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EXCEL - IDEA: XBRL DOCUMENT - BALTIA AIR LINES INCFinancial_Report.xls
EX-32 - EXHIBIT 32 CERTIFICATION - BALTIA AIR LINES INCexh32.txt
EX-3 - EXHBIT 3.1 AMENDED ARTICLES OF INCORPORATION - BALTIA AIR LINES INCexh3-1.txt
EX-3 - EXHIBIT 3.2 AMENDED BYLAWS - BALTIA AIR LINES INCexh3-2.txt
EX-10 - EXHIBIT 10.10 - NAVTECH AGREEMENT (REDACTED) - BALTIA AIR LINES INCexh10-10a3.htm
EX-10 - EXHIBIT 10.11 - PANAM INTL FLIGHT ACADEMY AGREEMENT (REDACTED) - BALTIA AIR LINES INCexh10-11a2.htm
EX-10 - EXHIBIT 10.12 - SABRE INC. AGREEMENT (REDACTED) - BALTIA AIR LINES INCexh10-12a1.htm
EX-31 - EXHIBIT 31 CERTIFICATION - BALTIA AIR LINES INCexh31.txt

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q/A

(filed January 13, 2012 with modified Exhibits 10.10, 10.11, 10.12)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2011

 

BALTIA AIR LINES, INC.

(Exact name of registrant as specified in its charter)

 

New York

14-1568099

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

 

63-25 SAUNDERS STREET, SUITE 7I,

REGO PARK, NY 11374

 

 (Address of principal executive offices)

 

Issuer's telephone no: (718) 275 5205

 

Indicate by check mark whether the registrant (1) has filed all reports required 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 checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |  | Yes   |  | No

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer |_|    Accelerated Filer |_|    Smaller reporting company |X|

Non Accelerated Filer |_| (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES |_|   NO |X|

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 

Outstanding as of

Class

                    November 18, 2011

Common Stock

1,752,871,186

 


 

BALTIA AIR LINES, INC.

 

 

INDEX

 

Part I - Financial Information

Page

 

 

Item 1 –Financial Statements:

3

 

 

   Balance Sheet – September 30, 2011

3

 

 

   Statement of Operations – Nine Months Ended September 30, 2011 and 2010 (Unaudited)

4

 

 

   Statement of Cash Flows – Nine Months Ended September 30, 2011 and 2010 (Unaudited)

5

 

 

   Statement of Shareholder Equity

6

 

 

Notes to Financial Statements

7 -  8

 

 

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

8

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

13

 

 

Item 4T – Controls and Procedures

13

 

 

 

 

Part II - Other Information

13

 

Item 1 – Legal Proceedings

13

 

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

13 

 

 

Item 3 Default Upon Senior Securities. 

14

 

 

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

14

 

 

Item 5 – Other Information

14

 

 

Item 6 – Exhibits

 

Signatures and Certifications

15-16

 

 

 

 

Exhibit 101 – XBRL Files

 

 

 

 


PART I – Item 1 – FINANCIAL STATEMENTS

 

BALTIA AIR LINES, INC.

(A Development Stage Company)

BALANCE SHEET

(Unaudited)

 

 

 

September 30, 2011

December 31, 2010

 

(unaudited)

 

Assets

 

 

 

 

 

Current Assets

 

 

Cash

$38,512

$52,840

Prepaid expenses

0

50,160

  Total current assets

38,512

103,000

 

 

 

Property and Equipment:

 

 

  Equipment

3,269,526

3,011,308

  Accumulated  depreciation

(100,282)

(92,782)

  Net property and equipment

3,169,244

2,918,526

 

 

 

Other Assets:

 

 

  Security deposit on airplane engines

317,293

240,000

 

 

 

Total Assets

$3,525,049

$3,261,526

 

 

 

Liabilities and Equity

 

 

 

 

 

Current Liabilities:

 

 

Accounts payable

$210,000

$100,000

Accrued expenses

$86,250

$8,625

  Total current liabilities

296,250

108,625

 

 

 

Long-term debt, net of discount

964,274

865,948

 

