UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
BALTIA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
STATE of NEW YORK 11-2989648
(State of Incorporation) (IRS Employer Identification No.)
63-25 SAUNDERS STREET, SUITE 7I, REGO PARK, NY 11374
(Address of principal executive offices)
Registrant's telephone number, including area code: (718) 275 5205
Check whether the issuer (1) filed all reports required to be filed by
Section 13, or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. No [ ] Yes [X]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
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 definition 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 [ ] (do not check if smaller reporting company)
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). Yes [ ] No [X]
Number of shares of the registrant's common stock outstanding
as of November 12, 2010: 1,002,088,959 shares of Common Stock
PART ONE - FINANCIAL INFORMATION
Item 1. Financial Statements.
BALTIA AIR LINES, INC.
BALANCE SHEETS
(A Development Stage Company)
ASSETS
9/30/2010 12/31/2009
(Unaudited)
Current Assets
Cash $ 30,728 $ 1,439,897
Prepaid Expenses 15,809 0
Total Current Assets 46,537 1,439,897
Property and Equipment
Equipment 1,903,916 745,161
Accumulated Depreciation (90,358) (85,858)
Net Property and Equipment 1,813,558 659,303
Other Assets
Security Deposit
on Aircraft Engines 240,000 0
TOTAL ASSETS $ 2,100,095 $ 2,099,200
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable $ 100,000 $ 100,000
Current portion of long-term debt 0 0
Total current liabilities 100,000 100,000
Long-term debt 0 0
Equity
Preferred Stock 665 665
Common Stock 100,209 74,358
Paid-in-Capital 47,069,735 32,102,590
Deficit Accumulated During
Development Stage (45,170,514) (30,178,413)
Total Equity 2,000,095 1,999,200
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,100,095 $ 2,099,200
See notes to unaudited interim financial statements.
STATEMENT OF OPERATIONS
(A Development Stage Company)
Three Months Ended Nine Months Ended August 24, 1989
Sep 30, Sep 30, (Inception) to
2010 2009 2010 2009 Sep 30, 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ 0 0 0 0 0
Costs & Expenses
General and
Administrative 3,923,593 727,876 14,331,825 3,554,412 41,095,979
FAA Certification 232,940 203,839 635,649 556,927 1,882,527
Training Expense 0 0 0 0 225,637
Depreciation 1,000 5,500 4,500 7,500 337,179
Other 0 0 0 0 568,245
Interest (1) 188 (46) (462) 1,050,175
Total expenses 4,157,532 937,403 14,989,928 4,118,377 45,159,742
Loss before income taxes (4,157,532) (937,403) (14,989,928) (4,118,377) (45,159,742)
Income Taxes 1,478 1,902 2,173 2,932 10,772
Deficit Accumulated During
Development Stage: (4,159,010) (939,305) (14,992,101) (4,121,308) (45,170,514)
Per share amounts:
Loss Nil Nil (0.02) Nil
Weighted Average Shares
Outstanding 942,270,522 463,799,116 864,621,866 423,951,099
See notes to unaudited interim financial statements.
STATEMENT OF CASH FLOWS
(A Development Stage Company)
Nine Months Ended Aug 24, 1989
Sep 30, (inception) to
2010 2009 Sep 30, 2010
(Unaudited) (Unaudited) (Unaudited)
Cash flows from Operating Activities:
Deficit Accumulated During
Development Stage $(14,992,101) $(4,121,309) $ (45,170,515)
Adjustments to reconcile net
loss to net cash provided by
operations:
Depreciation 4,500 7,000 336,030
Expenses paid by issuance of
common stock and options 11,461,769 2,373,085 28,476,185
(Increase) decrease in prepaid
expenses (15,809) 0 384,492
Change in payables & accrued expenses 0 93,912 3,251,481
Cash used by operating activities: (3,541,641) (1,646,812) (12,722,327)
Cash flows from investing activities:
Purchase of Equipment (1,158,755) (90,728) (2,086,974)
Security Deposits (240,000) 0 (240,000)
Cash used in investing activities: (1,398,755) (90,728) (2,326,974)
Cash flows from financing activities:
Issuance of Common Stock 3,531,227 1,033,300 14,635,510
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 0 (40,817)
Acquisition of Treasury Stock 0 0 (500,100)
Cash generated by financing: 3,531,227 1,033,300 15,080,029
Change in cash (1,409,169) (704,240) 30,728
Cash-beginning of period 1,439,897 724,240 0
Cash-end of period $ 30,728 $ 20,000 $ 30,728
See notes to unaudited interim financial statements.
Baltia Air Lines, Inc.
Unaudited 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, 2009 66,500 $ 665 743,580,039 $ 74,358 $ 32,102,591 $ (30,178,413)
Stock issued for cash 89,595,714 8,960 3,522,267
Stock issued for services 168,913,206 16,891 11,444,878
Options issued for services
Net Loss (14,992,101)
Balance at September 30, 2010 66,500 $ 665 1,002,088,959 $ 100,208 $ 47,069,736 $ (45,170,514)
See notes to unaudited interim financial statements.
NOTES TO FINANCIAL STATEMENTS
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
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, 2009
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 nine-month periods ended September 30, 2010 and 2009. 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.
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.
3. Stockholders' Equity
Stock Issued for Services
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.
During the nine months ended September 30, 2009 we issued 50,920,000
shares of our common stock in exchange for services. The shares were
valued at $ 1,768,000 or about $0.035 per share and reflected the share
market value at the time of issuance. We also issued 1,000,000 shares
valued at $0.025 per share as partial payment on the acquisition of
Boeing 747-200 aircraft. The shares are not registered and are subject
to restrictions as to transferability.
Stock Issued for Cash
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.
In 2009, we issued 23,425,000 shares of our common stock in exchange for
cash. The shares were subscribed at $ 1,033,000 or about $0.05 weighted
average per share. We also issued 48,000,000 in exchange for the exercise
of options by Igor Dmitrowsky (our President), The shares were issued
pursuant to our private placement offering, are not registered and are
subject to restrictions as to transferability
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.
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 July 2009 IATA issued the two-letter Code.
In July 2009 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 Company 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 Company engines on a power
by the hour basis. Baltia took delivery of the aircraft and has registered
the ownership title with the FAA in Oklahoma City.
In the first quarter of 2010, we entered into engine leasing agreement with
Logistic Air, Inc. The engines have been delivered and installed.
Baltia currently carries $500,000,000 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 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 April of 2010, we received additional space at JFK, Terminal 4.
On June 4, Baltia filed its application with the DOT for JFK-SVO service.
On August 2, Baltia's B747 aircraft arrived at Malaysian Airlines maintenance
facility for maintenance.
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 and,
if approved, non-stop service from JFK to Sheremetevo Int'l Airport of
Moscow.
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 as part
of the manual review process. 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,
Aeroflot, and Transaero currently operate between JFK and Moscow.
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 and tour agencies 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.
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 increase service to three round-trips per week. Following
that, Baltia plans to increase service to five round trips per week, and
then subsequently to daily round trip flights as additional aircraft are
brought into service. The transitional schedule allows Baltia to train
additional pilots, flight attendants, and support staff with a continuous
training program. It also allows the Baltia marketing program to take effect
through its various segments.
During the past two years Baltia has also been preparing standards for
service. The care taken in establishing high standards has implications
beyond the launching of the JFK-St. Petersburg flight. Baltia plans to
build operating modules and apply that know-how to develop new markets.
Once established, Baltia plans to duplicate its JFK-St. Petersburg standards
on flights on other transatlantic routes. By the end of year one, Baltia
plans to introduce three additional aircraft.
Additional revenues from charter flying. In conjunction with its Part 121
air carrier certification ("Part 121"), (referring to a Federal Aviation
Regulations' number, is an industry acronym used to describe a US airline
operating heavy jet aircraft) for scheduled service, Baltia intends to seek
certification for world wide charter service. Following certification, Baltia
plans to utilize aircraft time available between scheduled service, to earn
additional revenues from charters. We are also considering qualifying our
aircraft for military contracts.
In order to start revenue flight operations, the Company has to complete FAA
Air Carrier Certification. During the past two years the Company has been
preparing for air carrier certification. The Company's staff has prior
experience with the certification and is familiar with the latest System
Safety & Certification Process procedures (CPD 8.0), and the Air
Transportation Oversight System (ATOS) requirements.
The Company will carry airline liability insurance as required for a
US airline by DOT regulation.
As of September 30, 2010, 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.
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 to non-employees are
accounted for using the fair value method in accordance with SFAS No.
123(R), 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.
On January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") 123R, "Share-Based Payment" ("SFAS 123(R)"),
which requires that companies measure and recognize compensation expense
at an amount equal to the fair value of share-based payments granted under
compensation arrangements. Prior to January 1, 2006, we accounted for our
stock-based compensation plans under the recognition and measurement
principles of Accounting Principles Board ("APB") Opinion 25, "Accounting
for Stock Issued to Employees," and related interpretations, and would
typically recognize no compensation expense for stock option grants if
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant.
The Company adopted SFAS 123(R) using the "modified prospective" method,
which results in no restatement of prior period amounts. Under this
method, the provisions of SFAS 123(R) apply to all awards granted or
modified after the date of adoption. In addition, compensation expense
must be recognized for any unvested stock option awards outstanding as
of the date of adoption on a straight-line basis over the remaining
vesting period. The Company calculates the fair value of options using
a Black-Scholes option pricing model. For the nine months ended September
30, 2010 and 2009, the Company recognized (2005 on a pro forma basis)
no compensation expense related to stock option grants.
SFAS 123(R) also requires the benefits of tax deductions in excess of
recognized compensation expense to be reported in the Statement of Cash
Flows as a financing cash inflow rather than an operating cash inflow.
In addition, SFAS 123(R) required a modification to the Company's
calculation of the dilutive effect of stock option awards on earnings
per share. For companies that adopt SFAS 123(R) using the "modified
prospective" method, disclosure of pro forma information for periods
prior to adoption must continue to be made.
As of September 30, 2010, there was no unrecognized compensation cost
related to non-vested options granted under the plan. The total fair
value of shares vested during the nine-month period ended September
30, 2010 was $0 (also none during the nine-month period ended September
30, 2009).
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No. 20 "Accounting Changes," and
FASB Statement No. 3 "Reporting Accounting Changes in Interim Financial
Statements," and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement requires
retrospective application to prior periods' financial statements of
changes in accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change.
This Statement shall be effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. Early
adoption is permitted for accounting changes and corrections of errors
made in fiscal years beginning after the date this Statement is issued.
We do not believe that adoption of SFAS 154 will have a material impact
on our financial statements.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108
establishes an approach that requires quantification of financial statement
misstatements based on the effects of the misstatements on each of the
Company's consolidated financial statements and the related financial
statement disclosures. SAB 108 is effective for the year ending December
31, 2006. We are currently evaluating the effect that the adoption of SAB 108
will have on our results of operations and financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement 109
("FIN 48"), which clarifies the accounting for uncertain tax positions.
This Interpretation allows the tax effects from an uncertain tax
position to be recognized in the Company's financial statements if the
position is more likely than not to be sustained upon audit, based on
the technical merits of the position. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. We do not expect the
adoption of FIN 48 to have a material impact on our financial statements.
RESULTS OF OPERATIONS
We had no revenues during the three months ended September 30, 2010 and 2009
because we do not fly any aircraft and cannot sell tickets.
Our general and administrative expenses increased $3,195,717 to $3,923,593
in the three months ended September 30, 2010 as compared to $727,876 in the
three months ended September 30, 2009. This increase is mainly the result
of activity of air carrier certification and preparations for the
commencement of operations.
Primarily as a result of the foregoing, we incurred a net loss of $4,157,532
in the three months ended September 30, 2010 as compared to a net loss of
$937,403 in the three months ended September 30, 2009.
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 and
will be able to raise additional 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.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred substantial operating and net losses,
as well as negative operating cash flows. As of September 30, 2010, our
working capital deficit was $53,463 and our stockholders' equity was
$2,000,095. As compared to September 30, 2010, our working capital deficit
was reduced from $108,913 at September 30, 2009 and our stockholders'
equity increased from $60,449 at September 30, 2009. We had unrestricted
cash balance of $30,728 at September 30, 2010, as compared to $513,478 at
September 30, 2009.
Our operating activities utilized $14,992,101 in cash during the nine months
ended September 30, 2010, an increase of $10,870,793 from the $4,121,308
in cash utilized during the nine months ended September 30, 2009.
Our financing activities, from issuance of common stock, provided $3,531,227
and $1,033,300 in cash during the nine months ended September 30, 2010 and
2009, respectively.
Except for the purchase of our first Boeing 747 aircraft on August 18, 2009
and subsequent maintenance and upgrades, as well as planning for additional
aircraft, we had no significant planned capital expenditures, budgeted or
otherwise, as of September 30, 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None
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, 2010, 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, 2010 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, 2010 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, 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.
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.
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. Reserved.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
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 12th DAY OF NOVEMBER 2010
BALTIA AIR LINES, INC.
/s/ Igor Dmitrowsky
------------------------
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer)
EXHIBIT 31.1
BALTIA AIR LINES, INC.
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Igor Dmitrowsky, the Chief Executive Officer and Chief Financial Officer
of Baltia Air Lines, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 small
business issuer 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)) 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
(c) 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: November 12, 2010
/s/ Igor Dmitrowsky
------------------------
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer)
EXHIBIT 32.1
BALTIA AIR LINES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report Baltia Air Lines, Inc. (the
"Company") on Form 10-Q for the period ended September 30, 2010 as
filed with the Securities and Exchange Commission on the date hereof
("the Report"), I, Igor Dmitrowsky, Chief Executive Officer and Chief
Financial Officer (principal accounting officer) of the Company, certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has
been provided to Baltia Air Lines, Inc. and will be retained by Baltia
Air Lines, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
Date: November 12, 2010
/s/ Igor Dmitrowsky
------------------------
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer
(principal accounting officer)