UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
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, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-14519
Date of Report: April 5, 2011
BALTIA AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 11-2989648
(State of Incorporation) (IRS Employer Identification No.)
63-25 SAUNDERS STREET, SUITE 7 I, REGO PARK, NY 11374
(Address of principal executive offices)
Registrant's telephone number, including area code: (718) 275-5205
Title of each class Name of each Exchange
on which registered
-None- -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.
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, 2009 is $10,981,131.
The number of shares of the registrant's common stock outstanding as
of April 12, 2010 was 840,190,706.
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 Part 121 (heavy jet operator) start-up airline
in the United States today that has received Government fitness
approval. Baltia is currently conducting the FAA Air Carrier
Certification. Baltia Air Lines, Inc. is a New York State
corporation.
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 7, 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.
On March 20, 2009, the DOT awarded Baltia Air Lines its initial
frequencies for flights from JFK to St. Petersburg
On March 25, 2009, the United States Government formally notified
the Government of the Russian Federation that Baltia Air Lines has
been designated for service on the JFK St. Petersburg route.
In May 2009, IATA issued the two-letter Code.
In July the FAA arranged for arrival and departure times at JFK
Airport.
On August 18, 2009, the Pulkovo Airport Authority affirmed arrival
and departure times at Purlkovo Airport.
On August 18, 2009, the Company executed the Aircraft Purchase
Agreement for the purchase of its first Boeing 747 aircraft.
On November 15, 2009, the Ccompany paid the remaining balance and it
now owns the aircraft. The aircraft was purchased without engines.
In conjunction with the purchase, the seller is leasing to the
Ccompany engines on a power by the hour basis. Baltia will take
delivery of the aircraft and will register the ownership title with
the FAA in Oklahoma City. The aircraft is scheduled for maintenance
and interior upgrading.
In the first quarter of 2010, we entered into an engine leasing
agreement with Logistic Air, Inc. The Engines have been delivered
and installed on the aircraft.
Baltia currently carries $250,000,000 aircraft liability insurance.
In the first quarter of 2010, Baltia entered into a line maintenance
agreement with Evergreen at JFK.
In the first quarter of 2010, Baltia leased its station facilities
from Pulkovo Airport, entered into a fueling agreement with SOVEX
(the exclusive fueling company at Pulkovo Airport), entered into
agreement with Pulkovo Caro facility and customs for cargo
processing, and entered into a ground servicing agreement with
Pulkovo Airport.
In April of 2010, we received additional space at JFK, Terminal 4.
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 scheduled 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 can reapply.
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 passenger service and ground service arrangements at JFK
and at Pulkovo II Airport in St. Petersburg. 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
increases 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, 2009, Baltia had nineteen full-time employees and
fifteen part-time employees. Baltia's staff includes professionals
who have extensive major US airline experience in aircraft
maintenance, airline operations, airline regulatory compliance,
reservation, info technology, passenger service, 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, and leases operations
space at Concourse A, Terminal 4, JFK International Airport, at
monthly rents of $1,237 and $7,430, 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 HoldersReserved.
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, 2008 and 2009.
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, 2008 .07 .05
June 30, 2008 .04 .02
September 30, 2008 .02 .02
December 31, 2008 .05 .04
March 31, 2009 .06 .03
June 30, 2009 .04 .02
September 30, 2009 .04 .02
December 31, 2009 .11 .02
The Company currently estimates that there are approximately
1,000 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 7, 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.
On March 20, 2009 the DOT awarded Baltia Air Lines its initial
frequencies for flights from JFK to St. Petersburg
On March 25, 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 scheduled 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 2010.
In 2010 we plan to raise $2 to $4 mm in additional financing in
order to support revenue flight operations. Based on our prior
experience with certification and current preparations management
believes that the launch budget, previously reviewed by the DOT,
will be adequate to complete certification and to commence flight
service. Approximately $400,000 is budgeted for certification tasks,
and $250,000 for general and administrative expenses. At the time
flight service is inaugurated the Company plans to have
approximately 20 management and 45 staff personnel.