 

 

Equity:

 

 

Preferred stock-2,000,000 authorized $0.01 par value

 

 

66,500 issued & outstanding

665

665

Common stock-1,500,000,000 authorized $0.0001 par value

 

 

1,586,653,881 issued & outstanding (1,118,814,994 in Dec)

158,665

111,881

Additional paid in capital

72,905,343

51,747,347

Deficit Accumulated During Development Stage

(70,800,148)

(49,572,940)

Total Equity

2,264,525

2,286,953

 

 

 

Total Liabilities & Equity

$3,525,049

$3,261,526

 

 See notes to financial statements


BALTIA AIR LINES, INC.

(A Development Stage Company)

 

STATEMENT OF OPERATIONS

(Unaudited)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

8/29/89 (Inception) to

 

2011

 

2010

 

2011

2010

 

9/30/2011

 

 

 

 

 

 

 

 

 

Revenue

$0

 

$0

 

$0

$0

 

$0

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

  General & administrative

5,899,459

 

3,943,593

 

20,649,544

14,351,825

 

65,974,536

 FAA certification costs

155,432

 

232,940

 

391,786

653,649

 

2,425,082

 Training

0

 

0

 

0

0

 

225,637

 Depreciation

2,500

 

1,000

 

7,500

4,500

 

347,103

 Other

0

 

0

 

0

0

 

568,245

 Interest expense (income)

58,377

 

(1)

 

175,951

(46)

 

1,245,676

  Total Costs & Expenses

6,115,768

 

4,177,532

 

21,224,781

15,009,928

 

70,786,279

 

 

 

 

 

 

 

 

 

Loss before income taxes

(6,115,768)

 

(4,177,532)

 

(21,224,781)

(15,009,928)

 

(70,786,279)

Income taxes

2,427

 

1478

 

2,427

2,173

 

13,869

 

 

 

 

 

 

 

 

 

Deficit Accumulated During Development Stage

($6,118,195)

 

($4,179,010)

 

($21,227,208)

($15,012,101)

 

($70,800,148)

Per share amounts:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 Loss

Nil

 

Nil

 

($0.02)

($0.02)

 

 

 Weighted Average Shares Outstanding

1,528,939,640

 

942,270,522

 

1,337,537,800

864,621,866

 

 

 

 

See notes to financial statements.


 

BALTIA AIR LINES, INC.

(A Development Stage Company)

 

STATEMENT OF CASH FLOWS

(Unaudited)

 

Nine Months Ended September 30,

8/29/89 (Inception) to

 

Statement of Cash Flows

2011

2010

9/30/2011

 

 

Cash flows from operating activities:

 

 

 

 

Deficit Accumulated During Development Stage

($21,227,208)

($15,012,101)

 

($70,800,149)

Adjustments required to reconcile deficit accumulated

 

 

 

 

      development stage to cash used in operating activities:

 

 

 

 

Depreciation

7,500

4,500

 

345,954

Amortization of loan discount

98,326

0

 

109,251

Expenses paid by issuance of common stock and options

14,643,192

11,461,769

 

46,667,457

(Increase) decrease in prepaid expenses

50,160

(15,809)

 

400,301

Increase in accounts payable & accrued expenses

187,625

0

 

3,447,731

 Cash flows used by operating activities:

(6,240,405)

(3,561,641)

 

(19,829,455)

 

 

 

 

 

 Cash flows from investing activities:

 

 

 

 

Purchase of equipment

(258,217)

(1,158,755)

 

(3,452,583)

Security deposits

(77,293)

(240,000)

 

(317,293)

  Cash used in investing activities

(335,510)

(1,398,755)

 

(3,769,876)

 

 

 

 

 

 Cash flows from financing activities:

 

 

 

 

Proceeds from issuance of common stock

6,561,588

3,531,227

 

22,043,325

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)

Proceeds of long-term debt

0

0

 

1,109,183

Acquisition of treasury stock

0

0

 

(500,100)

  Cash generated by financing activities

6,561,588

3,531,227

 

23,637,844

 

 

 

 

 

Change in cash

(14,328)

(1,429,169)

 

38,512

Cash-beginning of period

52,840

1,439,897

 

0

Cash-end of period

$38,512

$10,728

 

$38,512

 

 

See notes to financial statements.

 

 

 


BALTIA AIR LINES, INC.

(A Development Stage Company)

 

STATEMENT OF STOCKHOLDER EQUITY

(Unaudited)

 

 

 

Preferred

 

Common

 

 

Shares

Par Value

 

Shares

Common Stock Amount

Additional Paid-In Capital

 

Deficit Accumulated During Development Stage

Balance at December 31, 2010

66,500

$665

 

1,118,814,994

$111,881

$51,747,348

 

($49,572,940)

Stock issued and issuable for cash

 

 

 

183,185,898

18,319

6,543,269

 

 

Stock issued for services @$.05/share

 

 

 

284,652,989

28,466

14,614,726

 

 

Net Loss

 

 

 

 

 

 

 

(21,227,208)

Balance at September 30, 2011

66,500

$665

 

1,586,653,881

$158,666

$72,905,343

 

($70,800,149)

 

 

See notes to financial statements.


 

BALTIA AIR LINES, INC.

(a Development Stage Company)

 

Notes to Unaudited Interim Financial Statements - September 30, 2011

 

NOTE 1: Basis of Presentation

The Financial Statements presented herein have been prepared by us in accordance with the accounting policies described in our December 31, 2010 Annual Report on Form 10-K and should be read in conjunction with the notes to financial statements which appear in that report.

 

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on going basis, we evaluate our estimates, including those related to intangible assets, income taxes, insurance obligations and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.

In the opinion of management, the information furnished in this Form 10-Q reflects all adjustments necessary for a fair statement of the financial position and results of operations and cash flows as of and for the three and six-month periods ended September 30, 2011 and 2010. All such adjustments are of a normal recurring nature. The Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include some information and notes necessary to conform to annual reporting requirements.

The financial statements have been presented in a “development stage” format. Since inception, our primary activities have been raising of capital, obtaining financing and obtaining route authority and approval from the U.S. Department of Transportation. We have not commenced our principal revenue producing activities.

 

NOTE 2: Earnings/Loss Per 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 assumes 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. Due to the net losses reported, dilutive common equivalent shares were excluded from the computation of diluted loss per share, as inclusion would be anti-dilutive for the periods presented..

 

NOTE 3: Stockholders' Equity

Stock Issued for Services -  During the nine months ended September 30, 2011 we issued 284.6 million shares of our common stock in exchange for services.  The shares were valued at $ 14.6 million or about $0.05 per share and reflected the share market value at the time of issuance. The shares are not registered and are subject to restrictions as to transferability.

During the nine months ended September 30, 2010 we issued 168,913,206 shares of our common stock in exchange for services.  The shares were valued at $ 11,461,769 or about $0.068 per share and reflected the share market value at the time of issuance. The shares are not registered and are subject to restrictions as to transferability.

Stock Issued for Cash -During the nine months ended September 30, 2011 we issued 183.2 million shares of our common stock in exchange for cash.  The shares sold for cash were subscribed at $ 6.5 million or about $0.035 weighted average per share.

During the nine months ended September 30, 2010 we issued 89.6 million shares of our common stock in exchange for cash.  The shares sold for cash were subscribed at $ 3.5 million or about $0.039 weighted average per share.

 

ITEM 2 – 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

 

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,  organized in the State of New York on August 24, 1989. 

 

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 August 18, 2009, the Company executed the Aircraft Purchase Agreement for the purchase of its first Boeing 747 aircraft.

 

In the first quarter of 2011, we leased engines on a power-by-the-hour basis from Logistic Air, Inc.  The engines have been delivered and installed.

 

 

In the first quarter of 2010, Baltia leased its station facilities from Pulkovo Airport, entered into a fuelling 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 the last quarter of 2010, we purchased our second Boeing 747 aircraft from Kalitta Air.

 

Baltia currently carries $500,000,000 aircraft liability insurance, and has placed $1.2 billion airline liability insurance through JLT Aerospace meeting the regulatory requirement in preparation for the commencement of  revenue service.

 

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.  

 

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 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 two Russian airlines, Aeroflot and Transaero, 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. 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, increase the frequency to three round trips and then to five round trips during mid-summer 2011.

 

Baltia has 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 of year one, Baltia plans to introduce 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 participating in air carrier certification.  The Company will carry airline liability insurance as required for a US airline by DOT regulation.

 

As of September 30, 2011, Baltia had twenty full-time professionals and fifteen part-time professionals. Baltia’s staff professionals have extensive major US airline experience in aircraft maintenance, airline operations, airline regulatory compliance, reservation, info technology, passenger service, and administration. 

 

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.

 

Income Taxes

 

The Company files a consolidated income tax return with its subsidiaries.  The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes”, which requires accounting for deferred income taxes under the asset and liability method.  Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.

 

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.  Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.  The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities.  When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.

 

In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders equity.  This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.

 

Management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2008. Any potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, state and local tax laws.  The Company's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

Interest and Penalty Recognition on Unrecognized Tax Benefits

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest expense or penalties have been recognized as of and for the period ended September 30, 2011.

 

RESULTS OF OPERATIONS

 

We had no revenues during the nine months ended September 30, 2011 and 2010 because we do not fly any aircraft and cannot sell tickets.

 

Our general and administrative expenses increased to $5,899,459 in the nine months ended September 30, 2011 as compared to $3,943,593 in the nine months ended September 30, 2010.  Primarily as a result of the foregoing, we incurred a net loss of $6,118,195 in the nine months ended September 30, 2011 as compared to a net loss of $4,179,010 in the nine months ended September 30, 2010.

 

Our future ability to achieve profitability in any given future fiscal period remains highly contingent upon us beginning flight operations. The management believes that the company has the necessary funding to commence revenue flight operations, subject to completion of the FAA Air Carrier Certification. If commenced, there can be no assurance that such operations would be profitable.

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LIQUIDITY AND CAPITAL RESOURCES
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Since our inception, we have incurred substantial operating and net losses, as well as negative operating cash flows. As of September 30, 2011, our working capital was $38,512 and our stockholders' equity was $2,264,526.
Our working capital increased from $10,728 at September 30, 2010 and our stockholders' equity decreased from $2,286,953 at September 30, 2010. We had unrestricted cash balance of $38,512 at September 30, 2011, as compared to $10,728 at September 30, 2010.
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Our operating activities utilized $6,240,405 in cash during the nine months ended September 30, 2011, an increase from the $3,561,641 in cash utilized during the nine months ended September 30, 2010.
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Our financing activities, from issuance of common stock, provided $6,561,588 and $3,531,227 in cash during the nine months ended September 30, 2011 and 2010, respectively.
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As a result of the foregoing, our unrestricted cash increased to $38,512 at September 30, 2011, as compared to $10,728 at September 30, 2010.
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We had no significant planned capital expenditures, budgeted or otherwise, as of September 30, 2011.
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Item 3.

 Quantitative and Qualitative Disclosures
About Market Risk.
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None<o:p></o:p>

 

Item 4T.  Controls and Procedures.

 

Our Chief Executive Officer and Chief Financial Officer, based on evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of September 30, 2011, have concluded that our disclosure controls and procedures were effective in ensuring 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. Our Chief Executive Officer and Chief Financial Officer also concluded that, as of September 30, 2011 our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

There was no change in our internal controls or in other factors that could affect these controls during the nine months ended September 30, 2011 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.

 

PART II - OTHER INFORMATION

 

Item 1.     Legal Proceedings. 

 

None.

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds. 

 

During the nine months ended September 30, 2011, we issued 284.6 million shares of our common stock in exchange for services.  The shares were valued at $14.6 million or about $0.05 per share and reflected the share market value at the time of issuance. The shares are not registered and are subject to restrictions as to transferability

 

During the nine months ended September 30, 2011 we issued 168,913,206 shares of our common stock in exchange for cash.  The shares sold for cash were subscribed at $11,461,769 or about $0.068 weighted average per share. The options were exercised at par value.

 

All of the above issuances were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of Baltia or executive officers of Baltia, and transfer was restricted by Baltia in accordance with the requirements of the Securities Act of 1933, as amended. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

 

Item 3.     Default Upon Senior Securities. 

 

None.

 

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

 

None.

 

Item 5.     Other Information.

 

None.

 

Item 6.     Exhibits.

 

3.1 Certificate of Incorporation of Baltia Air Lines, Inc. 

(as amended October 21, 2010 and filed November 2, 2011)

 

3.2 Bylaws of Baltia Air Lines, Inc.

(as prepared in 2010 and ratified May 18, 2011)

 

10.1 Aircraft Purchase Agreement of November 24, 2010 between Baltia Air Lines, Inc. And Kalitta Air, LLC .  Incorporated by reference to Exhibit 10.1 on Amended Form 10K for the year ended December 31, 2010.

 

10.2 Lease Agreement between the Joint Stock Company, Pulkovo Airport, and Baltia Air Lines, Inc. of February 11, 2010.  Incorporated by reference to Exhibit 10.2 on Amended Form 10K for the year ended December 31, 2010.

 

10.3 Aircraft Purchase Agreement between Logistic Air, Inc. And Baltia Air Lines, Inc. Dated August 12, 2009. Incorporated by reference to Exhibit 10.3 on Amended Form 10K for the year ended December 31, 2010.

 

10.4 Fuel supply Agreement between Joint Stock Company “SOVEX” and Baltia Air Lines, Inc. Of February 2, 2010.  Incorporated by reference to Exhibit 10.4 on Amended Form 10K for the year ended December 31, 2010.

 

10.5 Letter evidencing agreement that engines identified in Item 10.6 below may be removed from N705BL and installed on N706BL.   Incorporated by reference to Exhibit 10.5 on Amended Form 10K for the year ended December 31, 2010.

 

10.6 Engine Lease Agreement between Logistic Air, Inc. and Baltia Air Lines, Inc. Dated January 15, 2010. Incorporated by reference to Exhibit 10.6 on Amended Form 10K for the year ended December 31, 2010.

 

10.7 Product and Services Agreements between Navtech Systems Support Inc. And Baltia Airt Lines, Inc. Dated January 15, 2010. Incorporated by reference to Exhibit 10.7 on Amended Form 10K for the year ended December 31, 2010.

 

10.8 Customs Clearance Agreement between ZAO Cargo Terminal Pulkovo and Baltia Air Lines, Inc.dated June 1, 2010.  Incorporated by reference to Exhibit 10.8 on Amended Form 10K for the year ended December 31, 2010.

 

10.9 Ground Handling Agreement at Pulkovo Airport between ZAO Cargo Terminal Pulkovo and Baltia Air Lines, Inc.dated January 2004. Incorporated by reference to Exhibit 10.9 on Amended Form 10K for the year ended December 31, 2010.

 

10.10 First Amendment to Product and Services Agreements between Navtech Systems Support Inc. and Baltia Airt Lines, Inc. Dated January 15, 2010. Incorporated by reference to Exhibit 10.7 on Amended Form 10K for the year ended December 31, 2010 and with confidential portion omitted and filed separately with the Commission pursuant to a request for confidential treatment.

 

10.11 Flight Training Services Agreement between Pan Am International Flight Academy and Baltia Air Lines, Inc. dated April 19, 2011, with confidential portion omitted and filed separately with the Commission pursuant to a request for confidential treatment.

 

10.12 Access and System and Data Use Agreement between Sabre Inc., and Baltia Air Lines, Inc. dated September 21, 2011, with confidential portion omitted and filed separately with the Commission pursuant to a request for confidential treatment.

 

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.  

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized.

 

DATED THIS 21st DAY OF NOVEMBER 2011

 

BALTIA AIR LINES, INC.

 

/s/ Igor Dmitrowsky

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Igor Dmitrowsky

Chief Executive Officer and Chief Financial Officer(principal accounting officer)