term Compensation

                                     Annual Compensation (1)                       Securities 
                                                                                   Underlying
Name and Principal    Fiscal                         All Other      Restricted      Options
Position               Year      Salary    Bonus     Compensation   Stock Awards  and Warrants
<S>                    <C>     <C>        <C>            <C>            <C>         <C>
Robert Knauss,         1997     $120,000   $     0          $0       $51,616 (4)     244,700 (4)
 Chief Executive       1996      120,000         0           0             0               0
  Officer              1995      120,000    75,000 (2)       0             0         125,000 (5)

James Goodchild,       1997     $120,000   $     0     $     0       $30,375 (4)     144,000 (4)
 Chief Operating and   1996      120,000   $     0      13,333 (3)         0               0
Financial Officer      1995      120,000    50,000 (2)       0             0         140,000 (5)
</TABLE>

 (1)     None of the named executive officers received perquisites or other 
         benefits valued in excess of 10% of the total of reported annual 
         salary and bonus.
 (2)     The bonus for 1995 consists of cash payments of $37,500 and $25,000 
         and the issuance of 25,000 and 16,667 shares of the Company's common 
         stock to Messrs. Knauss and Goodchild, respectively.
 (3)     Other compensation for Mr. Goodchild in 1996 consists of payment of the
         exercise price by the Company on options that were exercised.
 (4)     In August 1997, the Company granted 122,350 and 72,000 shares of the 
         Company's common stock and 244,700 and 144,000 options to Messrs. 
         Knauss and Goodchild, respectively, for services to be rendered.  Half 
         of the shares and options were vested in February 1998 and the 
         remaining half vest in August 1999.
 (5)     Of these options and warrants, 35,000 and 50,000 stock options were 
         originally granted in October 1994 to Messrs. Knauss and Goodchild, 
         respectively, at an exercise price of $2.875 per share.  In August 
         1995, these options were repriced at $1.125 per share.

Stock Options

     In September 1992, the Company adopted its 1992 Equity Incentive Plan 
("Plan"), which was amended effective March 1995, December 1995 and September 
1997.  The Plan provides for the issuance of incentive stock options and non-
qualified options.  An aggregate of 1,500,000 shares of the Company's Common 
Stock may be issued pursuant to options granted under the Plan to employees, 
non-employee directors and consultants, subject to evergreen provisions included
in the Plan.  The Plan is administered by the compensation committee of the 
Company's Board of Directors. The compensation committee has the authority to 
determine, among other things, the size, exercise price and other terms and 
conditions of awards made under the Plan.  Subject to certain restrictions, the 
exercise price of incentive stock options may be no less than 100% of fair 
market value of a share of Common Stock on the date of grant.  As of the date of
this Annual Report, options to purchase an aggregate of 1,072,366 shares were 
outstanding under the Plan.  

     The following table shows, as to the named executive officers, 
information concerning individual grants of stock options and warrants during 
1997.  These options and warrants for each executive officer are exercisable in 
February 1998 and the remaining half are exercisable in August 1999.

<TABLE>
<CAPTION>
                    Option/Warrant Grants in Last Fiscal Year

                      Number of          % of Total
                      Securities      Options/Warrants
                      Underlying         Granted to
                   Options/Warrants     Employees in    Exercise Price
Name                   Granted              1996          Per Share      Expiration Date
<S>                  <C>                <C>             <C>              <C>
Robert L. Knauss      244,700             51.33          $0.421875        August 2004
James W. Goodchild    144,000             30.21          $0.421875        August 2004
David A. Grossman      88,000             18.46          $0.421875        August 2004
</TABLE>

     The following table shows, as to the named executive officers, 
information concerning aggregate stock option and warrant exercises 
during 1996 and the stock option and warrant values as of December 31, 
1997.

<TABLE>
<CAPTION>
      Aggregated Option and Warrant Exercises in Last Fiscal Year 
                 and Year End Option and Warrant Values

                                           Number of Securities
                                               Underlying        Value of Unexercised
                                              Unexercised            In-the-Money
                                           Options/Warrants at   Options/Warrants at
                   Shares                  December 31, 1997     December 31, 1997
                 Acquired on      Value       Exercisable/          Exercisable/
Name               Exercise      Realized    Unexercisable         Unexercisable
<S>                <C>             <C>      <C>                   <C>            
Robert L. Knauss         0          $0       165,500/244,700            $0/$0
James W. Goodchild  13,334           0       147,000/144,000            $0/$0
David A. Grossman        0           0       113,000/88,000             $0/$0
</TABLE>

     The Company has not established, nor does it provide for, long-term 
incentive plans or defined benefit or actuarial plans.


Item 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of March 27, 1998, certain 
information with respect to the beneficial ownership of the Company's Common 
Stock by (i) each person known to the Company who beneficially owns more 
than 5% of the Company's outstanding Common Stock; (ii) each director; (iii) 
each named executive officer; and (iv) all directors and officers as a 
group:

                                              Shares Beneficially Owned
Name of Beneficial Owner (1)                Number                Percent
Jonas af Jochnick                       12,510,000  (2)            57.26
Citibank (Switzerland)                   1,000,000                  6.47
Robert L. Knauss                         1,094,288  (3)             6.84
Paul R. Gregory                            894,557  (4)             5.60
Homi M. Davier                             640,180  (5)             4.06
James W. Goodchild                         472,034  (6)             2.98
Juris Padegs                               311,252  (7)             1.98
David A. Grossman                          131,667  (8)             0.84
Morris A. Sandler                          130,000  (9)             0.83
Ted Reynolds                                81,000 (10)             0.52
Adolf af Jochnick                           10,000 (11)             0.06
All directors and executive officers 
  as a group  (10 persons)              16,274,979 (12)            69.42

(1)     The business address of each individual is the same as the address of 
the Company's principal executive offices except for Mr. Jonas af Jochnick 
whose business address is Place Flagey 7, bte 7, 1050 Brussels, Belgium; 
Citibank (Switzerland) whose business address is P. O. Box 244, Zurich, 
Switzerland CH-8021; Mr. Padegs whose business address is 345 Park 
Avenue, New York, New York  10154; Mr. Reynolds whose business address is 
1300 Post Oak Boulevard, Suite 770, Houston, Texas  77056; Mr. Sandler 
whose business address is 477 Madison Avenue, 8th Floor, New York, New 
York 10022; and Mr. Adolf af Jochnick whose business address is P.O. Box 
71859, West Hartford, Connecticut  06127.
 (2)     Includes an aggregate of 6,260,000 shares subject to warrants and 
options which are currently exercisable.  Celox S.A., which is 100% owned by 
Jonas af Jochnick, owns 2,500,000 shares and 2,500,000 warrants.  ORESA 
Ventures, N.V., an affiliate of Mr. Jochnick, owns 3,750,000 shares 
and 3,750,000 warrants.
 (3)     Includes an aggregate of 422,259 shares subject to options, warrants 
and Series A Preferred Stock which are currently exercisable.  Excludes an 
aggregate of 183,525 shares subject to options which are not currently 
exercisable and shares to be issued for services to be rendered.
 (4)     Includes an aggregate of 379,188 shares subject to options, warrants 
and Series A Preferred Stock which are currently exercisable.
 (5)     Includes an aggregate of 174,013 shares subject to options, warrants 
and Series A Preferred Stock which are currently exercisable.
 (6)     Includes an aggregate of 72,763 shares subject to options, warrants and
Series A Preferred Stock which are currently exercisable.  Excludes an 
aggregate of 108,000 shares subject to options which are not currently 
exercisable and shares to be issued for services to be rendered.
 (7)     Includes 133,811 shares subject to options, warrants and Series A 
Preferred Stock which are currently exercisable.
 (8)     Includes 69,000 shares subject to options which are currently 
exercisable.  Excludes an aggregate of 66,000 shares subject to options 
which are not currently exercisable and shares to be issued for services 
to be rendered.
 (9)     Includes 105,000 shares subject to options and warrants which are 
currently exercisable.
(10)     Includes 31,000 shares subject to options and warrants which are 
currently exercisable.
(11)     Includes an aggregate of 10,000 shares subject to options which are 
currently exercisable.
(12)     Includes an aggregate of 7,857,035 shares subject to options, warrants 
and Series A Preferred Stock which are currently exercisable.  Excludes 
an aggregate of 357,525 shares subject to options which are not currently 
exercisable and shares to be issued for services to be rendered.

Item 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In May 1996, Mr. Knauss loaned an aggregate of $250,000 to the Company 
bearing interest at a rate of 14% per annum, which was repaid in September 
1997.  In connection with this loan, Mr. Knauss received a warrant to 
purchase 25,000 shares of Common Stock at an exercise price of $0.75 per 
share, which warrant became exercisable in May 1996 and expires in May 2001.  
Mr. Knauss has received renewal fees aggregating $25,000 for renewals of 
this loan.  In May 1997, Mr. Knauss advanced an aggregate of $10,000, 
bearing interest at a rate of 12% per annum, which was repaid in August 
1997.  In connection with this advance, the Company issued Mr. Knauss 
warrants to purchase an aggregate of 1,000 shares of common stock at a price 
of $0.50 per share, which warrants are currently exercisable and expire in 
May 2002.

     In May 1997, Mr. Gregory and the Gregory Family Partnership advanced 
an aggregate of $10,000, bearing interest at a rate of 12% per annum, which 
was repaid in August 1997.  In connection with this advance, the Company 
issued Mr. Gregory and the Gregory Family Partnership warrants to purchase 
an aggregate of 1,000 shares of common stock at a price of $0.50 per share, 
which warrants are currently exercisable and expire in May 2002.