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
Company anticipates DOT authority to seelzes sales of tickets and
cargo space. 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: Stock-based awards are accounted for
using the fair value method in accordance with SFAS No. 123R,
Accounting for Stock-Based Compensation, and EITF Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or
Services. Our primary type of share-based compensation consists of
stock options. We use the Black-Scholes option pricing model in
valuing options. The inputs for the valuation analysis of the
options include the market value of the Company's common stock, the
estimated volatility of the Company's common stock, the exercise
price of the warrants and the risk free interest rate.
Year Interest Rate Dividend Expected Expected
Yield Volatility Life in Years
2008 4.4% 0.00% 150%-217% 3
2009 4.4% 0.00% 200% 5
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, carry-forwards.
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, 2009
and 2008 because we do not fly any aircraft and cannot sell tickets.
Our general and administrative expenses increased by $7,867,324 to
$11,403,476 during fiscal year ended December 31, 2009 as compared
to an increase of $3,536,152 during the fiscal year ended December
31, 2008. This indecrease is mainly primarily the result of
conducting air carrier certification.
Primarily as a result of the foregoing, we incurred a net loss of
$12,172,463 during the fiscal year ended December 31, 2009 as
compared to a net loss of $3,744,173 during the fiscal year ended
December 31, 2008.
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 initial operations. 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,
2009, we had cash of $1,439,897 and our stockholders' equity was
$1,999,201. This reflects an increase from December 31, 2008 when
our cash was $724,240 and our stockholders' equity was $750,374.
Our operating activities utilized $2,381,149 in cash during the
fiscal year ended December 31, 2009, an increase of $1,075,812 from
the $1,305,337 in cash utilized during the fiscal year ended
December 31, 2008.
Our financing activities provided $3,701,900 and $27,083 in cash
during the fiscal year ended December 31, 2009 and 2008,
respectively.
We had no significant planned capital expenditures, budgeted or
otherwise, as of December 31, 2009.
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 Statements and Supplementary Data.
None. The full text of our financial statements as of December 31, 2009
and 2008 and for the fiscal years ended December 31, 2009, 2008 and 2007,
and for the period from August 29, 1989 (inception) to December 31, 2009
begins on page F-1 of the Annual Report on Form 10-K. The statements for
2009 are not presently audited as required, and are being re-audited by
a new accounting firm as discussed below. We have included the 2008
audit report as filed in 2009 for fiscal year 2008.
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosures
We have changed our accountants because our previous registered
accountant has experience in airline accounting and plans to assist
our company in setting up accounting system for airline operations.
Our previous independent registered accounting firm was Patrick
Rodgers, CPA, PA. Due to an error of interpretation of the
applicable rules of Regulation S-X, the registered accounting firm
that prepared our original 2009 audit filed with our 2009 10-K,
Michael Cronin, CPA, PA, cannot be considered independent, and
accordingly, we are in the process of reauditing the 2009 financial
statements. The new independent accountant, Mr. Ronald Chadwick
has been engaged to perform this audit. The Registrant has no
disagreements with any of the engaged accounting firms.
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, 2009. 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, 2009, 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 . . . . 55 President, CEO, CFO, Chairman of the Board
Russell Thal . . . . . 75 Executive Vice President
Barry Clare . . . . . . 51 Vice President Finance
Walter Kaplinsky . . . 72 Secretary, Director
Andris Rukmanis . . . . 48 Vice President Europe, Director
Vick Luis Bolanos ... 50 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 has
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.
Vick Luis Bolanos, a US citizen, joined the Company's Board as a
Director in 2009. Mr. Bolanos is President of Eastern Construction &
Electric, Inc., since 1992.
Item 11. Executive Compensation.
No compensation has been paid to our executive officers during the
fiscal years ended December 31, 2007. In fiscal year ended December
31, 2008 Igor Dmitrowsky received $133,400 in compensation. In
fiscal year ended December 31, 2009 Igor Dmitrowsky received
$123,395 in compensation.
