UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Date of Amended Report:
February 22, 2013
Mark One
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
BALTIA AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 11-2989648
(State of Incorporation) (IRS Employer Identification No.)
JFK International Airport
Building 151, Room 361, Jamaica, NY 11430
(Address of principal executive offices)
Registrant's telephone number, including area code:
(718) 244-8880
Title of each class: None
Name of each Exchange on which registered: None
Securities Registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.0001 Par Value
(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ X ]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.
Yes [ ] No [ X ]
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ X ]
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act of 1934).
Yes [ ] No [x]
The aggregate market value of the voting common equity held by
non-affiliates as of June 30, 2008 is $5,055,146.
The number of shares of the registrant's common stock outstanding as of
April 11, 2009 was 429,766,159.
NOTE: This amended report is submitted to correct certain errors contained
in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, modifying the paragraph related to Stock-based
Compensation, and Item 11, Executive Compensdation, and, in
addition, certain financial notes to the Exhibits contained in Item 15
Financial Statements, specifically Notes 2 and 4, and the addition of one
note, Note 9 - Related Party. All other parts of this report remain the
same as originally filed.
TABLE OF CONTENTS
PART 1
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Information
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statement Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting
And Financial Disclosures
Item 9A(T) Controls and Procedures
Item 9B Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statements
PART I
Item 1. Business.
Baltia Air Lines, Inc. the "Company" or "Baltia" or "Baltia Air Lines")
is the only start-up airline in the United States today that has
received Government approval.
On December 19, 2008, the U.S. Department of Transportation (DOT) issued
its Order to Show Cause, finding that Baltia Air Lines is fit, willing
and able to engage in international air transport of persons, property
and mail. Baltia was awarded the non-stop route from JFK to St.
Petersburg Russia. Baltia was also authorized for worldwide charter
services. Baltia had filed its application with the DOT in October 2007.
On March 10, 2009, following the regulatory public comment period and the
Presidential Review, the DOT issued the Final Order, making its findings
of the Show Cause Order final and effective on March 9, 2009.
On March 20, 2009 the DOT awarded Baltia Air Lines its initial
frequencies for flights from JFK to St. Petersburg
On April 2, 2009 the United States Government formally notified the
Government of the Russian Federation that Baltia Air Lines has been
designated.
With the DOT approval, the FAA is authorized to proceed and Baltia is
currently conducting the FAA Air Carrier Certification process under
Part 121.
Upon completion of the Air Carrier Certification, Baltia intends to
commence non-stop service from its Base of Operations at Terminal 4,
JFK Int'l Airport in New York to Pulkovo II Int'l Airport of
St. Petersburg.
Baltia Air Lines, Inc. was organized in the State of New York on August
24, 1989.
Following the commencement of service on the JFK-St. Petersburg route,
Baltia's objective is to develop its route network to Russia, Latvia,
Ukraine, and Belarus.
Baltia Air Line's operations are based at Terminal 4, JFK. We have made
key operating arrangements at JFK and other service arrangements are in
the process of being made. Baltia staff is now auditing air carrier
manual system for SAI (Safety Attribute) compliance prior to the manual
submission to the FAA. Baltia's personnel meet regulatory requirements
and have recent certification experience.
Baltia intends to provide full service, i.e. passenger, cargo and mail,
and will not be dependent upon one or a few major customers. Baltia has
two registered trademarks "BALTIA" and "VOYAGER CLASS" and five trademarks
are subject to registration.
There is currently no non-stop service from JFK to St. Petersburg.
Connecting service is provided mainly by foreign carriers. Finnair,
Lufthansa and SAS are the leading competitors in the US-Russia market.
KLM, British Airways, Air France, Austrian Airlines, and Swissair also
provide service. However, foreign carriers are required to have
intermediate stops at transit airports in their respective countries
(Helsinki, Frankfurt, Stockholm, Copenhagen, etc.) because they are
"third nation" airlines and as such cannot fly directly between the US
and Russia (only a US airline as well as a reciprocating Russian airline
is eligible to fly nonstop). Delta and Aeroflot currently operate
between JFK and Moscow. With the exception of the JFK-Moscow route,
there exists no non-stop competitive air transportation service on the
routes for which Baltia intends to apply.
Baltia's objective is to establish itself as the leading non-stop
carrier in the market niche over the North Atlantic with operations that
are profitable and growing over time. In order to accomplish this
objective, we intend to establish and maintain high quality service
standards which we believe will be competitive with the European
airlines currently providing connecting flights. Baltia does not expect
to be in direct competition with deep discount airlines, including
several East European airlines and the offspring of the former Soviet
airline Aeroflot, which provide connecting flights.
Baltia intends to provide First, Business, and Voyager Class
accommodations. Baltia's passenger market strategy is tailored to
particular preferences of the various segments of its customer base,
with marketing attention particularly focused on American business
travelers with interests in Russia who require high quality, non-stop
service from the US to Russia.
Baltia's initial marketing strategy is based on existing agencies
specializing in the market, selected travel and business publications,
supplemented by direct mailings to corporate travel planners, and
individual American businesses that are currently involved in Russia.
Soon after the inauguration of flight service, Baltia plans to implement
its frequent flyer program. As the marketing matures, Baltia plans to
advertise to the general public throughout the US, and in Russia.
Baltia also plans to sponsor selected industry and trade events in the
US and in St. Petersburg.
Baltia intends to provide customer service and reservations centers in
New York and in St. Petersburg, to list Baltia's schedules and tariffs
in the Official Airline Guide, and provide world-wide access to
reservations on Baltia's flights through a major Computer Reservations
and Ticketing System ("CRS").
The Company intends to activate its reservations service when the DOT
issues its order authorizing Baltia to sell tickets (expected to be
approximately 30 to 45 days before the inaugural flight).
Baltia has identified the following market segments in the U.S.-Russia
market: (i) Business Travelers, (ii) General Tourism, (iii) Ethnic
Travelers, (iv) Special Interest Groups, (v) Professional Exchanges, and
(vi) Government and Diplomatic Travel.
Baltia believes that the direct non-stop service to be offered by it
will be superior to the stop-over service currently offered by foreign
airlines. A comparison between the two services with respect to
passenger convenience and cargo transport efficiency is set forth below.
BALTIA - US flag, non-stop service:
With non-stop service, a passenger can fly from JFK to St. Petersburg in
about 8 hours in a Boeing B747 wide body airplane. Cargo arrives
containerized, palletized, and secure.
Foreign, stop-over journeys:
With stop-over service, it would take a passenger 10 to 18 hours to fly
through Helsinki, Copenhagen, Moscow, or Frankfurt on a foreign carrier.
In addition, passengers must change to narrow-body aircraft at a layover
airport. Cargo is "broken up" and manually loaded onto narrow-body
aircraft, or trucked from Helsinki.
Baltia plans to operate efficiently and provide consistent high quality
service to passengers and cargo shippers alike in order to establish the
Company as the preferred airline in the market in comparison to its
competitors. The Company also plans to use targeted marketing of its
service to maintain and grow its market share.
Because of the increased reliability and comfort of a non-stop flight,
Baltia expects to capture a portion of the existing traffic. Further,
US government traffic is required by law (Fly America Act) to fly on a
US Flag carrier when service is available.
With the Boeing 747 true wide-body aircraft Baltia intends to provide
cargo service from JFK to St. Petersburg, offering containers, pallets,
and block space arrangements. Baltia expects to carry contract cargo for
express shippers. Baltia also plans to market its own "Baltia Courier",
"Baltia Express", and "Baltia Priority" express service for letters and
packages. Baltia also expects revenues from diplomatic mail and cargo,
under the Fly America Act.
Baltia has prepared passenger service and ground service arrangements at
JFK, and similar services are available at Pulkovo II Airport in St.
Petersburg, based on recent contact. As a US carrier flying into a
foreign country, Baltia will be eligible to the same degree of priority
that a foreign carrier receives when arriving in the US.
Baltia intends to start the JFK-St. Petersburg service with one round-
trip flight per week, then increase the frequency to three round trips,
and then to five round trips, within a four-month period.
By starting with one roundtrip flight per week for the first four weeks,
Baltia not only accelerates and simplifies its FAA Certification, but
expects to save itself the additional time it would incur to make needed
improvements and corrections. Starting with a light schedule, any
inefficiencies of a given flight may be corrected for the next flight.
Baltia management believes that in the initial four weeks, the Company
will attain high operating efficiencies and service standards. These
standards may be further refined during the following two months when
Baltia plans to increase service to three round-trips per week.
Following that, Baltia plans to increase service to five round trips per
week, and then subsequently to daily round trip flights as additional
aircraft are brought into service. The transitional schedule allows
Baltia to train additional pilots, flight attendants, and support staff
with a continuous training program. It also allows the Baltia marketing
program to take effect through its various segments.
During the past two years Baltia has also been preparing standards for
service. The care taken in establishing high standards has implications
beyond the launching of the JFK-St. Petersburg flight. Baltia plans to
build operating modules and apply that know-how to develop new markets.
Once established, Baltia plans to duplicate its JFK-St. Petersburg
standards on flights on other transatlantic routes. By the end of year
one, Baltia plans to introduce three additional aircraft.
Additional revenues from charter flying. In conjunction with its Part
121 air carrier certification ("Part 121"), (referring to a Federal
Aviation Regulations' number, is an industry acronym used to describe a
US airline operating heavy jet aircraft) for scheduled service, Baltia
intends to seek certification for world wide charter service. Following
certification, Baltia plans to utilize aircraft time available between
scheduled service, to earn additional revenues from charters. We are
also considering qualifying our aircraft for military contracts.
In order to start revenue flight operations, the Company has to complete
FAA Air Carrier Certification. During the past two years the Company has
been preparing for air carrier certification. The Company's staff has
prior experience with the certification and is familiar with the latest
System Safety & Certification Process procedures (CPD 8.0), and the Air
Transportation Oversight System (ATOS) requirements.
The Company will carry airline liability insurance as required for a US
airline by DOT regulation.
As of December 31, 2008, Baltia had sixteen full-time employees and ten
part-time employees. Baltia's staff includes professionals who have
extensive major US airline experience in aircraft maintenance, airline
operations, airline regulatory compliance and administration.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
Item 1B. Unresolved Staff Comments.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
Item 2. Properties.
The Company rents space for its headquarters at 63-25 Saunders Street,
Suite 7I, Rego Park, New York 11374, leases operations space at
Concourse A, Terminal 4, JFK International Airport, and leases office
space in Manhattan at monthly rents of $1,237 and $7,430, and $2,060
respectively. The Company believes its property is adequate to launch
its services and the Company expects to increase space within the first
few months of operations.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The following table sets forth the high and low sales prices, as quoted
by the OTCBB, for our common stock for each quarter during our two most
recent fiscal years ended December 31, 2007 and 2008. These quotations
reflect inter-dealers prices, without retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
Fiscal Quarter Ended High Low
--------------------------- --------------- ----------------
March 31, 2007 .02 .03
June 30, 2007 .03 .04
September 30, 2007 .08 .07
December 31, 2007 .09 .08
March 31, 2008 .07 .05
June 30, 2008 .04 .02
September 30, 2008 .02 .02
December 31, 2008 .05 .04
The Company currently estimates that there are approximately 900 holders
of record of its common stock. Given its continuing need to retain any
earnings to fund its future operations and desired growth, the Company
has not declared or paid, nor does it currently anticipate declaring or
paying for the foreseeable future, any dividends on the Company's common
stock.
The Company currently has no equity compensation plans, no written
purchase, savings, option, bonus, appreciation, profit sharing, thrift,
incentive, pension or similar plan or written compensation contracts.
Item 6. Selected Financial Information.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion includes certain forward-looking statements
within the meaning of the safe harbor protections of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements that include words such as
"believe," "expect," "should," intend," "may," "anticipate," "likely,"
"contingent," "could," "may," or other future-oriented statements, are
forward-looking statements. Such forward-looking statements include, but
are not limited to, statements regarding our business plans, strategies
and objectives, and, in particular, statements referring to our
expectations regarding our ability to continue as a going concern,
generate increased market awareness of, and demand for, our service,
realize profitability and positive cash flow, and timely obtain required
financing. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ from anticipated
results. The forward-looking statements are based on our current
expectations and what we believe are reasonable assumptions given our
knowledge of the markets; however, our actual performance, results and
achievements could differ materially from those expressed in, or implied
by, these forward-looking statements.
Our fiscal year ends on December 31. References to a fiscal year refer
to the calendar year in which such fiscal year ends.
OVERVIEW
The Company was organized in the State of New York on August 24, 1989.
Its objective is to provide scheduled air transportation from the U.S.
to Russia, and former Soviet Union countries.
On December 19, 2008, the U.S. Department of Transportation (DOT) issued
its Order to Show Cause, finding that Baltia Air Lines is fit, willing
and able to engage in international air transport of persons, property
and mail. Baltia was awarded the non-stop route from JFK to St.
Petersburg Russia. Baltia was also authorized for worldwide charter
services. Baltia had filed its application with the DOT in October 2007.
On March 10, 2009, following the regulatory public comment period and the
Presidential Review, the DOT issued the Final Order, making its findings
of the Show Cause Order final and effecitve on March 9, 2009.
On March 20, 2009 the DOT awarded Baltia Air Lines its initial
frequencies for flights from JFK to St. Petersburg
On April 2, 2009 the United States Government formally notified the
Government of the Russian Federation that Baltia Air Lines has been
designated
With the DOT approval, the FAA is authorized to proceed and Baltia is
currently conducting the FAA Air Carrier Certification process.
Upon completion of the Air Carrier Certification, Baltia intends to
commence non-stop service from its Base of Operations at
Terminal 4, JFK Int'l Airport in New York to Pulkovo II Int'l Airport of
St. Petersburg.
Baltia intends to provide full service, i.e. passenger, cargo and mail,
and will not be dependent upon one or a few major customers. Baltia has
two registered trademarks "BALTIA" and "VOYAGER CLASS" and five
trademarks subject to registration.
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Company has capital which management believes is sufficient to start
revenue operations on the JFK-St. Petersburg route. The Company's
operational success may be dependent upon its timely procuring
significant external debt and/or equity financing to fund its immediate
and nearer-term operations, and subsequently realizing operating cash
flows from ticket sales sufficient to sustain its longer-term operations
and growth initiatives.
PLAN OF OPERATION
We believe that we have sufficient capital to commence revenue flight
operations. During 2008 and into 2009 we continued to finance our
operations through the issuance of our common stock. Until revenue
operations begin, our monthly expenditures for administrative and
regulatory compliance can be controlled at about $30,000-$50,000. Based
on current reserves we have sufficient capital to support our
development stage operations through the end of 2009.
Based on our prior experience with certification and current
preparations management believes that thelaunch budget,
previously reviewed by the DOT, will be adequate tocomplete
certification and to commence flight service. Approximately
$1,000,000 is budgeted for aircraft, $450,000 for certification tasks,
and $300,000 for general and administrative expenses. At the time flight
service is inaugurated the Company plans to have approximately 20
management and 45 staff personnel. In 2009 we plan to raise $2 to
$4 mm in additional financing.
Management has considered the overall pipeline effect that enhances the
initial cash position of a startup carrier. It is the industry practice
for passengers to purchase tickets in advance of their flights while
many service vendors bill the carrier later.
In order that a new airline would not fly empty on day one,
approximately 30 days prior to the expected inaugural date the DOT
authorizes sales of tickets and cargo. Such funds from advance sales,
estimated at approximately $3 mm for the Company, accumulate in an
escrow account, and are released upon the issuance of the air carrier
certificate.
There can be no assurance that additional financing will be available on
terms favorable to us or at all. If adequate funds are not available or
are not available on acceptable terms, we may not be able to fund operations.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in
the U.S. The preparation of our financial statements requires us to make
certain estimates, judgments and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Our estimates, judgments
and assumptions are continually re-evaluated based upon available
information and experience. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from
those estimates. Areas in which significant judgment and estimates are
used include, but are not limited to valuation of long lives assets
and deferred income taxes.
Valuation of Long-Lived Assets: We review the recoverability of our
long-lived assets, including buildings, equipment and intangible assets,
when events or changes in circumstances occur that indicate that the
carrying value of the asset may not be recoverable. The assessment of
possible impairment is based on our ability to recover the carrying
value of the asset from the expected future pre-tax cash flows
(undiscounted and without interest charges) of the related operations.
If these cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between estimated fair
value and carrying value. Our primary measure of fair value is based on
discounted cash flows. The measurement of impairment requires management
to make estimates of these cash flows related to long-lived assets, as
well as other fair value determinations.
We amortize the costs of other intangibles (excluding goodwill) over
their estimated useful lives unless such lives are deemed indefinite.
Amortizable intangible assets are tested for impairment based on
undiscounted cash flows and, if impaired, written down to fair value
based on either discounted cash flows or appraised values. Intangible
assets with indefinite lives are tested for impairment, at least
annually, and written down to fair value as required.
Stock-Based Compensation Plans: The Company accounts for stock-based
payments using the fair value method in accordance with the provisions
of FASB ASC Topic 718, Compensation - Stock Compensation, which requires
the measurement and recognition of compensation expense for all share
based payments based on estimated fair value. Equity-classified share
and warrant awards are measured at the grant date based on fair value.
Common stock and warrants issued are valued at the estimated fair
market value. The calculation of fair value related to stock compensation
is subject to certain assumptions discussed in more detail in Note 4.
Management updates such estimates when circumstances warrant. All
compensation expense related to our share-based payment awards is
recorded in General and administrative expenses in the Statements
of Operations.
Income Taxes: We must make certain estimates and judgments in
determining income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of certain tax assets
and liabilities, which arise from differences in the timing of
recognition of revenue and expense for tax and financial statement
purposes.
Deferred income taxes are recorded in accordance with SFAS No. 109,
"Accounting for Income Taxes," or SFAS 109. Under SFAS No. 109, deferred
tax assets and liabilities are determined based on the differences
between financial reporting and the tax basis of assets and liabilities
using the tax rates and laws in effect when the differences are expected
to reverse. SFAS 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not to occur.
Realization of our net deferred tax assets is dependent upon our
generating sufficient taxable income in future years in appropriate tax
jurisdictions to realize benefit from the reversal of temporary
differences and from net operating loss, or NOL carryforwards.
We have determined it more likely than not that these timing differences
will not materialize and have provided a valuation allowance against
substantially all of our net deferred tax asset. Management will
continue to evaluate the realizability of the deferred tax asset and its
related valuation allowance. If our assessment of the deferred tax
assets or the corresponding valuation allowance were to change, we would
record the related adjustment to income during the period in which we
make the determination. Our tax rate may also vary based on our results
and the mix of income or loss in domestic and foreign tax jurisdictions
in which we operate.
In addition, the calculation of our tax liabilities involves dealing
with uncertainties in the application of complex tax regulations. We
recognize liabilities for anticipated tax audit issues in the U.S. and
other tax jurisdictions based on our estimate of whether, and to the
extent to which, additional taxes will be due. If we ultimately
determine that payment of these amounts is unnecessary, we will reverse
the liability and recognize a tax benefit during the period in which we
determine that the liability is no longer necessary. We will record an
additional charge in our provision for taxes in the period in which we
determine that the recorded tax liability is less than we expect the
ultimate assessment to be.
RESULTS OF OPERATIONS
We had no revenues during the fiscal years ended December 31, 2008 and
2007 because we do not fly any aircraft and cannot sell tickets.
Our general and administrative expenses decreased $169,521 to $3,536,152
during fiscal year ended December 31, 2008 as compared to $3,705,673
during the fiscal year ended December 31, 2007. This decrease is mainly
the result of streamlined preparations for air carrier certification.
Primarily as a result of the foregoing, we incurred a net loss of
$3,744,173 during the fiscal year ended December 31, 2008 as compared to
a net loss of $3,760,743 during the fiscal year ended December 31, 2007.
Our future ability to achieve profitability in any given future fiscal
period remains highly contingent upon us beginning flight operations.
Our ability to realize revenue from flight operations in any given
future fiscal period remains highly contingent upon us obtaining
significant equity infusions and/or long-term debt financing sufficient
to fund leasing and operating a Boeing 747. Even if we were to be
successful in procuring such funding, there can be no assurance that we
will be successful in commencing revenue operations or, if commenced,
that such operations would be profitable.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred substantial operating and net
losses, as well as negative operating cash flows. As of December 31,
2008, we had cash of $724,240 and our stockholders' equity was $750,374.
This reflects a decrease from December 31, 2007 when our cash was
$2,002,496 and our stockholders' equity was $2,007,812.
Our operating activities utilized $1,305,337 in cash during the fiscal
year ended December 31, 2008, an increase of $704,578 from the $600,759
in cash utilized during the fiscal year ended December 31, 2007.
Our financing activities provided $27,081 and $2,610,056 in cash during
the fiscal year ended December 31, 2008 and 2007, respectively.
We had no significant planned capital expenditures, budgeted or otherwise,
as of December 31, 2008.
Off-Balance Sheet Arrangements: We do not have any off-balance
sheet arrangements which have, or are reasonably likely to have,
an effect on our financial condition, financial statements,
revenues or expenses.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this item.
Item 8. Financial Statement Supplementary Data.
None.
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosures
Because or regulatory time limit, we had to change accountants. Our
previous independent registered accounting firm was Michael Cronin, CPA,
PA. Our current independent registered accounting firm is Patrick
Rodgers, CPA, PA. The Registrant has no disagreements with either
accounting firm.
Item 9A(T). Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, we conducted an evaluation under the
supervision and with the participation of our chief executive officer
and chief financial officer of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).
Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms.
Management's Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes of accounting principles generally
accepted in the United States.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance
of achieving their control objectives.
Our management evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2008. In making this assessment,
our management used the COSO framework, an integrated framework for the
evaluation of internal controls issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our
management concluded that, as of December 31, 2008, our internal control
over financial reporting was effective.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation
by our registered public accounting firm pursuant to temporary rules of
the SEC that permit the company to provide only management's report in
this annual report.
Changes in Internal Control Over Financial Reporting. There was no
change in our internal controls or in other factors that could affect
these controls during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting. While existing controls may be
adequate at present, upon the commencement of flight revenue service we
intend to implement controls appropriate for airline operations.
Item 9B. Other Information.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table summarizes certain information with respect
to the executive officers and directors of the board :
Name Age Position
Igor Dmitrowsky . . . . 54 President, CEO, CFO, Chairman of the
Board
Russell Thal . . . . . 74 Executive Vice President
Barry Clare . . . . . . 49 Vice President Finance
Walter Kaplinsky . . . 71 Secretary, Director
Andris Rukmanis . . . . 47 V.P. Europe and Director
Our directors serve until the next annual meeting and until their
successors are elected and qualified. Our officers are appointed to
serve for one year until the meeting of the board of directors following
the annual meeting of stockholders and until their successors have been
elected and qualified. There are no family relationships between any of
our directors or officers.
Igor Dmitrowsky, President, Chief Executive Officer and CFO, founded the
Company and served as Chairman of the Board from its inception in August
24, 1989 to date. Mr. Dmitrowsky, a US citizen, born in Riga, Latvia,
attended the State University of
Latvia from 1972 to 1974 and Queens College from 1976 through 1979. In
1979, he founded American Kefir Corporation, a dairy distribution
company, which completed a public offering in 1986, and from which he
retired in 1987. Mr. Dmitrowsky has financed aircraft and automotive
projects, speaks fluent Latvian and Russian, and
has traveled extensively in the republics of the former Soviet Union.
In 1990, he testified before the House Aviation Subcommittee on the
implementation of United States' aviation authorities by US airlines.
Russell Thal, a US citizen, is the Company's Executive Vice President.
Mr. Thal joined the Company in 2000. From 1981 to 2000 he was Chairman
of Compuflight, Inc., an airline flight planning firm. From 1980 to 1981
he was Director of Stations for New York Air.
Barry Clare, a US citizen, is the Company's Vice President of Finance.
Mr. Clare joined the Company in 2006. Mr. Clare has been instrumental
in helping finance the Company. From 2001 to 2004, he was Chief Operating
Officer for Advance Plant Pharmaceuticals, Inc. From 1995 to 1997 Mr.
Clare served as vice president of Intermediaries, Inc., an investment
banking firm.
Walter Kaplinsky, a US citizen, has been with the Company since 1990.
Mr. Kaplinsky has been corporate secretary since 1993. In 1979, together
with Mr. Dmitrowsky, Mr. Kaplinsky was one of the co-founders of
American Kefir Corporation, where from 1979 through 1982,
Mr. Kaplinsky served as secretary and vice president.
Andris Rukmanis, a citizen of Latvia, is the Company's Vice President
in Europe. Mr. Rukmanis joined the Company in 1989. In Latvia, Mr.
Rukmanis has worked as an attorney specializing in business law. From
1988 through 1989, he was Senior Legal Counsel for the Town of Adazhi
in Riga County, Latvia. From 1989 to 1990, he served as Deputy Mayor
of Adazhi.
Item 11. Executive Compensation.
Change in
Pension
Non-equity Value and
Incentive Non-qualified
Name & Principal Base Stock Option Plan Comp Incentive Plan All Other
Position Year Salary Bonus Awards Awards Earnings Compensation Compensation Total
----------------- ----- ---------- ------ ------------ ------------ -------- ------------- ------------ -----------
Igor Dmitrowsky
President, CEO 2008 $ 133,400 $ - $ 60,000 $ 1,295,319 $ - $ - $ 5,000 $ 1,493,719
2007 - - 1,094,798 - - - -
----------------- ----- ---------- ------ ------------ ------------ -------- ------------- ------------ -----------
Barry Clare
VP, Finance 2008 - - 108,000 157,959 - - 56,000 321,959
2007 - - 832,000 - - - - 832,000
----------------- ----- ---------- ------ ------------ ------------ -------- ------------- ------------ -----------
Russ Thal,
Exec VP 2008 - - 99,050 38,019 - - - 137,069
2007 - - 32,000 - - - - 32,000
----------------- ----- ---------- ------ ------------ ------------ -------- ------------- ------------ -----------
Walter Kaplinsky
Secretary 2008 - - - 35,000 - - - 35,000
2007 - - 20,000 - - - - 20,000
These columns represent the grant date fair value of the awards
as calculated in accordance with FASB ASC Topic 718, Compensation - Stock
Compensation. The fair value of these equity awards on the date of grant
was approximately $1,793,247. The fair value was estimated using the
Black-Sholes option pricing model with the following assumptions: risk
free interest rate of 4.4%, no dividend yield, expected lives of 3 years,
and volatility between 150% and 217%. The expected term of the equity
instruments granted is based on the "simplified method for "plain vanilla"
options discussed in SEC Staff Accounting Bulletin ("SAB") No. 107, as
amended by SAB No. 110. The expected volatility is derived from historic
volatility of the Company's stock on the OTCBB for a period that matches
the expected term of the equity award. The risk-free interest rate is the
yield from a Treasury note corresponding to the expected term of the
equity awards.
Mr. Dmitrowsky was charged additional compensation of $5,000,
which represents one-third of the rent the Company paid for its
corporate headquarters during the year ended December 31, 2008.
This compensation represents payment for negotiating services
in connection with the raise of new equity capital.
Employment Agreements
The Company has no individual employment agreements in place with any of
its executive officers or employees.
Future Compensation of Executive Officers
The board of directors approves salaries for the Company's executive
officers as well as the Company's overall salary structure. For year
one following the closing of financing sufficient to commence flight
operations, the rate of compensation for the Company's executive
officers is expected to be: (i) President $198,000, Executive Vice
President $130,000, Vice President Finance $120,000, (ii) Vice President
Marketing $110,000,and (iii) Vice President Europe $90,000. Board
directors are not presently compensated and shall receive no
compensation prior to commencement of revenue service.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
As of April 6, 2009, there were 429,766,159 shares of common stock, par
value $0.0001 outstanding. The following table sets forth, as of
December 31, 2008, the ownership of the Company's Common Stock by
(i)each director and officers of the Company, (ii) all executive
officers and directors of the Company as a group, and (iii) all other
persons known to the Company to own more than 5% of the Company's Common
Stock. Each person named in the table has or shares voting and
investment power with respect to all shares shown as beneficially owned
by such person.
Common Shares
Beneficially Owned Percent of Total
Outstanding
Directors and Officers
Igor Dmitrowsky . . . . . . 152,422,825 42.84%
63-26 Saunders St., Suite 7I
Rego Park, NY 11374
Russell Thal . . . . . . . . 3,150,000 0.89%
26 Ridge Drive
Port Washington, NY 11050
Barry Clare . . . . . . . . 13,600,000 3.82%
16 Birchwood Park Court
Jericho, NY 11753
Walter Kaplinsky . . . . . 6,717,294 1.89%
2000 Quentin Rd.
Brooklyn, NY 11229
Andris Rukmanis . . . . . . 1,118,750 0.31%
Kundzinsala, 8 Linija 9.
Riga, Latvia LV-1005
Shares of all directors and 177,008,869 49.75%
executive officers as a
group (5 persons)
Less than 1%
Item 13. Certain Relationships and Related Transactions.
None.
Item 14. Principal Accountant Fees and Services.
In 2008, the Company paid its independent accountant $7,000 for services
in providing an audit of the year 2007. In 2007, the Company paid its
independent accountant $6,000 for services in providing an audit of the
year 2006. All other Company accounting and tax preparations have been
done in house.
PART IV.
Item 15. Exhibits and Financial Statements.
3.1 Certificate of Incorporation of Baltia Air Lines, Inc. (incorporated
by reference to Exhibit 3.1 to Form 10-KSB filed on May 19, 2005)
3.2 Bylaws of Baltia Air Lines, Inc. (incorporated by reference to
Exhibit 3.2 to Form S-8 filed on December 19, 2001).
3.3 DOT "ORDER ISSUING FOREIGN CERTIFICATE", finding Baltia Air Lines,
Inc. fit, willing, and able to engage in foreign scheduled air
transportation of persons Property and Mail and awarding to Baltia Air
Lines, Inc. a Certificate of Public Convenience for the New York St.
Petersburg route. (Docket DOT-OST-2007-0007), issued on the 5 day of
January 2009. (Attached as EX-1)
3.4 DOT NOTICE of US-Russia frequency allocation to Baltia Air Lines
(Docket DOT-OST-2009-0070), issued on March 20, 2009. (Attached as EX-2)
31.1 Certification by Chief Executive Officer and Chief Financial
Officer pursuant to Sarbanes-Oxley Section 302, provided herewith.
32.1 Certification by Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S. C. Section 1350, provided herewith.
APPENDIX A.
Baltia Air Lines, Inc.
(A Development Stage Company)
Financial Statements
For the Years Ended December 31, 2008 and 2007
Table of Contents
Page(s)
Report of Independent Registered Accounting firm:
Patrick Rodgers, CPA, PA . . . . . F-1
Report of Independent Registered Accounting firm:
Michael F. Cronin, CPA . . . . . F-2
Balance Sheets as of December 31, 2008 and 2007 F-3
Statements of Operations for the years ended
December 31, 2008 and 2007, and the period
August 29, 1989 (inception) to December 31, 2008 F-4
Statements of Cash Flows for the years ended
December 31, 2008 and 2007, and the period
August 29, 1989 (inception) to December 31, 2008 F-5
Statement of Stockholders' Equity for the years
ended December 31, 2008, 2007, and 2006 F-6
Notes to Financial Statements F-7 - F-17
Patrick Rodgers, CPA, PA
309 E. Citrus Street
Altamonte Springs, FL 32701
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
I have audited the accompanying balance sheet of Baltia Airlines, Inc.
("the Company") as of December 31, 2008 and the statements of operations,
stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
I plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company
is not required to have, nor was I engaged to perform, an audit of its
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion of the effectiveness of the Company's
internal control over financial reporting. Accordingly, I express no
such opinion. 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. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, these financial statements present fairly, in all material
respects, the financial position of Baltia Air Lines, Inc. as of December
31, 2008 and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally
accepted in the United States.
The Company has incurred operating losses since inception. Note 8 of
the financial statements addresses management's plan regarding the
future operations of the Company.
/s/Patrick Rodgers, CPA, PA
Patrick Rodgers, CPA, PA
Altamonte Springs, Florida
April 13, 2009
Except Note 2, Note 4, and Note 9 - February 15, 2013
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Michael F. Cronin
Certified Public Accountant
687 Lee Road
Rochester, NY 14606
Board of Directors and Shareholders
Baltia Air Lines, Inc.
New York, NY
I have audited the accompanying balance sheet of Baltia Air Lines, Inc.
(the "Company") as of December 31, 2007 and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
The financial statements are the responsibility of the directors. My
responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The company is not required to have, nor was I engaged to
perform, an audit of its internal control over financial reporting. My
audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. 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. I believe that my audits provide a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Baltia Air
Lines, Inc. as of December 31, 2007 and the results of its operations,
its cash flows and changes in stockholders' equity for the year then
ended in conformity with accounting principles generally accepted in the
United States.
The Company has incurred operating losses since inception. Note 8 of
the financial statements addresses Management's Plan regarding the
future operations of the Company.
March 29, 2008
/s/ Michael F. Cronin
Michael F. Cronin
Certified Public Accountant
F-2
Baltia Air Lines, Inc.
Balance Sheets
(A Development Stage Company)
12/31/2008 12/31/2007
Assets
Current Assets
Cash $ 724,240 $ 2,002,496
Property & Equipment:
Equipment 115,067 115,067
Accumulated Depreciation (73,933) (65,383)
Net Property & Equipment 41,134 49,684
Total Assets $ 765,374 $ 2,052,180
Liabilities & Equity
Current Liabilities:
Accounts Payable $ 15,000 $ 25,000
Current portion of long-term debt 0 7,000
Total current liabilities 15,000 32,000
Long-term debt 0 12,368
Equity:
Preferred stock - 2,000,000
authorized $0.01 par value
66,500 issued & outstanding 665 665
Common Stock - 500,000,000
authorized $0.0001 par value
355,767,159 issued & outstanding
(279,450,534 in 2007) 35,577 27,945
Additional paid in capital 18,716,994 16,233,527
Deficit Accumulated During
Development Stage (18,002,862) (14,254,325)
Total Equity $ 750,374 $ 2,007,812
Total Liabilities & Equity $ 765,374 $ 2,052,180
See Summary of Significant Accounting Policies and Notes to Financial
Statements.
F-3
Baltia Air Lines, Inc.
Statements of Operations
(A Development Stage Company)
Years Ended
Inception to
12/31/2008 12/31/2007
12/31/2008
Revenue $ 0 $ 0 $ 0
Costs & Expenses
General & administrative 3,536,152 3,705,673 15,360,677
FAA certification costs 217,382 48,476 472,491
Training 0 0 225,637
Depreciation 8,551 4,648 319,607
Other 0 0 568,245
Interest (17,912) 1,946 1,050,693
Total Costs & Expenses 3,744,173 3,760,743 17,997,350
Loss before income taxes (3,744,173) (3,760,743) (17,997,350)
Income Taxes 4,364 0 5,512
Deficit Accumulated During
Development Stage $ (3,748,537) $ (3,760,743) $(18,002,862)
Per share amounts:
Basic:
Loss ($0.01 ($0.02)
Weighted Average 303,326,480 185,713,584
See Summary of Significant Accounting Policies and Notes to Financial
Statements.
F-4
Baltia Air Lines, Inc.
Statements of Cash Flows
(A Development Stage Company)
Years Ended Inception to
12/31/2008 12/31/2007 12/31/2008
Cash flows from operating activities:
Deficit Accumulated During Development Stage $(3,748,537) $(3,760,743) $(18,002,862)
Adjustments required to reconcile deficit accumulated
during development stage to cash used in operating
activities:
Depreciation 8,551 4,648 319,607
Expenses paid by issuance of common stock 2,444,649 3,131,536 7,316,936
(Increase) decrease in prepaid expenses 0 0 400,301
Increase (decrease) in accounts payable & accrued expenses (10,000) 23,800 3,166,481
Cash flows used by operating activities: (1,305,337) (600,759) (6,799,537)
Cash flows from investing activities:
Purchase of equipment 0 (10,986) (323,125)
Cash used in investing activities 0 (10,986) (323,125)
Cash flows from financing activities:
Proceeds from issuance of common stock 46,450 2,631,504 7,402,383
Proceeds from issuance of preferred stock 0 0 2,753
Loans from related parties 0 0 1,351,573
Repayment of related party loans 0 0 (368,890)
Principal payments on long-term debt (19,369) (21,448) (40,817)
Acquisition of treasury stock 0 0 (500,100)
Cash generated by financing activities 27,081 2,610,056 7,846,902
Change in cash (1,278,256) 1,998,311 724,240
Cash-beginning of period 2,002,496 4,185 0
Cash-end of period $ 724,240 $ 2,002,496 $ 724,240
See Summary of Significant Accounting Policies and Notes to Financial Statements
F-5
Baltia Air Lines, Inc.
Statement of Shareholders' Equity
(A Development Stage Company)
Preferred Common Deficit
Accumulated
Common Additional During Stockholders'
Par Stock Paid-In Development Equity
Shares Value Shares Amount Capital Stage (Deficit)
Balance at December 31, 2005 66,500 $665 67,298,009 $6,730 $9,293,365 (9,284,902) 15,858
Exercise of Warrants and Options 22,000,000 2,200 9,000 11,200
Shares issued for cash 13,550,000 1,355 98,655 100,010
Shares issued for services 19,546,900 1,955 941,213 943,168
Options issued for services 143,959
Net Loss (1,208,680) (1,208,680)
Balance at December 31, 2006 66,500 665 122,394,909 12,240 10,486,192 (10,493,582) 5,515
Exercise of Warrants and Options 58,000,000 5,800 239,700 245,500
Shares issued for cash 60,670,637 6,067 2,450,488 2,456,505
Shares issued for services 38,384,988 3,838 3,021,429 3,025,267
Options issued for services 35,768 35,768
Net Loss (3,760,743) (3,760,743)
Balance at December 31, 2007 66,500 665 279,450,534 27,945 16,233,577 (14,254,325) 2,007,812
Exercise of Warrants and Options 46,000,000 4,600 4,600
Shares issued for cash 816,625 82 46,368 46,450
Shares issued for services 29,500,000 2,950 673,000 675,950
Options issued for services 1,764,099 1,764,099
Net Loss (3,748,537) (3,748,537)
Balance at December 31, 2008 66,500 665 355,767,159 35,577 17,773,876 (18,002,862) 750,374
See Summary of Significant Accounting Policies and Notes to Financial Statements
F-6
BALTIA AIR LINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
Note 1 Organization and Operations
The Company was formed as a U.S. airline on August 24, 1989 in the
State of New York. Our objective is to provide scheduled air
transportation from the U.S. to Russia, the Baltic States and
Ukraine. In 1991, the Department of Transportation (DOT) granted
the Company routes to provide non-stop passenger, cargo and mail
service from JFK to St. Petersburg and from JFK to Riga, with online
service to Minsk, Kiev and Tbilisi as well as back up service to
Moscow. We have two registered trademarks "BALTIA" and "VOYAGER
CLASS," and five trademarks subject to registration. Our activities
to date have been devoted principally to raising capital, obtaining
route authority and approval from the DOT and the Federal Aviation
Administration (FAA), training crews, and conducting market research
to develop the Company's marketing strategy.
Regulatory Compliance
We intend to operate as a Part 121 carrier, a heavy jet operator.
As such, following certification we will be required to maintain our
air carrier standards as prescribed by DOT and FAA regulation and as
specified in the FAA approved Company manuals. As part of its
regulatory compliance we will be required to submit periodic reports
of our operations to the DOT.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been presented in a "development
stage" format. Since inception, our primary activities have been
raising of capital, obtaining financing and of obtaining route
authority and approval from the DOT and the FAA. We have not
commenced our principal revenue producing activities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires our management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statement and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from the estimates.
Cash and Cash Equivalents
For financial statement presentation purposes, we consider those
short-term, highly liquid investments with original maturities of
three months or less to be cash or cash equivalents.
Fair Value of Financial Instruments
Statements of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments, require disclosure of
fair value information about financial instruments. Fair value
estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31,
2008. The respective carrying value of certain on-balance sheet
financial instruments approximated their fair values.
These financial instruments include cash and cash equivalents,
accounts payable and accrued expenses. Fair values were assumed to
approximate carrying values for these financial instruments since
they are short-term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand. The
carrying value approximates the fair value of the notes payable
F-7
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets, generally 5-7 years. Expenditures for renewals
and betterments are capitalized. Expenditures for minor items,
repairs and maintenance are charged to operations as incurred. Gain
or loss upon sale or retirement due to obsolescence is reflected in
the operating results in the period the event takes place.
Valuation of Long-Lived Assets
We review the recoverability of our long-lived assets, including
buildings, equipment and intangible assets, when events or changes
in circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The assessment of possible impairment
is based on our ability to recover the carrying value of the asset
from the expected future pre-tax cash flows (undiscounted and
without interest charges) of the related operations. If these cash
flows are less than the carrying value of such asset, an impairment
loss is recognized for the difference between estimated fair value
and carrying value. Our primary measure of fair value is based on
discounted cash flows. The measurement of impairment requires
management to make estimates of these cash flows related to long-
lived assets, as well as other fair value determinations.
We amortize the costs of other intangibles (excluding goodwill) over
their estimated useful lives unless such lives are deemed
indefinite. Amortizable intangible assets are tested for impairment
based on undiscounted cash flows and, if impaired, written down to
fair value based on either discounted cash flows or appraised
values. Intangible assets with indefinite lives are tested for
impairment, at least annually, and written down to fair value as
required.
Comprehensive Income
Comprehensive income is defined as changes in the equity of an
enterprise except those resulting from shareholder transactions. The
amounts shown on our statement of stockholders' equity relate to the
cumulative effect of minimum pension liabilities, translation
adjustments, and unrealized gain or loss on securities.
Stock-Based Compensation Plans
The Company accounts for stock-based payments using the fair value method
in accordance with the provisions of FASB ASC Topic 718, Compensation -
Stock Compensation, which requires the measurement and recognition of
compensation expense for all share based payments based on estimated fair
value. Equity-classified share and warrant awards are measured at the
grant date based on fair value. Common stock and warrants issued are
valued at the estimated fair market value.
F-8
Accounting For Obligations And Instruments Potentially To Be Settled In
The Company's Own Stock
We account for obligations and instruments potentially to be settled in
the Company's stock in accordance with EITF Issue No. 00-19, Accounting
for Derivative Financial Instruments Indexed To, and Potentially Settled
In a Company's Own Stock. This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and
potentially settled in, the Company's own stock.
Under EITF Issue No. 00-19 contracts are initially classified as equity or
as either assets or liabilities, in the following situations:
Equity
Contracts that require physical settlement or net-share settlement; and
Contracts that give the company a choice of net-cash settlement or
settlement in its own shares (physical settlement or net-share
settlement), assuming that all the criteria for equity classification have
been met.
Assets or Liabilities
Contracts that require net-cash settlement (including a requirement to
net-cash settle the contract if an event occurs and if that event is
outside the control of the company); and
Contracts that give the counterparty a choice of net-cash settlement or
settlement in shares (physical settlement or net-share settlement).
All contracts are initially measured at fair value and subsequently
accounted for based on the current classification. Contracts initially
classified as equity do not recognize subsequent changes in fair value as
long as the contracts continue to be classified as equity. For contracts
classified as assets or liabilities, the Company reports changes in fair
value in earnings and discloses these changes in the financial statements
as long as the contracts remain classified as assets or liabilities. If
contracts classified as assets or liabilities are ultimately settled in
shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
In accordance with EITF Issue No. 00-19, a transaction which includes a
potential for net-cash settlement, including liquidated damages, requires
that derivative financial instruments, including warrants and additional
investment rights, initially be recorded at fair value as an asset or
liability and subsequent changes in fair value be reflected in the
statement of operations. The recorded value of the liability for such
derivatives can fluctuate significantly based on fluctuations in the
market value of the underlying common stock of the issuer of the
derivative instruments, as well as in the volatility of the stock price
during the term used for observation and the remaining term.
F-9
Warrant Derivative Liabilities
We account for warrants issued in connection with financing arrangements
in accordance with EITF Issue No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's
Own Stock. Pursuant to EITF Issue No. 00-19, an evaluation of specifically
identified conditions is made to determine whether the fair value of
warrants issued is required be classified as a derivative liability. The
fair value of warrants classified as derivative liabilities is adjusted
for changes in fair value at each reporting period, and the corresponding
non-cash gain or loss is recorded in current period earnings.
Earnings per Common Share
Basic earnings per share is computed by dividing income available to
common shareholders (the numerator) by the weighted-average number of
common shares outstanding (the denominator) for the period. Diluted
earnings per share assume that any dilutive convertible securities
outstanding were converted, with related preferred stock dividend
requirements and outstanding common shares adjusted accordingly. It also
assumes that outstanding common shares were increased by shares issuable
upon exercise of those stock options for which market price exceeds the
exercise price, less shares which could have been purchased by us with the
related proceeds. In periods of losses, diluted loss per share is computed
on the same basis as basic loss per share as the inclusion of any other
potential shares outstanding would be anti-dilutive.
Income Taxes
We must make certain estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and judgments
occur in the calculation of certain tax assets and liabilities, which
arise from differences in the timing of recognition of revenue and expense
for tax and financial statement purposes.
Deferred income taxes are recorded in accordance with SFAS No. 109,
Accounting for Income Taxes" or SFAS 109. Under SFAS No. 109, deferred tax
assets and liabilities are determined based on the differences between
financial reporting and the tax basis of assets and liabilities using the
tax rates and laws in effect when the differences are expected to reverse.
SFAS 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not to occur. Realization
of our net deferred tax assets is dependent upon our generating sufficient
taxable income in future years in appropriate tax jurisdictions to realize
benefit from the reversal of temporary differences and from net operating
loss, or NOL, carryforwards.
We have determined it more likely than not that these timing differences
will not materialize and have provided a valuation allowance against
substantially all of our net deferred tax asset. Management will continue
to evaluate the realizability of the deferred tax asset and its related
valuation allowance. If our assessment of the deferred tax assets or the
corresponding valuation allowance were to change, we would record the
related adjustment to income during the period in which we make the
determination. Our tax rate may also vary based on our results and the mix
of income or loss in domestic and foreign tax jurisdictions in which we
operate.
In addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize
liabilities for anticipated tax audit issues in the U.S. and other tax
jurisdictions based on our estimate of whether, and to the extent to
which, additional taxes will be due. If we ultimately determine that
payment of these amounts is unnecessary, we will reverse the liability and
recognize a tax benefit during the period in which we determine that the
liability is no longer necessary. We will record an additional charge in
our provision for taxes in the period in which we determine that the
recorded tax liability is less than we expect the ultimate assessment to
be.
F-10
Recent Accounting Pronouncements:
The Company evaluates the pronouncements of various authoritative
accounting organizations, primarily the Financial Accounting Standards
Board (FASB), the SEC, and the Emerging Issues Task Force (EITF), to
determine the impact of new pronouncements on GAAP and the impact on
the Company. The following are recent accounting pronouncements that
have been adopted during 2012, or will be adopted in future periods.
Fair Value Measurements: In May 2011, the FASB amended the ASC to
develop common requirements for measuring fair value and for disclosing
information about fair value measurements in accordance with GAAP and
International Financial Reporting Standards. The amendment is effective
for the first interim or annual period beginning on or after December
15, 2011. The adoption of this amendment on January 1, 2012 did not
have a material impact on the Company's results of operations and
financial condition.
Comprehensive Income: In June 2011, the FASB amended the ASC to increase
the prominence of the items reported in other comprehensive income.
Specifically, the amendment to the ASC eliminates the option to present
the components of other comprehensive income as part of the statements
of shareholders' equity. The amendment must be applied retrospectively
and is effective for fiscal years and the interim periods within those
years, beginning after December 15, 2011.
In February 2013, the FASB amended the ASC to require entities to provide
information about amounts reclassified out of other comprehensive income
by component. The Company is required to present, either on the face of
the financial statements or in the notes, the amounts reclassified from
other comprehensive income to the respective line items in the statements
of operations. This amendment is effective for interim and annual
periods beginning after December 15, 2012.
F-11
Note 3 Property and Equipment
A summary of property & equipment is as follows:
Estimated Useful 2008 2007
Life
Operations Manuals 5-7 years $28,109 $28,109
Office Equipment 5-7 years 42,392 42,392
Automobile 5 years 44,566 44,566
Less: accumulated
Depreciation (73,934) (65,383)
-------- --------
Net Property &
Equipment $41,133 $49,684
Current depreciation
expense $ 8,551 $ 4,648
Note 4 Stockholders' Equity
Description of Securities:
Common Stock
We have been authorized to issue 500,000,000 shares of Common Stock at
$.0001 par value per share. As of December 31, 2008, a total of 355,767,159
shares of Common Stock were issued and outstanding and held by over 100
shareholders. In addition, we have granted warrants to issue up to
approximately 105,492,500 more shares of our common stock. Holders of
Common Stock are entitled to receive dividends, when and if declared by
the board of directors, subject to prior rights of holders of any
Preferred Stock then outstanding and to share ratably in the net assets of
the company upon liquidation. Holders of Common Stock do not have
preemptive or other rights to subscribe for additional shares. The
Certificate of Incorporation does not provide for cumulative voting.
Shares of Common Stock have equal voting, dividend, liquidation and other
rights, and have no preference, exchange or appraisal rights.
Preferred Stock
We are authorized to issue up to a maximum of 2 million shares (66,500
shares outstanding) of Preferred Stock. We can issue these shares as
our board of directors shall from time to time fix by resolution. Our
Preferred Stock is not entitled to share in any dividends declared on the
Common Stock and has no voting rights. Each share is convertible in to 3
shares of Common. The liquidation preference is set by this conversion
formula and results in a pro rata claim on the Company's assets based upon
the underlying common shares issuable (199,500) upon conversion.
Recent Issuance of Unregistered Securities:
Year Ended December 31, 2008
Stock issued for cash: For the year ended December 31, 2008, the Company
issued 816,625 shares of its $0.0001 par value common stock in exchange
for cash in the amount of $46,450. These shares were deemed to have been
issued pursuant to an exemption provided by Section 4(2) of the Act,
which exempts from registration "transactions by an issuer not involving
any public offering."
Stock issued for services: For the year ended December 31, 2008, the
Company issued 29,500,000 shares of its $0.0001 par value common stock
in exchange for services. We valued these shares at $675,950, or
approximately $0.022 per share, which reflected the weighted average
market value at the time of issuance. These shares were deemed to have
been issued pursuant to an exemption provided by Section 4(2) of the Act,
which exempts from registration "transactions by an issuer not involving
any public offering."
Stock issued due to exercise of warrants and options: During the year
ended December 31, 2008, a holder of 46,000,000 warrants exercised his
option to acquire a like amount of common stock. The exercise price
of these options was $0.0001; the exercise price was offset against
accrued compensation of $4,600. These shares were deemed to have been
issued pursuant to an exemption provided by Section 4(2) of the Act,
which exempts from registration "transactions by an issuer not
involving any public offering.
F-12
Recent Issuance of Unregistered Securities (continued):
Year Ended December 31, 2007
Stock Issued for Cash: We issued 60,670,637 shares of our common stock in
exchange for receiving a total of $2,631,504 in cash. The shares are not
registered and subject to restrictions as to transferability.
Stock Issued for Services: We issued 38,384,968 shares of our common
stock in exchange for services. The shares were valued at $3,025,268 or
about $0.08 per share which reflected the weighted average market value at
the time of issuance. The shares are not registered and are subject to
restrictions as to transferability.
Stock Issued Due to Exercise of Warrants & Options: During 2007 holders
of 58,000,000 warrants exercised their option to acquire a like amount of
shares of Common Stock. The options were at various exercise prices. The
exercise price was offset against accrued compensation of $245,500.
Summary of Option and Warrant Activity
The Company accounts for its stock option awards under FASB ASC Topic 718
"Compensation-Stock compensation." The fair value of each option is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for each grant for the
year ended December 31, 2008 and 2007; risk free interest rate of 4.4%, no
dividend yield, expected lives of three years and volatility between 150%
and 217%. The expected term of stock option awards granted is generally
based up the "simplified" method for "plain vanilla" options discussed in
SEC Staff Accountng Bulletin ("SAB") No. 107, as amended by SAB No. 110.
The expected volatility is derived from historical volaltility of the
Company's stock on the OTCBB for a period that matches the expected term
of the option. The risk free interest rate is the yield from a Treasury
note corresponding to the expected term of the option. During the year
ended December 31, 2008 and 2007, the Company granted a total of 91,562,500
and 45,000,000 options and warrants, respectively, at a weighted-average
grant date fair value of $0.02 and $0.10, respectively. For the years
ended December 31, 2008 and 2007, the Company recognized approximately
$2,445,000 and $3,132,000, respectively, of stock-based compensation
expense related to the issuance of options and warrants. This expense
is reported with General & Administrative expenses in the accompanying
statements of operations.
The Company has not paid cash dividends and does not expect to pay cash
dividends in the future.
F-13
Outstanding Average Weighted Exerciseable Weighted
at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 2008 Life Price 2008 Price
------------- ------------- ------------- ----------- --------------- -----------
$0.01-$0.05 95,542,500 2.4 $ 0.01 95,542,500 $ 0.01
$0.06-$0.25 9.950,000 2.5 $ 0.24 9.950,000 $ 0.24
------------- ------------- ------------- ----------- --------------- -----------
105,492,500 2.4 $ 0.03 105,492,500 $ 0.03
============= ============= =========== =============== ===========
The following is a summary of all option activity through December 31, 2008:
Weighted
Average
Number of Weighted Remaining Aggregate
Shares Average Term Instrinsic
Outstanding Price (in years) Value
------------- ------------ -------- -------------
Options outstanding at December 31, 2006 74,770,000 $ 0.04
Granted in 2007 45,000,000 $ 0.10
Exercised (58,000,000) $ -
Lapsed - $ -
------------- ------------ -------- -------------
Options outsanding at December 31, 2007 61,770,000 $ 0.12 3.9 $ 2,000,000
Granted in 2008 91,562,500 $ 0.02
Exercised (46,000,000) $ -
Lapsed (1,840,000) $ 0.04
------------- ------------ -------- -------------
Options outstanding at December 31, 2008 105,492,500 $ 0.03 2.4 $ 4,362,173
============= ============
Exercisable at December 31, 2008 105,492,500 $ 0.54 2.4 $ 4,362,173
============= ============
F-14
Note 5 Income Taxes
The Company has approximately $ 10,300,000 in net operating loss
carryovers available to reduce future income taxes. These
carryovers expire at various dates through the year 2029. The
Company has adopted SFAS 109 which provides for the recognition of
a deferred tax asset based upon the value the loss carry-forwards
will have to reduce future income taxes and management's estimate
of the probability of the realization of these tax benefits. We
have determined it more likely than not that these timing
differences will not materialize and have provided a valuation
allowance against substantially all of our net deferred tax asset.
A summary of the deferred tax asset presented on the accompanying
balance sheets is as follows:
Following is a summary of the components give rise to the deferred
tax provision.
2008 2007
----------- -----------
Currently payable:
Federal $ - $ -
State $ - $ -
Foreign 4,364 -
------------ -----------
Total currently payable 4,364 -
============ ===========
Deferred:
Federal 1,015,000 154,000
State 154,000 25,000
------------ -----------
Total Deferred 169,000 179,000
Less: increase in allowance (1,169,000) (179,000)
------------ -----------
Net Deferred - -
============ ===========
Total income tax provision (benefit) $ 4,364 $ -
============ ===========
Individual components given rise to the deferred tax
assets are as follows: 2008 2007
----------- -----------
Future tax benefits arising from net operating loss
carry forwards $ 4,383,000 $ 3,873,000
Future tax benefits arising from options/warrents
issued for services 671,000 13,000
------------ -----------
Total 5,054,000 3,886,000
Less: valuation allowance (5,054,000) (3,886,000)
------------ -----------
Net Deferred $ - -
============ ===========
F-15
Utilization of federal and state NOL and tax credit carryforwards
may be subject to a substantial annual limitation due to the
ownership change limitations provided by the Internal Revenue Code
of 1986, as amended, and similar state provisions. The annual
limitation may result in the expiration of NOL and tax credit
carryforwards before full utilization.
Note 6 Commitments and Contingencies
Facilities: The Company leases office space for its administrative
offices, under three month to month agreements, at a monthly
rental of approximately $5,600. In 2008 and 2007 expense was
$76,405 and $55,200 respectively.
Note 7 Supplementary Cash Flow Disclosure:
2008 2007
Fair Value of equity instruments
issued for services $2,444,649 $3,135,536
Note 8 Management's Plan of Operation
We believe we currently have sufficient capital to commence
revenue flight operations and to maintain our current level of
operations. During 2007and into 2008, we continued to finance
our operations through the issuance of our common stock and the
continued exercise of warrants. Until revenue operations begin,
our monthly expenditures for administrative and regulatory
compliance can be controlled at about $30,000-$50,000. Based on
current reserves we have sufficient capital to support our
development stage operations through the end of 2009.
In 2007, we raised $2.9 million in a private placement in order
to start revenue flight operations. Based on our prior
experience with certification and current preparations the
management believes that the launch budget, previously reviewed
by the DOT, will be adequate to complete certification and to
commence flight service. Approximately $300,000 is budgeted for
aircraft, $450,000 for certification tasks, and $300,000 for
general and administrative expenses. At the time flight service
is inaugurated the company plans to have approximately 15
management and 45 staff personnel.
F-16
Management has considered the overall pipeline effect that
enhances the initial cash position of a startup carrier. It is
the industry practice for passengers to purchase tickets in
advance of their flights while service vendors bill the carrier
later.
In order that a new airline would not fly empty on day one,
approximately 30 days prior to the expected inaugural date, the
DOT authorizes sales of tickets and cargo. Such funds from
advance sales, estimated at approximately $3 million for the
company, accumulate in an escrow account, and are released upon
the issuance of the air carrier certificate.
There can be no assurance that additional financing will be
available on terms favorable to us or at all. If adequate funds
are not available or are not available on acceptable terms, we
may not be able to fund expansion.
Note 9 Related Party
During the year ended December 31, 2008, the Company issued 79,140,000
options of its $0.0001 par value common stock to officers and directors.
These options were valued at $1,526,297, or a weighted average price of
approximately $0.02 per share. Also, during 2008, the Company issued
14,750,000 restricted shares of its $0.0001 par value common stock to
officers and directors. These restricted shares were valued at a weighted
average price of approximately $0.10 per share. One officer exercised his
option to acquire 46,000,000 shares of the Company's $0.0001 par value
common stock.
One officer was charged additional compensation of $5,000, which represents
one-third of the rent the Company paid for its corporate headquarters
during the year ended December 31, 2008. A second officer received
$56,000 of additional compensation, which represented payment for
negotiating services in connection with the raise of new equity capital.
F-17
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Baltia Air Lines, Inc.
Date: February 21, 2013
/s/ Igor Dmitrowsky
By: Igor Dmitrowsky, President, CEO and CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Igor Dmitrowsky Chairman, CEO and CFO February 21, 2013
Igor Dmitrowsky (Principal Executive Officer
and Principal Accounting Officer)
/s/ Walter Kaplinsky Secretary and Director February 21, 2013
Walter Kaplinsky
/s/ Andris Rukmanis V.P. Europe and Director February 21, 2013
Andris Rukmanis
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Igor Dmitrowsky, the Chief Executive Officer and Chief
Financial Officer of Baltia Air Lines, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Baltia Air
Lines, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal controls over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 21, 2013
/s/ Igor Dmitrowsky
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer)
EXHIBIT 32.1
BALTIA AIR LINES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report Baltia Air Lines, Inc.
(the "Company") on Form 10-K for the period ended December 31,
2008 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Igor Dmitrowsky, Chief Executive
Officer and Chief Financial Officer (principal accounting officer)
of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section
906 has been provided to Baltia Air Lines, Inc. and will be
retained by Baltia Air Lines, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
Date: February 21, 2013
/s/ Igor Dmitrowsky
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer)