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 JUNE 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. Yes [X] No [ ]
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)
[ X ] 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]
Number of shares of the registrant's common stock outstanding as of August
19, 2010: 882,252,084 shares of Common Stock
PART ONE - FINANCIAL INFORMATION
Item 1. Financial Statements.
BALTIA AIR LINES, INC.
BALANCE SHEETS
(A Development Stage Company)
ASSETS
6/30/2010 12/31/2009
(Unaudited)
Current Assets
Cash $ 513,478 $ 1,439,897
Prepaid Expenses 31,617 0
Total Current Assets 545,095 1,439,897
Property and Equipment
Equipment 755,344 745,161
Less Accumulated Depreciation (89,358) (85,858)
Net Property and Equipment 665,986 659,303
Other Assets
Security Deposit Airplane Engines 240,000 0
TOTAL ASSETS $ 1,451,080 $ 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 88,245 74,358
Paid-in-Capital 42,273,674 32,102,590
Deficit Accumulated During
Development Stage (41,011,504) (30,178,413)
Total Equity 1,351,080 1,999,200
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 1,451,080 $ 2,099,200
See notes to unaudited interim financial statements.
STATEMENT OF OPERATIONS
(A Development Stage Company)
Three Months Ended Six Months Ended August24, 1989
June 30, June 30, (Inception) to
2010 2009 2010 2009 June 30, 2010
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues $ 0 0 0 0 0
Costs & Expenses
General and
Administrative 3,632,954 1,086,016 10,408,232 2,826,536 37,172,386
FAA Certification 30,609 176,550 420,709 353,088 1,649,587
Training Expense 0 0 0 0 225,637
Depreciation 0 0 3,500 2,000 336,179
Other 0 0 0 0 568,245
Interest (45) (200) (45) (650) 1,050,176
Total expenses 3,663,518 1,262,366 10,832,396 3,180,974 41,002,210
Loss before
income taxes (3,663,518)(1,262,366)(10,832,396)(3,180,974) (41,002,210)
Income Taxes (405) 0 695 1,030 9,294
Deficit
Accumulated
During
Development
Stage: (3,663,113)(1,262,366)(10,833,091)(3,182,004) (41,011,504)
Per share amounts:
Loss Nil Nil (0.01) Nil
Weighted Average
Shares
Outstanding 852,727,022 431,929,961 825,154,041 401,120,004
See notes to unaudited interim financial statements.
STATEMENT OF CASH FLOWS
(A Development Stage Company)
Six Months Ended Aug 24,1989
June 30, (inception) to
2010 2009 June 30, 2010
(Unaudited) (Unaudited) (Unaudited)
Cash flows from Operating Activities:
Deficit Accumulated During
Development Stage $(10,833,091) $(3,182,004) $(41,011,505)
Adjustments to reconcile net
loss to net cash provided by
operations:
Depreciation 3,500 2,000 335,030
Expenses paid by issuance of
common stock 8,551,650 1,875,555 25,566,066
(Increase) decrease in prepaid
expenses (31,617) 0 368,684
Change in payables & accrued expenses 0 0 3,251,481
Cash used by operating activities:(2,309,558) (1,304,449) (11,490,244)
Cash flows from investing activities:
Purchase of Equipment (10,183) (37,679) (938,402)
Security Deposits (240,000) 0 (240,000)
Cash used in investing activities: (250,183) (37,679) (1,178,402)
Cash flows from financing activities:
Issuance of Common Stock 1,633,321 723,300 12,737,604
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: 1,633,321 723,300 13,182,123
Change in cash (926,420) (618,828) 513,477
Cash-beginning of period 1,439,897 724,240 0
Cash -end of period $ 513,477 $ 105,412 $ 513,477
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)
Shares issued for cash 31,987,339 3,199 1,630,022
Shares issued for services 106,884,706 10,688 8,540,961
Net Loss (9,773,241)
Balance at June 30, 2010 66,500 665 882,452,084 88,245 42,273,574 (39,951,654)
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
JUNE 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
six-month periods ended June 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 six months ended June 30, 2010 we issued 106,885,000 shares of
our common stock in exchange for services. The shares were valued at
$8,550,000 or about $0.08 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 six months ended June 30, 2009 we issued 37,395,000 shares of our
common stock in exchange for services. The shares were valued at $1,270,000
or about $0.034 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 six months ended June 30, 2010 we issued 31.9 million shares of
our common stock in exchange for cash. The shares sold for cash were
subscribed at $ 1,633,000 or about $0.05 weighted average per share.