During the fiscal year ended December 31, 2009, 150,000,000 options
were granted to Igor Dmitrowsky.
During the fiscal year ended December 31, 2009, 148,000,000 common
stock options were exercised by Igor Dmitrowsky.
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 12, 2010, there were 840,190,706 shares of common stock,
par value $0.0001 outstanding. The following table sets forth, as of
December 31, 2009, 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 . . . . . . 339,422,825 40.39%
63-26 Saunders St., Suite 7I
Rego Park, NY 11374
Russell Thal . . . . . . . . 11,150,000 1.32%
26 Ridge Drive
Port Washington, NY 11050
Barry Clare . . . . . . . . 71,200,000 8.47%
16 Birchwood Park Court
Jericho, NY 11753
Vick Luis Bolanos ...... 72,000,000 8.57%
633 MONROE ST
RIVERSIDE, NJ 08075
Walter Kaplinsky . . . . . 9,717,294 1.15%
2000 Quentin Rd.
Brooklyn, NY 11229
Andris Rukmanis . . . . . . 4,768,750 0.56%
Kundzinsala, 8 Linija 9.
Riga, Latvia LV-1005
_____________ _________
Shares of all directors and 508,258,869 60.49%
executive officers as a
group (5 persons)
Item 13. Certain Relationships and Related Transactions.
None.
Item 14. Principal Accountant Fees and Services.
In 2009, the Company paid its independent accountant $7,000 for
services in providing an audit of the year 2008. In 2008, the
Company paid its independent accountant $7,000 for services in
providing an audit of the year 2007. 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 7th day of March 2009.
3.4 DOT NOTICE of US-Russia frequency allocation to Baltia Air
Lines (Docket DOT-OST-2009-0070), issued on March 20, 2009.
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.
Baltia Air Lines, Inc.
(A Development Stage Company)
Financial Statements
For the Years Ended December 31, 2009 and 2008
Table of Contents
Page(s)
Report of Independent Registered Accounting firm: F-1
Year Ending December 31, 2009 (Removed)
Report of Independent Registered Accounting firm: F-1
Year Ending December 31, 2008
Balance Sheets as of December 31, 2009 and 2008 F-2
Statements of Operations for the years ended December 31, 2009 F-3
and 2008, and the period August 29, 1989 (inception) to
December 31, 2009
Statements of Cash Flows for the years ended December 31, 2009 F-4
and 2008, and the period August 29, 1989 (inception) to
December 31, 2009
Statement of Stockholders' Equity for the years ended December F-5
31, 2009, 2008, and 2007
Notes to Financial Statements F-6 to F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Year Endng December 31, 2009
(Report Removed - See Items 8 and 9 of Part II above)
----------
Patrick Rodgers, CPA, PA
309 E. Citrus Street
Altamonte Springs, FL 32701
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Year Ending December 31, 2008
Board of Directors and Shareholders
Baltia Air Lines, Inc.
New York, NY
I have audited the accompanying balance sheets of Baltia Air Lines, 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
provide 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 address 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
F-1
Baltia Air Lines, Inc.
Balance Sheets
(A Development Stage Company)
12/31/2009 12/31/2008
(Not Audited)
Assets
Current Assets
Cash $ 1,439,897 $ 724,240
Property & Equipment:
Equipment 745,161 115,067
Accumulated Depreciation (85,858) (73,934)
Net Property & Equipment 659,303 41,133
Total Assets $ 2,099,200 $ 765,373
Liabilities & Equity
Current Liabilities:
Accounts Payable $ 100,000 $ 15,000
Accrued expenses 0 0
Total current liabilities 100,000 15,000
Long-term debt 0 0
Equity:
Preferred stock - 2,000,000
authorized $0.01 par value
66,500 issued & outstanding 665 665
Common Stock - 950,000,000
authorized $0.0001 par value
743,580,039 issued & outstanding
(355,767,159 in 2008) 74,358 35,577
Additional paid in capital 32,102,590 18,716,994
Deficit Accumulated During
Development Stage (30,178,413) (18,002,862)
Total Equity $ 1,999,201 $ 750,374
Total Liabilities & Equity $ 2,099,201 $ 765,374
See Summary of Significant Accounting Policies and Notes to Financial
Statements.
F-2
Baltia Air Lines, Inc.
Statements of Operations
(A Development Stage Company)
Years Ended Inception to
12/31/2009 12/31/2008 12/31/2009
(Not Audited) (Not Audited)
Revenue $ 0 $ 0 $ 0
Costs & Expenses
General & administrative 11,403,476 3,536,152 26,764,154
FAA certification costs 756,386 217,383 1,228,878
Training 0 0 225,637
Depreciation 13,072 8,551 332,679
Other 0 0 568,245
Interest (471) 17,913 1,050,221
Total Costs & Expenses 12,172,463 3,744,173 30,169,814
Loss before income taxes (12,172,463) (3,744,173) (30,169,814)
Income Taxes 3,087 4,364 8,599
Deficit Accumulated During
Development Stage $ (12,175,550) $(3,748,537) $(30,178,413)
Per share amounts:
Basic:
Loss ($0.01) ($0.01)
Weighted Average 476,403,471 303,326,480
See Summary of Significant Accounting Policies and Notes to
Financial Statements.
F-3
Baltia Air Lines, Inc.
Statements of Cash Flows
(A Development Stage Company)
Years Ended Inception to
12/31/2009 12/31/2008 12/31/2009
(Not Audited) (Not Audited)
Cash flows from operating activities:
Deficit Accumulated During Development Stage $ (12,175,550) $(3,748,537) $(30,178,413)
Adjustments required to reconcile deficit accumulated
during development stage to cash used in operating
activities:
Depreciation 11,923 8,551 331,530
Expenses paid by issuance of common stock 9,697,478 2,444,649 17,014,415
(Increase) decrease in prepaid expenses 0 0 400,301
Increase (decrease) in accounts payable & accrued expenses 85,000 (10,000) 3,251,481
Cash flows used by operating activities: (2,381,149) (1,305,337) (9,180,686)
Cash flows from investing activities:
Purchase of equipment (605,094) 0 (928,218)
Cash used in investing activities (605,094) 0 (928,219)
Cash flows from financing activities:
Proceeds from issuance of common stock 3,701,900 46,450 11,104,283
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 0 (19,367) (40,817)
Acquisition of treasury stock 0 0 (500,100)
Cash generated by financing activities 3,701,900 27,083 11,548,802
Change in cash 715,657 (1,278,254) 1,439,897
Cash-beginning of period 724,240 2,002,494 0
Cash-end of period $ 1,439,897 $ 724,240 $ 1,439,897
See Summary of Significant Accounting Policies and Notes to
Financial Statements
F-4
Baltia Air Lines, Inc.