     In October 1996, Mr. Padegs advanced an aggregate of $10,000, bearing 
interest at a rate of 12% per annum, which was repaid in August 1997.  In 
connection with this advance, the Company issued Mr. Padegs warrants to 
purchase an aggregate of 1,000 shares of common stock at a price of $0.5625 
per share, which warrants are currently exercisable and expire in October 
2001.  In May 1997, Mr. Padegs advanced an aggregate of $10,000, bearing 
interest at a rate of 12% per annum, which was repaid in August 1997.  In 
connection with this advance, the Company issued Mr. Padegs warrants to 
purchase an aggregate of 1,000 shares of common stock at a price of $0.50 
per share, which warrants are currently exercisable and expire in May 2002.

     In May 1997, Mr. Reynolds advanced an aggregate of $10,000, bearing 
interest at a rate of 12% per annum, which was repaid in August 1997.  In 
connection with this advance, the Company issued Mr. Reynolds warrants to 
purchase an aggregate of 1,000 shares of common stock at a price of $0.50 
per share, which warrants are currently exercisable and expire in May 2002.

          In December 1994, Mr. Knauss guaranteed a $50,000 bank loan to the 
Company.  The balance of the loan is $8,711 at December 31, 1997 and was 
repaid in January 1998.

          In July 1997, ORESA Ventures N.V., an affiliate of Jonas af Jochnick, 
advanced $500,000 to the Company, bearing interest at a rate of 13% per 
annum.  This loan was repaid in September 1997.

     In August and September 1997, Celox S.A., an affiliate of Jonas af 
Jochnick, purchased an aggregate of 2,500,000 shares of Common Stock for 
$1,000,000.  In connection with this private placement, the Company issued 
warrants to purchase 2,500,000 shares of Common Stock at an exercise price 
of $0.65 per share, which warrants are currently exercisable and expire in 
August 2002.  Additionally in August and September 1997, ORESA Ventures N.V. 
purchased an aggregate of 3,750,000 shares of Common Stock for $1,500,000.  
In connection with this private placement, the Company issued warrants to 
purchase 3,750,000 shares of Common Stock at an exercise price of $0.65 per 
share, which warrants will be currently exercisable and expire in August 
2002.

     In October 1997, ORESA Ventures N.V. advanced $2,000,000 to the 
Company, bearing interest at a rate of 13% per annum.  Principal and 
interest are due at the maturity date of January 29, 1999.

     Management believes that all prior related party transactions are on 
terms no less favorable to the Company as could be obtained from 
unaffiliated third parties.  All ongoing and future transactions with such 
persons, including any loans to such persons, will be approved by a majority 
of disinterested, independent outside members of the Company's Board of 
Directors.

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits.

Exhibit No.     Identification of Exhibit

     2.1(2)-     Plan and Agreement of Recapitalization
     3.1(a)(2)-  Restated Articles of Incorporation
     3.1(b)(2)-  Amended Articles of Incorporation
     3.1(c)(2)-  Articles of Correction
     3.2(2)-     Bylaws
     3.3(2)-     Statement of Resolution Establishing and Designating a Series 
                 of Shares of the Company, Series A Cumulative Preferred Stock, 
                 $10.00 par value
     3.4(5)-     Certificate of Elimination of Shares Designated as Series A 
                 Cumulative Preferred Stock
     3.5(5)-     Certificate of the Designation, Preference, Rights and 
                 Limitations of Convertible Redeemable Series A Preferred Stock
     4.1(2)-     Common Stock Specimen
    10.3(4)-     1992 Equity Incentive Plan, as amended
    10.4(2)-     Employment Agreement between the Company and Robert L. Knauss
    10.7(2)-     Baltic International Airlines Joint Venture Limited Liability 
                 Company Agreement between the Latvian Civil Aviation Board and 
                 the Company
    10.8(2)-     Protocol No. 1 dated July 1991
    10.9(2)-     Protocol No. 4 dated May 9, 1992
    10.10(2)-    Protocol No. 5 dated July 21, 1992
    10.11(2)-    Protocol No. 6 dated February 5, 1993
    10.12(2)-    Settlement Agreement between the Company and Latvian Airlines 
                 and Ministry of Transportation of the Republic of Latvia
    10.14(2)-    Baltic Catering Limited Liability Company Agreement between 
                 the Company and ARVO, Ltd.
    10.34(3)-    Memorandum of Understanding between the Company, BIA and SAS
    10.35(3)-    Loan Agreement with Charter Bank
    10.36(6)-    Air Baltic Joint Venture Agreement
    10.38(8)-    Articles of Incorporation of LAMCO
    10.40(8)-    Amendment to Air Baltic Joint Venture Agreement
    10.41(7)-    Share Purchase Agreement with SAS
    10.42(1)-    AIRO Catering Services Joint Venture Agreement
    10.43(9)-    Riga Catering Services Shareholders' Agreement
    10.44(8)-    Amendment to Articles of Incorporation of LAMCO
    10.45(8)-    Statement of the Designation, Preferences, Rights and 
                 Limitations of Series B Convertible Redeemable Preferred 
                 Stock, as amended
    10.46(11)-   Compensatory Plan for Robert Knauss, James Goodchild and 
                 David Grossman
    10.47(11)-   Promissory Note Agreement with ORESA Ventures N.V.
    16.2(10)-    Letter on Change in Certifying Accountant
_____________________

(1)     Filed herewith.

(2)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (No. 33-74654-D), as amended, and incorporated herein by 
reference thereto.

(3)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (No. 33-86378), as amended, and incorporated herein by 
reference thereto.

(4)     Previously filed as an exhibit to the Company's Registration Statement 
on Form S-8 (33-90030), and incorporated herein by reference thereto.

(5)     Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1995, and incorporated herein by 
reference thereto.

(6)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated August 29, 1995, and incorporated herein by reference thereto.

(7)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated January 10, 1996, and incorporated herein by reference 
thereto.

(8)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (File No. 333-860), and incorporated herein by reference 
thereto.

(9)     Previously filed as an exhibit to the Company's Annual Report on Form 
10-KSB for the year ended December 31, 1995, and incorporated herein by 
reference thereto.

(10)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated August 30, 1996, and incorporated herein by reference thereto.

(11)     Previously filed as an exhibit to the Company's Quarterly Report on 
Form 10-QSB for the quarter ended September 30, 1997, and incorporated 
herein by reference thereto.

(b)     Reports on Form 8-K

         No reports on Form 8-K were filed during the fourth quarter of 1997.



                         BALTIC INTERNATIONAL USA, INC.

                         INDEX TO FINANCIAL STATEMENTS
                                                                  Page

Report of independent public accountants                           F-2

Consolidated balance sheets at December 31, 1997 and 1996          F-3

Consolidated statements of operations for the years ended 
     December 31, 1997 and 1996                                    F-4

Consolidated statements of stockholders' equity for the years
     ended December 31, 1997 and 1996                              F-5

Consolidated statements of cash flows for the years ended 
     December 31, 1997 and 1996                                    F-7

Notes to consolidated financial statements                         F-8



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of
Baltic International USA, Inc.

We have audited the accompanying consolidated balance sheets of Baltic 
International USA, Inc. as of December 31, 1997 and 1996, and the related 
consolidated statements of operations, shareholders' equity and cash flows for 
the years then ended.  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 audits in accordance with generally accepted auditing 
standards.  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 audits provide a reasonable basis 
for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Company
has funded operating cash deficits and investments through financing 
activities.  During 1997, the Company received net proceeds of $2,510,501 from 
the issuance of common stock, and in April 1998, the Company obtained a line of 
credit to provide additional liquidity to the Company which management believes,
although not assured, will allow the Company to meet its operating and capital
needs for the next twelve months.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Baltic 
International USA, Inc. as of December 31, 1997 and 1996, and the results of 
its operations and its cash flows for the years then ended in conformity with 
generally accepted accounting principles.




ARTHUR ANDERSEN LLP


Houston, Texas
April 15, 1998



                            BALTIC INTERNATIONAL USA, INC.
                             Consolidated Balance Sheets



                                               December 31,      December 31,
                                                   1997               1996
                                               (unaudited)         (audited)
ASSETS

CURRENT ASSETS
 Cash and cash equivalents                     $   965,992         $ 384,245
 Accounts receivable:
  Trade                                            135,109            43,810
  Affiliates                                       138,125                 -
 Inventory                                         195,971            47,741
 Prepaids and deposits                              11,446           166,362
                                                ----------        ----------
    Total current assets                         1,446,643           642,158
                                                ----------        ----------
PROPERTY AND EQUIPMENT, net                         12,836            18,182
INVESTMENT IN AND ADVANCES TO JOINT OPERATIONS   4,316,168         3,446,775
OTHER ASSETS                                        31,649           233,791
GOODWILL, NET                                      208,848           238,308
                                                ----------        ----------
    Total assets                               $ 6,016,144       $ 4,579,214
                                                ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES 
 Accounts payable and accrued liabilities        $ 669,233         $ 436,760
 Short-term debt, net                               83,711         2,285,597
 Commitments for guarantees on BIA liabilities           -           146,375
 Other current liabilities                               -            73,583
                                                ----------        ----------
    Total current liabilities                      752,944         2,942,315
LONG-TERM DEBT TO A SHAREHOLDER                  2,000,000                 -
                                                ----------        ----------
    Total liabilities                              752,944         2,942,315
                                                ----------        ----------

COMMITMENTS AND CONTINGENCIES 

STOCKHOLDERS' EQUITY
 Warrants                                        1,306,610                 -
 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, 16 and 34 shares issued and 
    outstanding                                    400,000           850,000
 Common stock, $.01 par value, 20,000,000 
    shares authorized, 15,502,792 and 
    7,302,108 shares issued and 15,460,348 
    and 7,302,108 shares outstanding               155,028            73,021
 Additional paid-in capital                     11,687,809         9,905,403
 Accumulated deficit                           (11,495,707)      (10,421,525)
 Treasury stock, at cost                           (20,540)                -
                                                ----------        ----------
    Total stockholders' equity                   3,263,200         1,636,899
                                                ----------        ----------
    Total liabilities and stockholders' equity $ 6,016,144       $ 4,579,214
                                                ==========        ==========

     See accompanying notes to consolidated financial statements.



                       BALTIC INTERNATIONAL USA, INC.
                   Consolidated Statements of Operations


                                                    Year Ended December 31,

                                                    1997              1996
REVENUES:
  Freight revenue                               $   225,680       $   557,057
  Food distribution                                 470,874           276,733
  General sales agency revenue                       78,000            59,000
  Net equity in earnings of joint operations        361,688           420,467
                                                -----------       -----------
       Total operating revenues                   1,136,242         1,313,257
                                                -----------       -----------

OPERATING EXPENSES:
  Cost of revenue:
    Freight                                         155,331           301,665
    Food distribution                               452,379           213,044
  Personnel and consulting                          671,515           965,560
  Legal and professional                            109,729            91,900
  Other general and administrative                  515,735           428,408
  Reserve of investment in BIA                            -           812,385
                                                -----------       -----------
    Total operating expenses                      1,904,689         2,812,962
                                                -----------       -----------

LOSS FROM OPERATIONS                               (768,447)       (1,499,705)
                                                -----------       -----------

OTHER INCOME (EXPENSE):
  Interest expense                                 (507,747)         (132,034)
  Interest income                                    32,450             3,800
  Gain on sale of assets                            569,926           297,200
  Other income (expense)                           (124,640)           97,890
                                                -----------       -----------
TOTAL OTHER INCOME (EXPENSE)                        (30,011)          266,856
                                                -----------       -----------

LOSS BEFORE INCOME TAXES                           (798,458)       (1,232,849)

INCOME TAX EXPENSE                                        -           (15,694)
                                                -----------       -----------
NET LOSS                                        $  (798,458)      $(1,248,543)
                                                -----------       -----------


LESS PREFERRED DIVIDENDS                           (275,724)         (210,743)
                                                -----------       -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS    $(1,074,182)      $(1,459,286)
                                                ===========       ===========



LOSS PER SHARE AMOUNTS:
Basic                                           $     (0.11)      $     (0.23)
Diluted                                         $     (0.11)      $     (0.23)



     See accompanying notes to consolidated financial statements.



<TABLE>
<CAPTION>
                        BALTIC INTERNATIONAL USA, INC.
               Consolidated Statements of Shareholders' Equity



                                                  Preferred Stock
                                              Series A                  Series B
                          Warrants      Shares        Amount       Shares      Amount
<S>                      <C>           <C>         <C>            <C>       <C>
Balance, January 1, 
1996                     $        -     123,000     $1,230,000        -     $        -
Shares issued:

  Common stock

  Preferred stock                                                    50      1,250,000

Preferred stock and 
accrued dividends 
converted to 
common stock                                                        (16)      (400,000)

Debt converted to 
common stock

Discount on debt 
issued

Deferred 
compensation on 
options granted
Net loss

Dividends on 
preferred stock:

  Series A, $1.00 
  per share

  Series B, $2507 
  per share
                         ----------    --------     ----------      ---     ----------
Balance, 
December 31, 1996                 -     123,000      1,230,000       34        850,000

Common shares and 
warrants issued           1,306,610

Preferred stock and 
accrued dividends 
converted to common 
stock                                                               (18)      (450,000)

Purchase of treasury 
shares

Reissuance of 
treasury shares

Net loss

Dividends on 
preferred stock:

  Series A, $1.00 
  per share

  Series B, $6221 
  per share
                         ----------    --------     ----------      ---     ----------
Balance, December 31,
    1997                 $1,306,610     123,000     $1,230,000       16     $  400,000
                         ==========    ========     ==========      ===     ==========
</TABLE>

     See accompanying notes to consolidated financial statements.



<TABLE>
<CAPTION>
                        BALTIC INTERNATIONAL USA, INC.
                 Consolidated Statements of Shareholders' Equity
                                (Continued)



                                                 Additional
                            Common stock          paid-in      Accumulated     Treasury
                         Shares     Amount         capital         deficit        stock        Total
<S>                     <C>        >C<           <C>          <C>              <C>           <C>
Balance, January 1, 
1996                  5,758,241   $ 57,582    $ 8,703,883    $ (8,962,239)    $       -    $ 1,029,226
Shares issued:
  Common stock          580,078      5,801        693,436                                      699,237

  Preferred stock                                (159,800)                                   1,090,200

Preferred stock and 
accrued dividends 
converted to 
common stock            657,576      6,576        409,958                                       16,534

Debt converted to 
common stock            306,213      3,062        137,605                                      140,667

Discount on debt 
Issued                                              9,987                                        9,987

Deferred 
compensation on 
options granted                                   110,334                                      110,334

Net loss                                                       (1,248,543)                  (1,248,543)

Dividends on 
preferred stock:
  Series A, $1.00 
  per share                                                      (123,250)                    (123,250)

  Series B, $2507 
  per share                                                       (87,493)                     (87,493)
                     ----------   --------    -----------    ------------     ---------    -----------
Balance, 
December 31, 1996     7,302,108     73,021      9,905,403     (10,421,525)            -      1,636,899

Common shares and 
warrants issued       7,052,913     70,529      1,256,514                                    2,633,653

Preferred stock and 
accrued dividends 
converted to 
common stock          1,147,771     11,478        497,597                                       59,075

Purchase of treasury 
shares                                                                         (292,300)      (292,300)

Reissuance of 
treasury shares                                    28,295                       271,760        300,055

Net loss                                                         (798,458)                    (798,458)

Dividends on 
preferred stock:
  Series A, $1.00 
  per share                                                      (123,000)                    (123,000)

  Series B, $6221 
  per share                                                      (152,724)                    (152,724)
                     ----------   --------    -----------    ------------     ---------    -----------
Balance, December 31,
1997                 15,502,792   $155,028    $11,687,809    $(11,495,707)    $ (20,540)   $ 3,263,200
                     ==========   ========    ===========    ============     =========    ===========
</TABLE>




     See accompanying notes to consolidated financial statements.



                        BALTIC INTERNATIONAL USA, INC.
                   Consolidated Statements of Cash Flows


                                                    Year Ended December 31,

                                                    1997              1996
Cash flows from operating activities:
  Net loss                                      $  (798,458)    $  (1,248,543)
  Noncash adjustments:
    Net equity in (earnings) and losses of:
      BIA                                                 -           812,385
      Other joint operations                       (361,688)         (420,467)
    Depreciation and amortization                    37,018            35,474
    Amortization of debt costs and discount         188,174            42,806
    Deferred compensation expense                         -            66,753
    Gain on sale of assets                         (569,926)         (297,200)
    Increase/decrease in current assets and 
      liabilities:
      Accounts receivable                          (124,522)          143,368
      Prepaid and other                             333,553          (174,733)
      Inventory                                    (148,230)          (33,476)
      Accounts payable and accrued liabilities      382,483          (135,943)
      Commitments for guarantees                    (75,000)         (873,146)
                                                -----------     -------------
        Net cash used by operating activities    (1,136,596)       (2,082,722)
                                                -----------     -------------

Cash flows from investing activities:
  Investment in and advances to joint operations   (814,078)       (3,025,009)
  Distributions and repayments from joint 
    operations                                      123,276           206,208
  Proceeds from sale of assets                      600,000         1,700,000
  Proceeds from repayment of Air Baltic 
    subordinated debt                                     -           290,000
  Acquisition of property and equipment              (2,212)           (5,299)
                                                -----------     -------------
        Net cash used by investing activities       (93,014)         (834,100)
                                                -----------     -------------

Cash flows from financing activities:
  Borrowings of debt                              2,540,000         2,294,944
  Repayment of debt and long-term obligations    (2,930,060)         (232,229)
  Issuance of stock, net of related costs         2,524,467         1,183,737
  Purchase of treasury stock................       (292,300)                -
  Preferred dividends paid                          (30,750)          (84,625)
                                                -----------     -------------
        Net cash provided by financing activities 1,811,357         3,161,827
                                                -----------     -------------

Net increase in cash and cash equivalents           581,747           245,005
Cash and cash equivalents, beginning of period      384,245           139,240
                                                -----------     -------------
Cash and cash equivalents, end of period        $   965,992     $     384,245
                                                ===========     =============



     See accompanying notes to consolidated financial statements.



                         BALTIC INTERNATIONAL USA, INC.
                   Notes to Consolidated Financial Statements

NOTE 1 - BUSINESS OPERATIONS AND FINANACIAL CONDITION

Business operations

Baltic International USA, Inc. (the "Company" or "BIUSA"), a Texas 
corporation, was organized on March 1, 1991 to identify, form and participate 
in aviation-related and other business ventures in the former Soviet Union.
The Company initially pursued its plans to participate in airline service in 
Latvia through a 49% interest in a newly formed start-up airline - Baltic 
International Airlines ("BIA"), a limited liability company registered in the 
Republic of Latvia.  The Company made significant investments in and advances 
to BIA which has incurred losses of approximately $12,700,000 from inception 
through December 31, 1997.  On October 1, 1995, the routes and passenger 
service operations of BIA were transferred as part of its capital contribution 
to a new Latvian carrier, Air Baltic Corporation SIA ("Air Baltic").  The 
Company currently owns a 8.02% interest in Air Baltic.  As discussed in Note 
4, BIA has no current operations and the Company is currently in the process 
of restructuring its investment in BIA.  BIA has not conducted any substantive 
business operations since October 1995.

The Company is also engaged in providing services to Air Baltic and other 
airlines through its interest in Riga Catering Services ("RCS"), a Riga, 
Latvia-based aviation catering company.  In 1996, the Company transferred its 
catering operations of Baltic Catering Services ("BSC") to RCS.  The Company 
will expand its catering operations through its 46% interest in AIRO Catering 
Services ("AIRO").  The Company also serves as a cargo marketer to Air Baltic 
and other airlines through its wholly owned subsidiary, Baltic World Air 
Freight ("BWAF").  American Distributing Company ("ADC"), a wholly owned 
subsidiary, began operations on December 1, 1995 as a food and beverage 
distribution company.  The Company's current active operations consist of 
these operations.

Financial condition

Management believes that results of operations of the Company have been and 
will continue to be affected by various factors typically encountered by 
businesses in the start-up phase.  The Company's success depends upon many 
factors that are beyond the Company's immediate control, including market 
acceptance of its business ventures, competition, economic and political 
factors, seasonality and the ability to obtain additional capital.

The Company requires substantial capital to pursue its operating strategies.  
To date, the Company has relied upon net cash provided by financing activities 
to fund its capital requirements.  There can be no assurance that the 
Company's business interests will generate sufficient cash in future periods 
to satisfy its capital requirements.

The Company's operations have been insufficient as a source of funds to meet 
the Company's capital requirements and other liquidity needs.  The majority of 
the borrowings for 1996 consists of a loan in the amount of $2,000,000 that 
the Company entered into in November 1996.  This loan was refinanced in 
October 1997 with a shareholder, is due in January 1999 and is secured by an 
option agreement that the Company entered into with Scandinavian Airlines 
System Denmark-Norway-Sweden ("SAS") in which the Company has the right to put 
the shares that it owns of Air Baltic to SAS for $2,144,333 during the period 
from June 1, 1997 to February 28, 1999.  Under this option agreement, SAS has 
the right to call the Company's Air Baltic shares for a price ranging from 
$3,329,962 to $5,089,012 during the same period.  Should the Company be unable 
to refinance this note in the future, it will exercise its right to put its 
share to SAS and use the proceeds to repay this loan. 

Management believes that the Company will be able to achieve a satisfactory 
level of liquidity to meets its business plan and capital needs for the next 
twelve months.  However, there can be no assurance the Company will be 
successful to meet its liquidity needs.  The historical earnings of the 
Company have been directly affected by the losses of BIA.  The Company does 
not anticipate, nor is it obligated to make, any further advances to BIA.  

In the event that inflation or other factors were to increase the cost of 
doing business in Latvia, or if a change in the political or economic climate 
occurred, many perceived business opportunities based on cost advantage may 
not be available.  Political stability in Latvia remains dependent, in part, 
on political events in neighboring republics.  Accordingly, unforeseeable and 
uncontrollable costs and political factors could adversely affect operations 
and the Company's ability to implement its business strategy.

The Company has funded operating cash deficits and investments through the 
issuance of stock and borrowings.  During 1997 and 1996, the Company received 
net proceeds of $2,510,501 and $93,537, respectively, relating to the issuance 
of 7,000,000 and 169,149 shares of common stock, respectively, pursuant to 
private sales and the exercise of outstanding stock options.  Additionally in 
1997 and 1996, the Company issued 623,128 and 410,929 shares of common stock, 
respectively, for payment of accounts payable of $317,763 and $401,001, 
respectively.  In February and March 1996, the Company issued 50 shares of 
Series B Convertible Redeemable Preferred Stock for net proceeds of 
$1,090,200.  The Company believes it has sufficient ability to obtain 
additional financing from key officers, directors and certain investors.

As discussed in Note 5, in October 1997, the Company refinanced its $2,000,000 
loan to a maturity date of January 29, 1999.  In April 1998, the Company 
obtained a line of credit in the aggregate of $800,000 from two shareholders 
to provide additional liquidity.  This line of credit matures on December 31, 
1999 and any outstanding balance will bear interest at a rate of 13%.  No 
advances are to made under the line of credit until the $2,000,000 loan to a 
shareholder is repaid, and the line of credit is secured by all shares of 
stock owned in AIRO.  The Company does not anticipate needing to draw on this 
line of credit in 1998.  Management believes that the refinancing of the debt 
and obtaining the additional line of credit along with the Company's equity 
financing completed during 1997 discussed in Note 7 and the sale of 5% of AIRO 
to LSG Lufthansa Services/Sky Chefs ("LSG") discussed in Note 4 should enable 
the Company to fund its capital obligations and meet its liquidity needs for 
the next twelve months.  However, there can be no assurance that management 
will be successful in such efforts.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company and 
its wholly owned subsidiaries (BWAF and ADC).  All significant intercompany 
accounts and transactions have been eliminated.  The Company accounts for its 
investment in the joint operations other than Air Baltic, BIA and Lithuanian 
Aircraft Maintenance Corporation ("LAMCO") using the equity method.  The 
Company's interest in Air Baltic is accounted for using the cost method 
because the Company owns only 8.02% of Air Baltic and has no control, voting 
or otherwise, over Air Baltic.  The Company's interest in BIA is accounted for 
using the cost method because BIA has no current operations and the Company is 
currently in the process of restructuring its investment including the 
anticipated liquidation of BIA.  LAMCO is accounted for using the cost method 
because the Company owns only 2.6% of LAMCO and it has had no operations since 
its inception.

Revenue recognition

Revenues are recognized when earned and expenses are recognized when the goods 
and services are acquired or provided.

Inventory

Inventory is stated at the lower of cost (first-in, first out) or market (net 
realizable value).  Inventory consists of ADC's food and beverage products.

Property, equipment and depreciation

Property and equipment are recorded at cost.  Depreciation is computed over 
the estimated useful lives of the assets using the straight-line method for 
financial reporting purposes and accelerated methods for income tax purposes.  
Maintenance and repairs are charged to operations as incurred.

Debt issuance costs

Debt issuance costs are amortized using the interest method until the maturity 
date of the related note payable.

Goodwill

Goodwill results from the acquisition of the remaining 50% interest in BWAF 
and the acquisition of the Miller distribution rights in Riga, Latvia by ADC.  
Goodwill is amortized over ten years.

Long-lived assets

In March 1995, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."  
The Company adopted SFAS No. 121 on January 1, 1996.  SFAS No. 121 requires 
that long-lived assets and certain intangibles to be held and used by an 
entity be reviewed for impairment whenever events or changes in circumstances 
indicate that the carrying amount of an asset may not be recoverable.  The 
Company's adoption of SFAS No. 121 did not materially impact the results of 
operations.

Income taxes

Deferred income taxes result from temporary differences between the financial 
statements and tax basis of assets and liabilities (see Note 6).

Loss per common share

Net loss per common share is computed using the weighted average number of 
common shares outstanding.  The weighted average number of shares for the 
years ended December 31, 1997 and 1996 were 10,189,215 and 6,461,561 
respectively.  Common equivalent shares from stock options and warrants are 
included in the computation if dilutive.

Stock warrants and options are considered to be dilutive for earnings per 
share purposes if the average market price during the period ending on the 
balance sheet date exceeds the exercise price and the Company had earnings for 
the period.

The FASB issued SFAS No. 128, "Earnings Per Share," which establishes the 
disclosure requirements of basic and diluted earnings per share.  Basic 
earnings per share is computed by dividing income available to common 
stockholders by the weighted average number of common shares outstanding 
during the period.  Diluted earnings per share reflects the potential dilution 
that could occur if securities or other contracts to issue common stock were 
exercised or converted into common stock or resulted in the issuance of common 
stock that then shared in the earnings.  The Company has adopted this 
pronouncement as of December 31, 1997.  This statement does not impact the 
earnings per share amounts computed for 1997 or 1996, as the Company had net 
losses for these periods.

Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly 
liquid investments purchased with original maturities of three months or less 
to be cash equivalents.

Use of estimates

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that effect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the reporting period.  
Actual results could differ from those estimates.

Concentration of credit risk

Substantially all of the Company's assets and revenue sources are heavily 
concentrated in Latvia and Lithuania.  Failure of the Company's subsidiaries 
and joint operations to perform up to the terms of its obligations due to 
economic or political circumstances would result in a material credit risk to 
the Company.

At December 31, 1997 and 1996, the Company's cash in financial institutions 
exceeded the federally insured deposits limit by $786,367 and $200,830, 
respectively.  An investment of $870,000 in a reverse repurchase agreement is 
included in cash and cash equivalents at December 31, 1997.  The collateral 
for this investment consists of a collateralized mortgage obligation with a 
market value of $870,000 at December 31, 1997.

Foreign currency translation

The functional currency of the Company's subsidiaries and joint operations, 
except for AIRO, is the Latvian Lat.  A portion of the Company's operations are 
conducted in convertible foreign currencies and are translated into U.S. dollars
at average current rates during each period reported.  Foreign currency 
transaction gains and losses are included in net income.  Net exchange gains or 
losses resulting from the translation of assets and liabilities are accumulated 
as a separate component of joint venture partners' equity.  Any translation 
gains or losses are not significant and therefore have not been recorded on the 
Company's consolidated balance sheets as of December 31, 1997 and 1996.

New accounting pronouncements

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," 
which establishes standards for reporting the components of comprehensive income
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related 
Information," which replaces existing segment disclosure requirements and 
requires reporting certain financial information regarding operating segments on
the basis used internally by management to evaluate segment performance.  The 
Company will adopt SFAS Nos. 130 and 131 in the first quarter of 1998 and year-
end 1998, respectively.  These statements may affect disclosure and presentation
in the financial statements but will have no impact on the Company's 
consolidated financial position, liquidity, cash flows or results of operations.

NOTE 3 - CONSOLIDATED SUBSIDIARIES

American Distributing Company
ADC, a wholly owned subsidiary of BIUSA, distributes Miller, Bartles & Jaymes,
and various staple food products in the Baltic States.  This business commenced 
in December 1995, as a successor to the Company's distribution activities which 
began in 1993.  The Company has a distribution system and offices in Riga, 
Latvia.  ADC opened a new office in Vilnius, Lithuania in May 1997.

Baltic World Air Freight

On September 5, 1992, the Board of Directors of the Company approved the 
formation of a joint operation to market and operate the air cargo services of 
BIA and serve as the cargo sales agent for BIA.  On September 11, 1992, BWAF was
formed as a California partnership, in which the Company owned a 50 percent 
partnership interest.  In October 1994, the Company purchased the remaining 50% 
interest in BWAF for approximately $165,000.  The acquisition was accounted for 
using the purchase method of accounting.  In 1995 and 1996, the Company issued 
an aggregate of 174,000 shares of common stock in satisfaction of the purchase. 
The results of operations of BWAF have been combined with those of the Company 
effective October 1, 1994.  Currently, BWAF has cargo market agreements with Air
Baltic and Austrian Airlines.


NOTE 4 - INVESTMENTS IN AND ADVANCES TO JOINT OPERATIONS

The investment in and advances to joint operations are as follows:

                                                   December 31,
                                               1997             1996
Joint operations accounted for using 
cost method:
airBaltic                                   $2,144,212       $1,918,000
BIA                                          1,131,315        1,186,824
LAMCO                                           40,000           40,000
                                             ---------        ---------
Subtotal                                     3,315,527        3,144,824
                                             ---------        ---------
Joint operations accounted for using 
equity method:
BCS                                             44,298           43,097
AIRO                                           784,991          110,956
RCS                                            171,352          147,898
                                             ---------        ---------
Subtotal                                     1,000,641          301,951
                                             ---------        ---------
Total                                       $4,316,168       $3,446,775
                                             =========        =========

Joint operations at cost -

Air Baltic Corporation

On August 29, 1995, a Joint Venture Agreement was signed between the Company, 
the Republic of Latvia ("Latvia"), SAS, Investeringsfonden for Ostlandene (the 
Investment Fund for Central and Eastern Europe - "IO") and Swedfund 
International AB ("Swedfund") (collectively, the "Parties"), for the 
establishment of a Latvian national airline, Air Baltic Corporation.

Upon completion of the Joint Venture Agreement, as amended on November 27, 
1995, Air Baltic had a share capital of $11.7 million consisting of $3.4 
million cash and $8.3 million other assets including real estate, with the 
following ownership percentages:  Latvia - 51.07%, the Company - 20.02%, SAS - 
16.51%, IO - 6.2% and Swedfund - 6.2%.  The Company obtained its 20.02% 
interest based on its cumulative-to-date investments in and advances to BIA.  
The Joint Venture Agreement provides that supplemental funding in the amount 
of $4.0 million for working capital as necessary, will be provided by the 
Nordic Investment Bank, or a similar financial institution.

Furthermore, the Parties agreed to provide subordinated debt loans as 
necessary to Air Baltic, totaling approximately $10.1 million, of which the 
Company's portion was $290,000.  In January 1996, SAS assumed the Company's 
$290,000 portion of the subordinated debt.  The Company agreed to pay all 
aviation-related payables of BIA as of November 27, 1995.  The Company has 
paid all of these payables as of December 31, 1997.

On January 10, 1996, the Company sold 12% of Air Baltic stock to SAS for $1.7 
million in cash and the assumption by SAS of the Company's future debt funding 
obligation to Air Baltic of $2,175,000.  The Company retains an 8.02% interest 
in Air Baltic.  A gain of $297,200 was recognized on the sale of the Air 
Baltic stock which is included in other income in 1996.

In October 1997, the Company contributed an additional $226,212 of capital to 
Air Baltic.


Summarized financial information for Air Baltic is as follows (100%):

                                                    December 31,
                                               1997             1996

Current assets                             $ 7,109,000      $11,372,000
Noncurrent assets                           21,576,000       15,986,000
                                            ----------       ----------
Total assets                               $28,685,000      $27,358,000
                                            ==========       ==========

Current liabilities                        $11,295,000      $ 8,768,000
Noncurrent liabilities                      13,776,000       16,536,000
Equity                                       3,614,000        2,054,000
                                            ----------       ----------
Total liabilities and equity               $28,685,000      $27,358,000
                                            ==========       ==========


                                             Year Ended December 31, 
                                               1997             1996

Revenues                                   $36,141,000      $ 24,399,000
Loss from operations                       $(3,981,000)     $(13,325,000)
Net loss                                   $(5,651,000)     $(17,245,000)

In accordance with Latvian Law on Foreign Investments, Air Baltic will be 
exempt from corporate income tax for its first three years of profitable 
operations and will receive a 50 percent tax reduction for the following two 
years.  To date, Air Baltic has not generated profits in any year.

The Company's share of Air Baltic's accumulated losses is approximately 
$2,076,000 as of December 31, 1997.  Management believes that the Company's 
recorded investment in Air Baltic will be recovered through Air Baltic's 
future operations and/or the option agreement discussed in Note 1, which 
allows the Company to put the investment to SAS for $2,144,333.

Baltic International Airlines

The Company entered into a joint venture agreement with the Latvian Civil 
Aviation Department, an agency of the Government of Latvia (the "Latvian 
Partner"), on June 6, 1991 to create BIA as a limited liability company in the 
Republic of Latvia.  The Company currently owns a 89% interest in BIA.

As discussed in Note 1, BIA experienced significant losses which have been 
recognized in the Company's financial statements through a reserve of its 
investment in BIA.  In conjunction with the transfer of BIA's passenger service 
operations to Air Baltic, the Company entered into negotiations with its partner
to restructure BIA and obtain full ownership.  The Company also made advances on
behalf of BIA in 1996 to facilitate the termination of operations of BIA. In 
March 1997, the Company's Latvian partner in BIA agreed to contribute real 
estate and a promissory note with a combined value of at least $1,000,000 to 
BIA.  In May 1997, the Company capitalized $6.3 million of BIA's debt to the 
Company which was previously reserved by the Company.  BIA will assign the 
promissory note from the Latvian partner to the Company.  Management believes 
that the Latvian partner's contribution will be made during 1998.  The Company 
has agreed with the Latvian partner that it will forgive the promissory note of 
the Latvian partner in exchange for the transfer of the Latvian partner's 
ownership in BIA.  BIA will then become a wholly owned subsidiary of the 
Company.  Management believes that the Company's remaining recorded investment 
in BIA will be recovered through the contribution required to be made by the 
Latvian partner by a contract and liquidation of its remaining assets.  The 
Company believes that maintaining BIA's airline certification, the goodwill of 
BIA's debtors and the availability of BIA's tax holiday in Latvia are beneficial
to the Company.

Lithuanian Aircraft Maintenance Corporation

On September 28, 1995, the Company entered into a joint operation with a joint 
stock company, Siauliai Aviacija, presently 100% owned by the Ministry of 
Transportation of the Republic of Lithuania and the Municipality of Siauliai 
City for the establishment of an aircraft maintenance facility, LAMCO.  The 
Company's initial investment totaled $40,000 for 2.6% of LAMCO.  LAMCO is 
currently in liquidation and the Company expects to recover all of its 
investment of $40,000 in 1998.

Joint operations using equity method -

A condensed summary of the financial position (100% basis) of the combined 
joint operations accounted for using the equity method of accounting is as 
follows:

                                                    December 31,
                                               1997             1996

Current assets                             $   920,152      $   641,263
Noncurrent assets                            3,385,511          551,105
                                            ----------       ----------
Total assets                               $ 4,305,663      $ 1,192,368
                                            ==========       ==========

Current liabilities                        $ 3,461,788      $   518,345
Noncurrent liabilities                               -          195,540
Equity                                         843,875          478,483
                                            ----------       ----------
Total liabilities and equity               $ 4,305,663      $ 1,192,368
                                            ==========       ==========

A summary of the results of operations of the combined joint operations 
accounted for using the equity method of accounting is as follows:

                                             Year Ended December 31, 
                                               1997             1996
Combined 100% Basis:
Operating revenues                         $ 3,063,014      $ 2,815,525
Income from operations                     $   863,358      $ 1,098,275
Net income                                 $   985,624      $   950,062

Company Percentage Interest:
Operating revenues                         $ 1,251,768      $ 1,240,176
Income from operations                     $   323,037      $   482,003
Net income                                 $   361,688      $   420,467

AIRO Catering Services and Riga Catering Services

In February 1996, the Company formed AIRO with TOPflight AB ("TOPflight").  
TOPflight operates kitchens in Malmo, Gothenburg and Stockholm, Sweden.  In this
joint operation, the Company contributed its management and operational 
expertise, its partial interest in Riga Catering Services, market knowledge, 
knowledge of the regional customer base and labor force for a 51% interest, 
while TOPflight contributed its technical experience in building in-flight 
kitchens for a 49% interest.  AIRO is targeting six airports for in-flight 
catering development.  During 1997, LSG purchased 51% of TOPflight.  AIRO is 
accounted for using the equity method as certain provisions of the partnership 
agreement result in the Company not having control of AIRO.

In December 1997, the Company entered into a share purchase and shareholder 
agreement with LSG.  The primary purpose of the agreement is to identify AIRO 
as the vehicle for the development of new LSG in-flight kitchens in Eastern 
Europe and the Republics of the former Soviet Union.  Under the agreement, the 
Company sold 5% of the stock of AIRO in return for the LSG commitments and 
$600,000 in cash.  Following the share purchase, the Company controls 46% of 
AIRO and LSG controls 54%.  The agreement provides that the Company will 
remain as the day-to-day operating partner of AIRO, and AIRO will become part 
of the worldwide network of LSG in all aspects consistent with other LSG in-
flight catering operations.

At December 31, 1997, the Company had advances aggregating $577,000 to AIRO.  
These loans bear interest at rates of 8% to 10% per year.  At December 31, 
1997, the Company had accrued interest receivable of $20,081 related to these 
loans.

Summarized unaudited financial information for AIRO is as follows (100%):

                                                    December 31,
                                               1997             1996

Current assets                            $   106,615      $    47,838
Noncurrent assets                           5,787,149        2,727,799
                                           ----------       ----------
Total assets                              $ 5,893,764      $ 2,775,637
                                           ==========       ==========

Current liabilities                       $ 2,144,172      $   117,738
Noncurrent liabilities                        723,046                -
Equity                                      3,026,546        2,657,899
                                           ----------       ----------
Total liabilities and equity              $ 5,893,764      $ 2,775,637
                                           ==========       ==========

                                            Year Ended       Period From
                                           December 31,    May 1, 1996 to 
                                              1997        December 31, 1996

Revenues                                  $   416,066      $   284,607
Income from operations                    $    78,379      $   271,742
Net income                                $     3,379      $   272,094

On April 2, 1996, the catering operations of BCS were acquired by RCS, 
previously owned by TOPflight, in exchange for shares in RCS.  In April 1997, 
the Company transferred 2.82% of its interest in RCS to AIRO as part of a 
capital contribution.  At December 31, 1997, RCS was owned 37.82% by AIRO, 
20.68% by the Company and 41.5% by the principals of the Company's partner in 
BCS.  In March 1998, the Company transferred its remaining direct interest in 
RCS to AIRO as part of a capital contribution.

In 1997, RCS declared dividends payable to its shareholders aggregating $508,475
that were unpaid as of December 31, 1997.  The Company's share of these 
dividends was $105,153 and is included in accounts receivable from affiliates on
the consolidated balance sheet as of December 31, 1997.

Summarized financial information for RCS is as follows (100%):

                                                    December 31,
                                               1997             1996

Current assets                            $   770,181      $   468,989
Noncurrent assets                             404,279          427,836
                                           ----------       ----------
Total assets                              $ 1,174,460      $   896,825
                                           ==========       ==========

Current liabilities                       $   572,982      $   296,483
Noncurrent liabilities                              -          195,540
Equity                                        601,478          404,802
                                           ----------       ----------
Total liabilities and equity              $ 1,174,460      $   896,825
                                           ==========       ==========

                                            Year Ended       Period From
                                           December 31,    May 1, 1996 to 
                                              1997        December 31, 1996

Revenues                                  $ 2,835,465      $ 1,937,422
Income from operations                    $ 1,092,314      $   813,164
Net income                                $ 1,108,769      $   813,164

In accordance with Latvian Law on Foreign Investments, RCS is exempt from 
corporate income tax for its first three years of profitable operations and 
will receive a 50 percent tax reduction for the following three years.  The 
first year of the tax holiday for RCS was 1996.

Baltic Catering Services

BCS was formed on March 26, 1993 as a joint operation between ARVO, Ltd., a 
Latvian limited liability company, and the Company.  On April 2, 1996, the 
catering operations of BCS were acquired by RCS in exchange for shares in RCS.  
The business of BCS after the transfer of the catering business to RCS is 
primarily the operation of a restaurant in the Riga Airport. The Company expects
to liquidate BCS during 1998.

                                                    December 31,
                                               1997             1996

Current assets                            $    43,356      $   124,436
Noncurrent assets                              31,408           65,882
                                           ----------       ----------
Total assets                              $    74,764      $   190,318
                                           ==========       ==========

Current liabilities                       $    21,588      $   104,124
Equity                                         53,176           86,194
                                           ----------       ----------
Total liabilities and equity              $    74,764      $   190,318
                                           ==========       ==========

                                             Year Ended December 31, 
                                               1997             1996

Revenues                                  $   227,549      $   878,103
Income from operations                    $    15,712      $   336,500
Net income                                $     6,856      $    33,225

Approximately 68% of the 1996 revenues of BCS were generated prior to the 
transfer of operations to RCS in April 1996.

Latavio

On September 6, 1995, the Company invested $468,950 for a 25% share of a non-
profit state joint-stock company, the Latvian Airlines ("Latavio").  
Subsequent to the investment, the Latvian Economic Court temporarily halted 
the privatization process and appointed a thirty party administrator to 
determine whether Latavio should be restructured outside of the privatization 
process or, whether privatization should continue.  The Company fully reserved 
the investment as of September 30, 1995.

NOTE 5 - DEBT

Debt consists of the following:

                                                           December 31,
                                                      1997             1996

Note payable to a shareholder, secured by put 
agreement with SAS on Air Baltic shares and 
security interest in all shares of stock owned 
in AIRO, interest rate of 13% due at maturity,
January 1999                                     $ 2,000,000      $         -

Note payable to third parties, secured by put 
agreement with SAS on Air Baltic shares and 
security interest in all shares of stock owned 
in AIRO, interest rate of 13% due at maturity, 
repaid in October 1997                                     -        2,000,000

Note payable to an officer and director of the 
Company, unsecured, interest rate of 14%, due 
upon maturity, repaid in September 1997                    -          250,000
Convertible note payable, unsecured, interest 
rate of 10%, due upon maturity, repaid in 
August 1997                                                -           88,771

Note payable to a director of the Company, 
unsecured, interest rate of 12%, due upon 
maturity, repaid in August 1997                            -           10,000

Note payable to bank, unsecured, interest rate 
of 10.5%, due upon maturity, principal payable 
July 1996, guaranteed by an officer of the 
Company, repaid in January 1998                        8,711           50,000

Subordinated bridge loan financing, interest 
payable quarterly at 10% per annum, secured by 
warrants to purchase 175,000 common shares of 
the Company, originally due March 31, 1996 and 
currently due on demand                               75,000           75,000
                                                  ----------       ----------
                                                   2,083,711        2,473,771
Less discount on loan financing                            -         (188,174)
                                                  ----------       ----------
Total debt, net                                    2,083,711        2,285,597
Less short-term debt, net                            (83,711)      (2,285,597)
                                                  ----------       ----------
Long-term debt, net                              $ 2,000,000      $         -
                                                  ==========       ==========

The Company is in the process of renegotiating the maturity of the 
subordinated bridge loans of $75,000 which matured prior to December 31, 
1997.  Management believes that it will be able to extend the maturity of 
these loans on terms similar to the previous loans.  However, there can be no 
assurance the Company will be successful in such efforts.

On April 5, 1996, the Company entered into a convertible note agreement in 
connection with a $250,000 loan to the Company ("Convertible Note").  The 
holder of the Convertible Note may at any time on or after July 5, 1996 
convert the Convertible Note to shares of the Company's common stock at a 
conversion price equal to the lesser of $1.50 or 70% of the closing bid 
price per share of common stock on the trading date immediately preceding 
the date of conversion.  On July 11, 1996, the holder of the Convertible 
Note converted principal of $134,000 and accrued interest to 306,213 shares 
of common stock.  The remaining principal was repaid in August 1997.

On May 16, 1996, the Company entered into a promissory note in connection 
with a $250,000 loan to the Company from an officer and director of the 
Company.  The lender received warrants to purchase 25,000 shares of the 
Company's common stock at $0.75 per share.  In connection with this renewal, 
the Company paid a facility fee of $12,500 to the lender.  This loan was 
repaid in September 1997.

On October 2, 1996, the Company entered into a promissory note in connection 
with a $10,000 loan to the Company from a director of the Company.  The 
lender received warrants to purchase 1,000 shares of the Company's common 
stock at $0.5625 per share.  This loan was repaid in August 1997.

In November 1996, the Company entered into a promissory note with third 
parties in connection with a $2,000,000 loan to the Company.  In connection 
with this promissory note, the Company issued warrants to the lenders to 
purchase 500,000 shares of the Company's common stock at a price of $0.75 per 
share.  This loan was refinanced in October 1997 with a shareholder as 
discussed below.

In May 1997, the Company entered into promissory notes in connection with 
loans to the Company aggregating $40,000 from directors of the Company.  The 
lenders received warrants to purchase on aggregate of 4,000 shares of common 
stock at $0.50 per share.  These loans were repaid in August 1997.

In July 1997, the Company entered into a promissory note with ORESA Ventures 
N.V. in connection with a $500,000 loan to the Company.  Principal and 
interest at an annual rate of 13% was due the earlier of November 11, 1997 
or the date in which the funding of an equity placement in the aggregate 
amount of $2,500,000 was received by the Company.  This loan was repaid in 
September 1997.

In October 1997, the Company entered into a promissory note with ORESA 
Ventures N.V., a shareholder of the Company, in connection with a $2,000,000 
loan to the Company.  Principal and interest at an annual rate of 13% will 
be due on January 29, 1999.  The proceeds from this loan were used to repay 
the principal of another loan to the Company which was to mature in November 
1997.  The Company reissued 469,442 shares of its treasury shares to pay the 
accrued interest on the loan.

In April 1998, the Company obtained a line of credit in the aggregate of 
$800,000 from two shareholders to provide additional liquidity.  This line of 
credit matures on December 31, 1999 and any outstanding balance will bear 
interest at a rate of 13%.  No advances are to made under the line of credit 
until the $2,000,000 loan to a shareholder is repaid, and the line of credit 
is secured by all shares of stock owned in AIRO.  The Company does not 
anticipate needing to draw on this line of credit in 1998.

NOTE 6 - INCOME TAXES

The components of net deferred tax assets consisted of the following:

                                                           December 31,
                                                      1997             1996

Deferred tax assets:
  Net operating loss carryforward                $ 2,646,739      $ 2,069,455
  Reserve on investment                              159,443          159,443
  Deferred compensation                               89,222           89,222
  Investment in and advances to BIA                1,071,755        1,347,966
                                                  ----------       ----------
Total deferred tax assets                          3,967,159        3,666,086
                                                  ----------       ----------

Deferred tax liabilities:
  Unremitted earnings of joint operations            259,021          229,791
  Other                                               26,708           32,017
                                                  ----------       ----------
Total deferred tax liabilities                       285,729          261,808
                                                  ----------       ----------
Net deferred tax assets before valuation 
  Allowance                                        3,681,430        3,404,278
Valuation allowance                               (3,681,430)      (3,404,278)
                                                  ----------       ----------
Net deferred tax assets                          $         -      $         -
                                                  ==========       ==========

Provisions for income taxes in the statements of operations were as follows:

                                                     Year ended December 31,
                                                      1997             1996

Current expense:
  U.S.                                           $         -      $         -
  Foreign                                                  -           15,694
Deferred expense                                           -                -
                                                  ----------       ----------
Total expense                                    $         -      $    15,694
                                                  ==========       ==========

Differences between the effective income tax rate and the statutory federal 
income tax rate were primarily the result of net operating losses for which 
valuation reserves have been fully provided.

As of December 31, 1997, the Company had net operating loss carryforwards of 
approximately $7,700,000 available to offset future taxable income.  These 
carryforwards will expire at various dates beginning in 2009.

NOTE 7 - COMMON STOCK

In August and September 1997, the Company sold an aggregate of 6,250,000 
shares of common stock to Celox S.A. and ORESA Ventures N.V. for $2,500,000.  
In connection with these private placements, the Company issued warrants to 
purchase 6,250,000 shares at an exercise price of $0.65 per share, which 
warrants are currently exercisable and expire in August 2002.  In connection 
with the subscription agreements for these private placements, the 
shareholders have declared their intentions not to offer for resale the shares 
for at least 24 months from the date of purchase.

During 1997, the Company acquired an aggregate of 625,993 shares of its common 
stock at a total cost of $292,300 through private transactions.  The Company 
reissued 583,549 of these shares to satisfy $300,055 of accounts payable.  At 
December 31, 1997, the Company has 42,444 treasury shares.


NOTE 8 - OPTIONS

In 1992, the Company adopted an Equity Incentive Plan (the "Plan") under which 
an aggregate of 800,000 shares of common stock may be issued.  In December 
1995, the board of directors adopted a resolution subject to shareholder 
approval to increase the number of shares that may be issued under the Plan to 
1,500,000 shares.  The Plan provides for the grant of options or rights, 
including incentive stock options and nonqualified stock options to officers, 
directors, employees and consultants to the Company for the purpose of 
providing incentive to those persons to work for or provide services to the 
Company.  

The Company accounts for the Plan under APB Opinion No. 25 and the related 
interpretations.  Accordingly, deferred compensation is recorded for stock 
options based on the excess of the deemed value of the common shares on the 
date the options were granted over the aggregate exercise price of the 
options.  This deferred compensation is amortized over the vesting period of 
each option.  The Company recorded compensation expense of $0, and $66,753 for 
the years ended December 31, 1997 and 1996, respectively. 

The Company follows the provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation" which allows the Company to continue to apply the 
provisions of APB No. 25 to determine compensation expense.  Had compensation 
expense for the Plan been determined using a stock-based, fair value method as 
allowed by SFAS No. 123, the Company's net loss and loss per common share 
would have been increased to the following pro forma amounts:

                                                     Year ended December 31,
                                                      1997             1996

Net loss                    As Reported          $  (798,458)     $(1,248,543)
                            Pro Forma               (892,969)      (1,474,865)
Loss per common share       As Reported                (0.11)           (0.23)
                            Pro forma                  (0.11)           (0.26)

The resulting pro forma compensation cost may not be representative of that to 
be expected in future years because the method of accounting under SFAS No. 
123 has not been applied to options granted prior to January 1, 1995.  

At December 31, 1997, the Company had 1,072,366 shares of common stock 
reserved for issuance upon exercise of outstanding options, and 427,634 
options were available for future grant under the Plan.  A summary of changes 
in outstanding options is as follows:
<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                           1997                      1996
                                                Wtd. Avg.                 Wtd. Avg.
                                     Shares     Ex. Price      Shares     Ex. Price
<S>                                <C>         <C>            <C>        <C>
Shares under option, beginning 
of period                           589,000     $  1.18        653,616     $  1.10
Changes during the period:
  Granted                           521,700        0.42        160,000        0.67
  Canceled                          (25,000)       1.53        (55,467)       0.61
  Exercised                         (13,334)       0.50       (169,149)       0.58
                                  ---------                   --------
Shares under option, end of 
period                            1,072,366     $  0.81        589,000     $  1.18
                                  =========                   ========
Options exercisable, end of 
period                              595,666     $  1.12        589,000     $  1.18
                                  =========                   ========
</TABLE>

The exercise price of the options outstanding at December 31, 1997 range from 
$0.40 to $1.38.  The weighted average contractual life of the options 
outstanding at December 31, 1997 was 4.0 years.  The weighted-average grant-
date fair value of options granted during 1997 was $0.37 and during 1996 was 
$1.17.  The fair value of each option grant is estimated on the date of grant 
using the Black-Scholes option pricing model with the following weighted 
average assumptions used for grants in 1997 and 1996:  risk-free interest rate 
of 6.5% and, 6.5%, respectively; expected dividend yield of 0% and 0%, 
respectively; expected lives of 6 years and 5 years, respectively; and 
expected volatility of 128% and 138%, respectively.

NOTE 9 - WARRANTS

During 1997, the Company issued 7,705,000 warrants in connection with the 
issuance of 7,000,000 shares of common stock pursuant to private sales.  The 
Company allocated a portion of the net proceeds received from the issuances to 
the warrants of $1,306,610.  This allocation was calculated using fair values 
of the warrants granted using the Black-Scholes option pricing model.

At December 31, 1997, the Company had 10,035,845 shares of common stock 
reserved for issuance upon exercise of outstanding warrants.  A summary of 
changes in outstanding warrants is as follows:
<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                           1997                      1996
                                                Wtd. Avg.                 Wtd. Avg.
                                     Shares     Ex. Price      Shares     Ex. Price
<S>                              <C>           <C>          <C>           <C>
Shares under warrant, 
beginning of period               1,891,595     $  2.58      1,267,970     $  3.38
Changes during the period:
  Granted                         8,144,250        0.64        623,625        0.96
  Canceled                                -           -              -           -
  Exercised                               -           -              -           -
                                 ----------                  ---------
Shares under warrant, end of 
period                           10,035,845     $  1.01      1,891,595     $  2.58
                                 ==========                  =========
Warrants exercisable, end of 
period                           10,035,845     $  1.01      1,811,595     $  2.63
                                 ==========                  =========
</TABLE>

The exercise price of the warrants outstanding at December 31, 1997 range from 
$0.44 to $9.80.  The weighted average contractual life of the warrants 
outstanding at December 31, 1997 was 4.1 years.  The weighted-average grant-
date fair value of warrants granted during 1997 was $0.40 and during 1996 was 
$1.22.

NOTE 10 - PREFERRED STOCK

Effective June 30, 1995, the Company created its Convertible Redeemable Series 
A Preferred Stock ("Series A Preferred Stock"), 500,000 shares authorized $10 
par value, and issued 123,000 shares thereof upon conversion of $1,230,000 in 
aggregate principal amount of long-term indebtedness.  The Series A Preferred 
Stock: (i) is redeemable only at the option of the Company and only during the 
thirty day period beginning on December 31 and June 30 of each year that the 
Series A Preferred Stock is outstanding; (ii) is convertible at any time by 
the holders thereof at the initial conversion price of $2 per share; (iii) 
carries a liquidation preference of $10 per share; (iv) is non-voting; and (v) 
accrues cumulative cash dividends per share at an annual rate equal to 10% of 
the stated value per share, payable in equal quarterly installments.  The 
voting rights of the holders of the Company's common stock will be diluted 
upon conversion to the Series A Preferred Stock and the holders of the Series 
A Preferred Stock will have preferential dividend and liquidation rights over 
the holders of common stock.  Furthermore, when and if the Company becomes 
profitable, the issuance of the shares of Series A Preferred Stock will have a 
dilutive effect on the per share value of the common stock.  The conversion 
price of the Series A Preferred Stock is adjustable for certain issuances of 
securities at less than 90% of the conversion price.  At December 31, 1997, 
the conversion price was $0.92 per share.

Effective February 22, 1996, the Company created its Series B Convertible 
Redeemable Preferred Stock ("Series B Preferred Stock"), 70 shares authorized 
$25,000 stated value per share and $10 par value, and issued 50 shares thereof 
for net proceeds of $1,090,200 in February and March 1996.  The Series B 
Preferred Stock:  (i) is not entitled to receive dividends; (ii) is 
convertible at any time by the holders thereof on or after the 55th day after 
the date that the shares were issued at the conversion price of the lesser of 
$2 per share or 82% of the 5-day average closing bid price of the Company's 
common stock; (iii) is non-voting; (iv) carried a liquidation preference of 
$25,000 per share and an amount equal to 10% per annum since the issuance date 
after payment in full of the Series A Preferred Stock; and (v) is redeemable 
only at the option of the Company if the conversion price is $0.75 or less per 
share.  In October 1996, the Company amended the conversion price to the lesser 
of $0.55 per share or 82% of the 5-day average closing bid price of the 
Company's Common Stock.

During the years ended December 31, 1997 and 1996, shareholders converted an 
aggregate of 18 and 16 shares of Series B Preferred Stock into 1,147,771 and 
657,576 shares of the Company's common stock, respectively.

NOTE 11 - LOSS PER SHARE

Supplemental disclosures for loss per share are as follows:

                                                     Year ended December 31,
                                                      1997             1996

Basic
Net loss to be used to compute basic loss 
per share:
  Net loss                                       $  (798,458)     $(1,248,543)
  Less preferred dividends                          (275,724)        (210,743)
                                                  ----------       ----------
Net loss attributable to common shareholders     $(1,074,182)     $(1,459,286)
                                                  ==========       ==========

Weighted average number of shares:
  Average common shares outstanding               10,189,215        6,461,561
                                                  ==========       ==========

Basic loss per common share                      $     (0.11)     $     (0.23)
                                                  ==========       ==========

Diluted
Net loss to be used to compute basic loss 
per share:
  Net loss                                       $  (798,458)     $(1,248,543)
  Less preferred dividends                          (275,724)        (210,743)
                                                  ----------       ----------
Net loss attributable to common 
shareholders                                     $(1,074,182)     $(1,459,286)
                                                  ==========       ==========

Weighted average number of shares:
  Average common shares outstanding               10,189,215        6,461,561
                                                  ==========       ==========

Diluted loss per common share                    $     (0.11)     $     (0.23)
                                                  ==========       ==========

NOTE 12 - RELATED PARTY TRANSACTIONS

The following is a summary of material related party transactions which have 
occurred during 1997 and 1996, other than those disclosed elsewhere in the 
notes to the accompanying consolidated financial statements.

The Company earns general sales agency revenue by operating the North American 
sales and marketing office of Air Baltic.  The Company earned $78,000 and 
$59,000 of such revenue for the years ended December 31, 1997 and 1996, 
respectively.

BWAF is dependent upon Air Baltic for cargo transportation.  Air Baltic 
purchases goods and services from RCS.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

The Company leases certain equipment and office space under operating leases 
that expire over the next five years.  Rental expense under operating leases 
was $41,238 and $35,447 for 1997 and 1996, respectively.  Future minimum lease 
payments under noncancelable operating leases are as follows:

     1998                               $     31,907
     1999                                      3,027
     2000                                      3,027
     2001                                      1,513
                                         -----------
     Total                              $     39,474
                                         ===========

In December 1995, the Company guaranteed certain liabilities of BIA and 
accrued $1,019,521 as a commitment to pay these liabilities as the Company 
signed an agreement to pay these liabilities on behalf of BIA.  At 
December 31, 1997 and 1996, the Company had $0 and $146,375 remaining to be 
paid on these liabilities.

The Company is from time to time party to litigation in the ordinary course of 
business.  There are currently no pending legal proceedings that, in 
management's opinion, would have a material adverse effect on the Company's 
operating results or financial condition.

NOTE 14 - SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental disclosure of noncash transactions are as follows:

                                                     Year ended December 31,
                                                      1997             1996
Conversion of accounts payable and accrued 
dividends to equity                              $   376,838      $   417,535
Conversion of notes payable to equity                      -          140,667
Conversion of preferred stock to common stock        450,000          400,000
Dividends declared                                   244,974           89,584
Discount on debt for warrants                              -            9,987
Deferred compensation on options exercised and 
canceled                                                   -          204,699
Transfer of RCS shares to AIRO                        28,434                -

Supplemental disclosure of interest paid         $    62,650      $    44,459
Supplemental disclosure of income taxes paid     $         -      $         -


                                 SIGNATURES

     In accordance with the requirements of Section 13 or 15(d) of the 
Exchange Act, the registrant has caused this report to be signed on its behalf 
by the undersigned, thereunto duly authorized, on the 14th day of April, 
1998.

                              BALTIC INTERNATIONAL USA, INC.


                              /s/ Robert L. Knauss
                              ROBERT L. KNAUSS, Chairman of the Board 
                              and Chief Executive Officer


     Pursuant to the requirements of the Exchange Act, this report has been 
signed by the following persons on behalf of the registrant and in the 
capacities and on the dates indicated:

Signature                    Title                              Date


/s/ Robert L. Knauss        Chairman of the Board and Chief    April 14, 1998
ROBERT L. KNAUSS            Executive Officer (Principal
                            Executive Officer)

/s/  David A. Grossman      Chief Financial Officer and        April 14, 1998
DAVID A. GROSSMAN           Corporate Secretary (Principal 
                            Financial and Accounting Officer)

/s/  Homi M. Davier         Director                           April 14,1998
HOMI M. DAVIER

/s/  James W. Goodchild     Director                           April 14, 1998
JAMES W. GOODCHILD

/s/  Paul R. Gregory        Director                           April 14, 1998
PAUL R. GREGORY

/s/Adolf af Jochnick        Director                           April 14, 1998
ADOLF af JOCHNICK

/s/ Jonas af Jochnick       Director                           April 14, 1998
JONAS af JOCHNICK

/s/ Juris Padegs            Director                           April 14, 1998
JURIS PADEGS

/s/  Ted Reynolds           Director                           April 14, 1998
TED REYNOLDS

/s/ Morris A. Sandler       Director                           April 14, 1998
MORRIS A. SANDLER






                                   Exhibits




INDEX TO EXHIBITS

Exhibit No.               Description                    Sequentially Numbered 
                                                                    Pages

     2.1(2)-     Plan and Agreement of Recapitalization
     3.1(a)(2)-  Restated Articles of Incorporation
     3.1(b)(2)-  Amended Articles of Incorporation
     3.1(c)(2)-  Articles of Correction
     3.2(2)-     Bylaws
     3.3(2)-     Statement of Resolution Establishing and Designating a Series 
                 of Shares of the Company, Series A Cumulative Preferred Stock, 
                 $10.00 par value
     3.4(5)-     Certificate of Elimination of Shares Designated as Series A 
                 Cumulative Preferred Stock
     3.5(5)-     Certificate of the Designation, Preference, Rights and 
                 Limitations of Convertible Redeemable Series A Preferred Stock
     4.1(2)-     Common Stock Specimen
    10.3(4)-     1992 Equity Incentive Plan, as amended
    10.4(2)-     Employment Agreement between the Company and Robert L. Knauss
    10.7(2)-     Baltic International Airlines Joint Venture Limited Liability 
                 Company Agreement between the Latvian Civil Aviation Board and 
                 the Company
    10.8(2)-     Protocol No. 1 dated July 1991
    10.9(2)-     Protocol No. 4 dated May 9, 1992
    10.10(2)-    Protocol No. 5 dated July 21, 1992
    10.11(2)-    Protocol No. 6 dated February 5, 1993
    10.12(2)-    Settlement Agreement between the Company and Latvian Airlines 
                 and Ministry of Transportation of the Republic of Latvia
    10.14(2)-    Baltic Catering Limited Liability Company Agreement between 
                 the Company and ARVO, Ltd.
    10.34(3)-    Memorandum of Understanding between the Company, BIA and SAS
    10.35(3)-    Loan Agreement with Charter Bank
    10.36(6)-    Air Baltic Joint Venture Agreement
    10.38(8)-    Articles of Incorporation of LAMCO
    10.40(8)-    Amendment to Air Baltic Joint Venture Agreement
    10.41(7)-    Share Purchase Agreement with SAS
    10.42(1)-    AIRO Catering Services Joint Venture Agreement
    10.43(9)-    Riga Catering Services Shareholders' Agreement
    10.44(8)-    Amendment to Articles of Incorporation of LAMCO
    10.45(8)-    Statement of the Designation, Preferences, Rights and 
                 Limitations of Series B Convertible Redeemable Preferred 
                 Stock, as amended
    10.46(11)-   Compensatory Plan for Robert Knauss, James Goodchild and 
                 David Grossman
    10.47(11)-   Promissory Note Agreement with ORESA Ventures N.V.
    16.2(10)-    Letter on Change in Certifying Accountant
_________________________________

(1)     Filed herewith.

(2)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (No. 33-74654-D), as amended, and incorporated herein by 
reference thereto.

(3)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (No. 33-86378), as amended, and incorporated herein by 
reference thereto.

(4)     Previously filed as an exhibit to the Company's Registration Statement 
on Form S-8 (33-90030), and incorporated herein by reference thereto.

(5)     Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1995, and incorporated herein by 
reference thereto.

(6)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated August 29, 1995, and incorporated herein by reference thereto.

(7)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated January 10, 1997, and incorporated herein by reference 
thereto.

(8)     Previously filed as an exhibit to the Company's Registration Statement 
on Form SB-2 (File No. 333-860), and incorporated herein by reference 
thereto.

(9)     Previously filed as an exhibit to the Company's Annual Report on Form 
10-KSB for the year ended December 31, 1995, and incorporated herein by 
reference thereto.

(10)     Previously filed as an exhibit to the Company's Current Report on Form 
8-K dated August 30, 1996, and incorporated herein by reference thereto.

(11)     Previously filed as an exhibit to the Company's Quarterly Report on 
Form 10-QSB for the quarter ended September 30, 1997, and incorporated 
herein by reference thereto.