In 2009, we issued 16,385,000 shares of our common stock in exchange for
cash. The shares were subscribed at $ 723,000 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 Pulkovo 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 has taken delivery of the aircraft and registered
the ownership title with the FAA in Oklahoma City.
In the first quarter of 2010, the Company 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'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 apply between
New York and Russia.
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 and Moscow, 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, and is preparing similar arrangements
in Moscow. 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 and JFK-Moscow
service with one round-trip flight per week, then increase the frequency
to three round trips, and then to five round trips.
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 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 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 and JFK-Moscow
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 will have certification for world wide charter service.
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. Certification is
scheduled for completion by year's end 2010.
The Company will carry airline liability insurance as required for a US
airline by DOT regulation.
As of June 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
inaccordance 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-lived 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 six months ended June 30, 2010 and 2009, the Company's
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 June 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 six-month period ended June 30, 2010 was $0 (also none
during the six-month period ended June 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 six months ended June 30, 2010 and 2009
because we do not fly any aircraft and cannot sell tickets.
Our general and administrative expenses increased $2,546,938 to $3,632,954
in the three months ended June 30, 2010 as compared to $1,086,016 in the
three months ended June 30, 2009. This increase is mainly the result of
activity in preparing for air carrier certification and commencement of
operations.
Primarily as a result of the foregoing, we incurred a net loss of $3,663,518
in the three months ended June 30, 2010 as compared to a net loss of
$1,262,366 in the three months ended June 30, 2009.
Our future ability to achieve profitability in any given future fiscal
period remains highly contingent upon our commencing flight operations. The
management believes that the company will obtain FAA certification and that
it has the necessary funding to commence revenue flight operations. 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 June 30, 2010, our working
capital was $445,095 and our stockholders' equity was $1,351,080. By
comparison,our working capital increased from $90,412 at June 30, 2009 and
our stockholders' equity increased from $167,224 at June 30, 2009. We had
unrestricted cash balance of $513,478 at June 30, 2010, as compared to
$105,412 at June 30, 2009.
Our operating activities utilized $2,309,558 in cash during the six months
ended June 30, 2010, an increase of $1,005,109 from the $1,304,449 in cash
utilized during the six months ended June 30, 2009.
Our financing activities, from issuance of common stock, provided $1,633,321
and $723,300 in cash during the six months ended June 30, 2010 and 2009,
respectively.
As a result of the foregoing, our unrestricted cash increased by $408,065 to
$513,478 at June 30, 2010, as compared to $105,412 at June 30, 2009.
We had no significant planned capital expenditures, budgeted or otherwise,
as of June 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 June 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 June 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 six months ended June 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 six months ended June 30, 2010 we issued 106,885,000 shares of
our common stock in exchange for services. The shares were valued at
$8,550,000 or about $0.08 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 six months ended June 30,
2010 we issued 31.9 million shares of our common stock in exchange for cash.
The shares sold for cash were subscribed at $ 1,633,000 or about $0.05
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. Submission of Matters to a Vote of Security Holders.
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 19th DAY OF AUGUST 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: August 19, 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 June 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: August 19, 2010
/s/ Igor Dmitrowsky
------------------------
Igor Dmitrowsky
Chief Executive Officer and Chief Financial Officer (principal accounting
officer)