Statement of Shareholders' Equity
(A Development Stage Company)
Preferred Common Deficit
Accumulated
Common Additional During
Par Stock Paid-In Development
Shares Value Shares Amount Capital Stage
Balance at December 31, 2005 66,500 $665 67,298,009 $6,730 $ 9,293,365 (9,284,902)
Exercise of Warrants and Options 22,000,000 2,200 9,000
Shares issued for cash 13,550,000 1,355 98,655
Shares issued for services 19,546,900 1,955 941,213
Options issued for services 143,959
Net Loss (1,208,680)
Balance at December 31, 2006 66,500 665 122,394,909 12,240 10,486,192 (10,493,582)
Exercise of Warrants and Options 58,000,000 5,800 239,700
Shares issued and issuable for cash 60,670,637 6,067 2,450,438
Shares issued for services 38,384,988 3,838 3,021,429
Options issued for services 35,768
Net Loss (3,760,743)
Balance at December 31, 2007 66,500 665 279,450,534 27,945 16,233,527 (14,254,326)
Exercise of Warrants and Options 46,000,000 4,600 0
Shares issued and issuable for cash 816,625 82 46,368
Shares issued for services 29,500,000 2,950 673,000
Options issued for services 1,764,099
Net Loss (3,748,537)
Balance at December 31, 2008 66,500 665 355,767,159 35,577 18,716,994 (18,002,863)
Exercise of Warrants and Options 32,000,000 3,200 0
Shares issued and issuable for cash 154,034,244 15,403 3,686,497
Shares issued for services 200,778,636 20,078 9,430,413
Options issued for services 243,787
Stock issued to purchase airplane 1,000,000 100 24,900
Net Loss (12,175,550)
Balance at December
31, 2009 (Not Audited) 66,500 665 743,580,039 74,358 32,102,590 (30,178,413)
See Summary of Significant Accounting Policies and Notes to
Financial Statements
F-5
BALTIA AIR LINES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 2009 (Not Audited)
Basis of Presentation:
The December 30, 2009 financial statements and footnotes are
presented on unaudited basis pending further amendment of this
report, for the reasons described in Items 8 and 9 of Part II.
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: FASB ASC 825, "Financial
Instruments," requires entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and
not recognized on the balance sheet, for which it is practicable to
estimate fair value. FASB ASC 825 defines fair value of a financial
instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties. At December 31,
2009 and 2008, the carrying value of certain financial instruments
(cash and cash equivalents, accounts payable and accrued expenses.)
approximates fair value due to the short-term nature of the
instruments or interest rates, which are comparable with current
rates.
Fair Value Measurements: FASB ASC 820 defines fair value and
establishes a framework for measuring fair value and establishes a
fair value hierarchy which prioritizes the inputs to the inputs to
the valuation techniques. Fair value is the price that would be
received to sell an asset or amount paid to transfer a liability in
an orderly transaction between market participants at the
measurement date. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in
the principal market for the asset or liability or, in the absence
of a principal market, the most advantageous market. Valuation
techniques that are consistent with the market, income or cost
approach, as specified by FASB ASC 820, are used to measure fair value.
Fair Value Hierarchy
FASB ASC 820 specifies a hierarchy of valuation techniques based
upon whether the inputs to those valuation techniques reflect
assumptions other market participants would use based upon market
data obtained from independent sources (observable inputs), or
reflect the Company's own assumptions of market participant
valuation (unobservable inputs). In accordance with FASB ASC 820,
these two types of inputs have created the following fair value
hierarchy:
Level 1 Quoted prices in active markets that are unadjusted and
accessible at the measurement date for identical, unrestricted
assets or liabilities.
Level 2 Quoted prices for identical assets and liabilities in
markets that are not active, quoted prices for similar assets and
liabilities in active markets or financial instruments for which
significant inputs are observable, either directly or indirectly.
Level 3 Prices or valuations that require inputs that are both
significant to the fair value measurement and unobservable.
FASB ASC 820 requires the use of observable market data if such data
is available without undue cost and effort.
Measurement of Fair Value
The Company measures fair value as an exit price using the
procedures described below for all assets and liabilities measured
at fair value. When available, the Company uses unadjusted quoted
market prices to measure fair value and classifies such items within
Level 1. If quoted market prices are not available, fair value is
based upon internally developed models that use, where possible,
current market-based or independently-sourced market parameters such
as interest rates and currency rates. Items valued using internally
generated models are classified according to the lowest level input
or value driver that is significant to the valuation. Thus, an item
may be classified in Level 3 even though there may be inputs that
are readily observable. If quoted market prices are not available,
the valuation model used generally depends on the specific asset or
liability being valued. The determination of fair value considers
various factors including interest rate yield curves and time value
underlying the financial instruments.
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: Stock-based awards are accounted for
using the fair value method in accordance with SFAS No. 123R,
Accounting for Stock-Based Compensation, and EITF Issue No. 96-18,
Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or
Services. Our primary type of share-based compensation consists of
stock options. We use the Black-Scholes option pricing model in
valuing options. The inputs for the valuation analysis of the
options include the market value of the Company's common stock, the
estimated volatility of the Company's common stock, the exercise
price of the warrants and the risk free interest rate.
Year Interest Rate Dividend Yield Expected Expected
Volatility Life in Years
2008 4.4% 0.00% 150%-217% 3
2009 4.4% 0.00% 200% 5
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.
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, carry-forwards.
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.
Uncertain Tax Positions
The Financial Accounting Standards Board issued Interpretation No.
48, "Accounting for Uncertainty in Income Taxes an interpretation
of FASB Statement No. 109, Accounting for Income Taxes" ("FIN No.
48") which was effective for the Company on January 1, 2007. FIN
No. 48 addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the
financial statements. Under FIN No. 48, the Company may recognize
the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits
of the position. The tax benefits recognized in the financial
statements from such position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. FIN No. 48 also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure requirements.
Our federal and state income tax returns are open for fiscal years
ending on or after December 31, 2006. We are not under examination
by any jurisdiction for any tax year. At December 31, 2009 we had no
material unrecognized tax benefits and no adjustments to liabilities
or operations were required under FIN 48.
Recent Accounting Pronouncements:
Recently Adopted Standards
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting
Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles ("SFAS 168"). SFAS 168 establishes the FASB
Accounting Standards CodificationTM (the "Codification") as the
single source of authoritative U.S. GAAP recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. When
effective, the Codification will supersede all existing non-SEC
accounting and reporting standards. All other non-grandfathered
non-SEC accounting literature not included in the Codification will
become non-authoritative. Following SFAS 168, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions,
or Emerging Issues Task Force Abstracts. Instead, the FASB will
issue Accounting Standards Updates, which will serve only to: (a)
update the Codification; (b) provide background information about
the guidance; and (c) provide the bases for conclusions on the
change(s) in the Codification. SFAS 168 and the Codification are
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company has evaluated
this new statement and has determined that it will not have a
significant impact on the determination or reporting of its
financial results.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS
165"). SFAS 165 establishes guidance related to accounting for and
disclosure of events that happen after the date of the balance sheet
but before the release of the financial statements. SFAS 165 is
effective for reporting periods ending after June 15, 2009. The
Company adopted SFAS 165 on January 1, 2010. SFAS 165 affects
disclosures only.
BALTIA AIR LINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
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 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 - Property and Equipment
A summary of property & equipment is as follows:
Estimated
Useful Life 2009 2008
(Not Audited)
Airplane 5-7 years $590,524 $0
Office equipment and other 5-7 years 154,637 115,067
Less accumulated depreciation (85,858) (73,934)
-------- ---------
net 659,303 41,133
-------- ---------
current depreciation expense $11,923 $8,551
Note 3 - Stockholders' Equity
Description of Securities
Common Stock: We have been authorized 950,000,000 shares of Common
Stock at $.0001 par value per share. As of December 31, 2009, a
total of 743,580,039 shares of Common Stock were issued and
outstanding and held by over 500 shareholders. In addition, we have
granted options and warrants to issue up to approximately
133,800,000 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
2009:
Stock Issued for Cash
We issued 154,034,244 shares of our common stock in exchange for
receiving a total of $3,701,900 in cash net of offering expenses of
$576,000. The shares are not registered and subject to restrictions
as to transferability.
Stock Issued for Services
We issued 200,738,636 shares of our common stock in exchange for
services. The shares were valued at $9,450,000 or about $0.047 per
share which reflected the weighted average market value at the time
of issuance. 116,000,000 of the shares valued at approximately $5.4
million were issued to Igor Dmitrowsky our president. We also issued
1,000,000 shares valued at $25,000 as a component of the total
consideration paid to acquire a Boeing 747 airplane. All such shares
are not registered and are subject to restrictions as to
transferability.
Stock Issued Due to Exercise of Warrants & Options
During 2009, Mr. Dmitrowsky exercised 32,000,000 warrants to acquire
a like amount of shares of Common Stock. The options were exercised
at the $0.0001 strike price. The exercise price was offset against
accrued compensation of $3,200.
2008:
Stock Issued for Cash
We issued 816,625 shares of our common stock in exchange for
receiving a total of $46,450 in cash. The shares are not registered
and subject to restrictions as to transferability.
Stock Issued for Services
We issued 29,500,000 shares of our common stock in exchange for
services. The shares were valued at $675,950 or about $0.02 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 2009, holders of 32,000,000 warrants exercised their option
to acquire a like amount of shares of Common Stock. The options were
at $0.0001 exercise prices. The exercise price was offset against
accrued compensation of $4,600.
Summary of Option Activity
The following table provides summary information on options issued
by our company in unapproved equity compensation plans; the warrants
exercised to date; the warrants that are presently exercisable and
the current exercise prices of such warrants.
All Plan & Non-Plan Compensatory Type Options
Weighted
Weighted average
average remaining Aggregate
exercise contractual intrinsic
Shares price term (years) value
Options outstanding at
December 31, 2007 61,770 $0.04
Granted 91,562,500 $0.10
Exercised (46,000,000) Nil
Lapsed (1,840,000) $0.00
Options outstanding at
December 31, 2008 61,492,500 $0.02 3.9 $2,000,000
Granted 2,776,818 $0.10
Exercised (32,000,000) Nil
Lapsed (3,290,000) $0.00
Options outstanding at
December 31, 2009 28,979,318 $0.04 2.7 $1,727,949
Options exercisable at
December 31, 2009 28,979,318 $0.04 2.7 $1,727,949
Amount by which the fair value of the stock at the balance
sheet date exceeds the exercise price.
This statement is being audited by an independent
accountant but are is audited at this date.
The following table summarizes the status of the Company's aggregate
warrants as of December 31, 2009 (Not Audited):
Options Outstanding Options Exercisable
Weighted
Weighted average Weighted
Range of average remaining average
exercise exercise life in exercise
prices Shares price months Shares price
$ 0.01-$ 0.05 22,972,500 $ 0.02 25.3 22,972,500 $ 0.02
$ 0.06-$ .25 6,006,818 $ 0.12 57.5 6,006,818 $ 0.12
----------- -----------
Total Shares 28,979,318 28,979,318
Note 4 - Income Taxes
The Company has approximately $ 9.6 million in available net
operating loss carryovers available to reduce future income taxes.
These carryovers expire at various dates through the year 2030. 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
our entire net deferred tax asset of approximately $3.8 million.
Utilization of federal and state NOL and tax credit carry-forwards
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
carry-forwards before full utilization.
Note 5 - Commitments and Contingencies
Facilities: The Company leases office space for its administrative
offices, under three month to month agreements, at a combined
monthly rental of approximately $9,500. In 2009 and 2008 expense was
$131,895 and $76,405 respectively.
Note 6 - Supplementary Cash Flow Disclosure:
2009 2008
(Not Audited)
Fair Value of equity instruments
issued as partial plane payment to
acquire a Boeing 747-200 airplane $ 25,000 $ 0
Note 7 - 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 2009 and into 2010, 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 $180,000-$200,000. Based on current reserves we
have sufficient capital to support our development stage operations
through the most of 2010.
In 2009, we raised $3.9 mm 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.
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 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 expansion.
F-16
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: April 5, 2011
/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 April 5, 2011
Igor Dmitrowsky (Principal Executive Officer
and Principal Accounting Officer)
/s/ Walter Kaplinsky Secretary and Director April 5, 2011
Walter Kaplinsky
/s/ Andris Rukmanis V.P. Europe and Director April 5, 2011
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: April 5, 2011
/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 Annual Report Baltia Air Lines, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2009 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) But for the re-audit of the financial statements as reported in Items
8 and 9 of Part Two above, 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: April 5, 2011
/s/ Igor Dmitrowsky
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer
