UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
BALTIA AIR LINES, INC. (Baltia)
(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 7 I, 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 "x." Yes "x." Required reports filed herewith.
Class Number of Shares
Common Stock Par Value $.0001 Per Share 2,442,500
Preferred Stock No Par -0-
Transitional Small Business Disclosure Format (Check one): No "x"
Item 1. Financial Statement.
<TABLE>
<CAPTION>
BALANCE SHEET
June 30,
1998
(Unaudited)
<S> <C>
Assets
Current Assets:
Cash $ 203,141
Property & Equipment (net) 81,791
Other Assets:
Deferred financing costs 450,000
Deferred offering costs 50,000
Total other assets 500,000
Total Assets $ 784,932
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 544,654
Accounts payable to stockholders 38,318
Accrued interest 8,698
Notes payable 800,000
Notes payable to stockholders 148,655
Total current liabilities 1,540,325
Commitments and contingencies
Stockholders' deficit:
Preferred stock - no par value; 15,000 shares
authorized, 0 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively 0
Common stock - $.0001 par value;
100,000,000 shares authorized, 2,442,500
shares issued and outstanding at June 30,
1998 and December 31, 1997, respectively 245
Additional paid-in capital 6,857,425
Prepaid media costs ( 396,090)
Deficit accumulated during
development stage (7,216,973)
Total stockholders' deficit ( 724,393)
Total liabilities and stockholders' deficit $ 784,932
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
Six Months Ended August 24, 1989
June 30, (Inception) to
1998 1997 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Expenses
General and
Administrative 179,313 42,646 2,406,196
Professional fees 54,000 1,000 2,038,945
FAA Certification costs 187,456 0 187,456
Service contributions 0 0 1,352,516
Training Expense 0 0 225,637
Abandoned fixed assets 0 0 205,162
Total expenses 420,769 43,646 6,415,912
Interest expense 408,698 0 801,061
Net loss $(829,467) $(43,646) $(7,216,973)
Net loss per common share
- basic and diluted $(0.34) (0.02) $(2.95)
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Six Months Ended August 24, 1989
June 30, (Inception) to
1998 1997 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss $( 829,467) $(43,646) $(7,216,973)
Adjustment to reconcile net
loss to net cash provided by
operations:
Depreciation 3,177 0 222,587
Amortization of deferred
financing costs 400,000 0 400,000
Stock issued for interest 0 0 63,500
Contributed services 0 0 1,352,516
Increase (Decrease) in deferred
offering costs ( 50,000) 0 ( 50,000)
Increase(Decrease)in accounts
payable ( 26,500) 28,217 2,349,098
Increase in accrued interest 8,698 0 8,698
Net cash (used) for
operating activities ( 494,092) (42,646) ( 2,870,574)
Cash flows from investing
activities:
Purchase of equipment ( 84,968) 0 ( 304,378)
Net cash (used) for
investing activities ( 84,968) ( 0) ( 304,378)
Cash flows from
financing activities:
Proceeds from shareholder
loans (net) ( 20,934) 48,459 1,330,639
Proceeds from notes payable 800,000 0 800,000
Proceeds from issuance of
common stock 0 0 1,133,214
Increase paid-in capital 0 0 614,240
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Six Months Ended August 24, 1989
June 30, (Inception) to
1998 1997 June 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Purchase and retirement
of treasury stock $ 0 $ 0 $( 500,000)
Net cash provided from
financing activities 779,066 48,459 3,378,093
Net increase (decrease)in cash 200,006 5,813 203,141
Cash at beginning of period 3,135 340 0
Cash at end of period $ 203,141 $ 6,153 $ 203,141
Supplemental Cash Flow Information
Cash paid for interest $ 0 $ 0 $ 0
Cash paid for income taxes $ 388 $ 0 $ 3,445
Non-Cash Items:
Acquisition of prepaid media costs $ $ 396,090 $ 396,090
Deferred financing costs $ 850,000 $ 0 $ 850,000
Conversion of liabilities $ 160,983 $ 3,130,437 $ 3,291,420
Reclassification of redeemable
common stock $ 0 $ 0 $( 400,000)
Surrender of rights to redeem
common stock $ $ 400,000 $ 400,000
Contributed services $ $ 270,928 $ 1,081,588
Stock issued for interest $ 0 $ 0 $ 63,500
</TABLE>
<PAGE>
Notes to Financial Statement:
Property and equipment at June 30, 1998 (Unaudited) consisted of the
following;
Office equipment $ 42,730
Furniture & Fixtures 5,797
Automobiles 36,441
Total 84,968
Less, accumulated depreciation ( 3,177)
Total Property and Equipment $ 81,791
Depreciation expense charged to operations for the (Unaudited) six
months ended June 30, 1998 and 1997 and the years ended December 31,
1997 and 1996 was $3,177, $0, $0 and $0, respectively.
The useful lives of property and equipment for purposes of computing
depreciation are;
Office equipment & Furniture 5 - 7 years
Automobiles 5 years
DEFERRED FINANCING COSTS
Bridge Loan
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan (see
Note 7) and in consideration issued two hundred fifty thousand (250,000)
Warrants, to be designated as "Class B Bridge Warrants". The Company has
estimated the fair value of the Warrants to be $250,000 as based on the
Black Scholes model of option pricing. The Company shall amortize
deferred financing costs based on the Interest Method, over a period of
five (5) months beginning March 1, 1998 and ending July 31, 1998, the
estimated period the loan will be outstanding.
For the six months ended June 30, 1998 (Unaudited) the Company charged
$200,000 to interest expense.
Additional Bridge Loan
In June and July 1998, the Company borrowed $550,000,and $25,000,
respectively, in "additional" Bridge Loans (see Note 7) and in
consideration issued five hundred fifty thousand (550,000) and twenty -
five thousand (25,000) Warrants, respectively, to be designated as
"Class A Bridge Warrants". The Company estimates the fair value of the
Warrants to be $600,000 as based on the Black Scholes model of option -
pricing. The Company shall amortize deferred financing costs based on
the Interest Method, over a period of three (3) months beginning June
1998 and ending August 1998, the estimated period the loan will be
outstanding.
For the six months ended June 30, 1998 (Unaudited) the Company charged
$200,000 to interest expense.
NOTES PAYABLE STOCKHOLDERS
In 1992 the Company issued Promissory Notes to certain shareholders in
exchange for $1,048,000. The Notes were due on demand and all interest was
payable upon principal repayment, at an annual rate of six and one half
percent (6 1/2%), from the date of issuance to the date of repayment.
On June 24, 1997 certain shareholders were issued 75,000 common shares, as
negotiated with the management of the Company, in exchange for the total due
them, in the amount of $1,369,168, inclusive of principal of $1,048,000 and
accrued interest of $321,168.
Interest expense related to the above incurred for the (Unaudited) six
months ended June 30, 1998 and 1997 and the years ended December 31, 1997 and
1996, totaled $0, $0, $0 and $68,120, respectively.
At June 30, 1998 (Unaudited) and December 31, 1997, interest expense related
to the above incurred since inception totals $321,168 and $321,168,
respectively.
In 1997 and 1996 the Company borrowed net $128,183 and $207,706,
respectively, from certain shareholders. The net borrowings are non interest
bearing and are due on demand.
In 1995 the Company issued a short term Promissory Note to a certain
shareholder in exchange for $50,000. The Company issued to this shareholder,
12,500 shares of common stock as a non refundable prepayment of interest from
the date of the loan through repayment of the loan.
For the year ended December 31, 1995, the Company charged $63,500 to
interest expense for the shares issued in connection with the non-refundable
interest prepayment, based on an average price per share of $5.08.
NOTES PAYABLE
(A) Bridge Loan
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan, from
Hobbs Melville & Co., Inc. The Note is due and payable in full on the date
of and at the time of, the closing of the proposed public offering of
securities, at an annual rate of interest of ten (10) percent per annum.
For and in consideration of the Bridge Loan, the Company has issued to Hobbs
Melville & Co., Inc. two hundred fifty thousand (250,000) Warrants, to be
designated as "Class B Bridge Warrants", each entitling them to purchase one
share of Common Stock for $6.05 during the four (4) year period commencing
one year from the date of the closing of the proposed public offering. The
Company may redeem outstanding Warrants, once they become exercisable, at a
price of $.10 per warrant on a less than thirty (30) day prior notice,
provided the closing bid quotations of the common shares shall have exceeded
$10 for ten (10) consecutive trading days ending on the third day prior to
the date on which notice is given.
In the event the Company fails to secure, maintain full force and effect,
any required license, permission, franchise, consent, approval, contract,
lease agreement, or other material requirement to operate its proposed
airline passenger service and/or fails to close the proposed public offering
on or before June 30, 1998, the Note shall become immediately due and
payable.
(B) Additional Bridge Loan
In June and July 1998, the Company borrowed five hundred fifty thousand
dollars ($550,000) and twenty five thousand dollars ($25,000), respectively
in "additional" Bridge Loans, from various private investors. The Notes
shall be due on the earlier of ninety (90) days from the date of the Note or
the first break of escrow on the Company's proposed public offering of
securities, at an annual rate of interest of ten (10) percent per annum.
For and in consideration of the "additional" Bridge Loans, the Company has
issued to the private investors five hundred fifty thousand (550,000) and
twenty five thousand (25,000) Warrants, respectively, designated as "Class A
Bridge Warrants", each entitling them to purchase one share of Common Stock
for $6.05 during a five (5) year period commencing six (6) months from the
date of the closing of the proposed public offering. The Company may redeem
outstanding warrants, once they become exercisable, at a price of $.10 per
warrant on a less than thirty (30) day prior notice, provided the closing bid
quotations of the common shares shall have exceed $10 for ten (10)
consecutive trading days ending on the third day prior to the date on which
notice is given.
In the event the Company fails to timely make any payments on the
"additional" Bridge Loan, defaults, ceases to carry on business on a regular
basis, enters into an agreement to sell substantially all of its assets,
merges or consolidates with or is acquired by any other business, makes an
assignment for the benefit of creditors, makes any election to wind up, or
dissolves, the "additional" Bridge Loan shall become immediately due and
payable.
In the event the Company fails to make any amount payable under the
"additional" Bridge Loan before the Due Date, then such amount will bear
interest from and after the Due Date until paid at an annual rate of interest
equal to or greater of fifteen (15) percent, the advance rate to member banks
as established by the Federal Reserve Bank of New York plus five (5) percent
or the maximum rate permitted by law. In addition the Company shall pay a
late payment processing fee in an amount each month equal to six (6) percent
of the amount due. In addition, the Company will also pay the lender each
month that the note is in default a penalty of five thousand (5,000) shares
of the Company's common stock.
In June 1998, the Company entered into an agreement with Hornblower & Weeks,
Inc. to act as the Managing Underwriter and Madison Capital Markets Corp. as
the Co Manager Underwriter, in connection with a proposed firm commitment
Public Offering of securities and plans to file an amended registration
statement with the Securities Exchange Commission.
The Company intends to offer for sale 1,100,000 shares of common stock of
$.0001 par value, at a price of $5.50 per share and 1,100,000 Redeemable
Common Stock Purchase Warrants at $.10 per Warrant. Each Warrant entitles
the holder to purchase one Share for $6.05 during the five (5) year period
commencing six months from the date of the proposed Public Offering.
The Agreement with the Underwriter sets forth that on the Effective Date,
before giving effect to all shares of Common Stock and Warrants to be sold in
the proposed public offering, the Common Stock issued and outstanding shall
not exceed 2,442,500 common shares.
(1) Lease Obligations
In October, 1995 the Company entered into a lease with Iceland Air, J.F.
Kennedy Airport, New York, to occupy space. The lease term is on a month to
month basis.
Currently, the Company is leasing space from Iceland Air for $1,200 per
month at J.F. Kennedy Airport, New York. Rent expense charged to operations
for the (Unaudited) six months ended June 30, 1998 and 1997 and years ended
December 31, 1997 and 1996 totaled $14,400, $6,000, $12,000 and $13,200,
respectively.
In January 1993, the Company leased office space from its President at his
residence. The lease term is on a month to month basis through December 31,
1998. Rent expense charged to operations for the (Unaudited) six months
ended June 30, 1998 and 1997 and years ended December 31, 1997 and 1996
totaled $2,875, $2,287, $5,215 and $5,392, respectively.
(2) Underwriter Proposed Public Offering
In June 1998, the Company entered into an agreement with Hornblower &
Weeks, Inc. to act as the Managing Underwriter and Madison Capital Markets
Corp as the Co Managing Underwriter, in connection with a proposed Public
Offering of securities.
The Agreement sets forth the following terms and conditions;
(a) The Managing Underwriter shall receive a dealer's concession of ten
percent (10%) of the proposed Public Offering price.
(b) The Managing Underwriter shall receive at closing of the proposed
Public Offering a non accountable expense allowance of three percent (3%) of
the total offering. In June 1998, the Underwriter received a fifty thousand
dollar ($50,000) non-refundable advance against the non accountable expense
allowance. (See Note 2[f]).
(c) The Company shall sell to the Managing Underwriter five (5) year
warrants to purchase such number of shares of Common Stock and/or Warrants
as shall equal ten (10) percent of the number of shares of Common Stock and
Warrants (excluding the overallotment option) being underwritten for the
account of the Company at a price of the lesser of $.001 each or $100 in
aggregate. The Warrants shall be exercisable at any time during a period of
four (4) years commencing at the beginning of the second year after their
issuance and sale at a price equaling 110% of the respective initial public
offering price.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Twelve Months Operating Plan
For twelve months the Company intends to operate from one weekly round
trip flight between New York and St. Petersburg, increasing the
frequency as market demands, up to five weekly round trips carrying
passengers, cargo and mail. If sufficient capital is raised, the
Company may apply to the DOT to serve additional cities in the former
Soviet Russia, but there is no specific plan to do so at this time.
The Company believes its cash requirements to operate one Boeing 747
between NY and St. Petersburg, Russia once a week for twelve months
is $12.1 million, which includes three months pre-operating expenses
at $2.7 million as detailed in Use of Proceeds, nine months operating
expenses at $8.3 million as submitted to the DOT, and the Company's
total liabilities at $1.1 million as affirmed in Financial Statements
within this prospectus. (DOT Order 97-9-11, p.5. Nine months
operating expenses equal DOT average three months expenses of $2.7
million times 3.) The pre-operating and operating expenses include,
but not exclusively, aircraft leasing costs of $2.2 million, aircraft
insurance in the amount of $1.1 million, personnel expenses of
approximately $4 million. Complete budget projections of expenses
expressed in regulated categories is available in OST 96-2032 and OST
97-2763.
To provide this service, aside from office equipment, capital
expenditures will include aircraft acquisition, spare parts and ground
equipment. Monthly aircraft lease payment is expected to be paid from
revenue.
The LainBanka LOC was issued in 1998 and has never been drawn upon.
The LOC, in the amount of $6.2 million has been immediately available
to the Company upon the Company's opening an account including
registering a subsidiary in Latvia, maintaining sufficient convertible
currency in the account to perform any target programs the Company may
have in Latvia.
Following the Closing, the Company expects to open an account with
LainBanka to hold $10,000 of the reserve from net proceeds. This will
require that the Company register a subsidiary in Latvia, which it
will do in a manner similar to registering as a foreign corporation in
another state of the US should the Company, at some time in the
future, do business in a state other than NY where it is incorporated.
The interest rate and repayment schedule will be in accordance with
the then effective lending rates (10% to 14%) and terms at the
LainBanka. There is no assurance that the terms, then in effect in
Latvia, will be acceptable to the Company.
Further, potential proceeds from the exercise of Warrants in this issue
may provide additional cash following this twelve month period.
FAA certification. The Company expects to complete FAA certification
expediently, but cannot guaranty completion by a specific date. FAA
air carrier certification process which is based upon a 90-day
schedule of events consisting of document approval, crew training, and
flight demonstration.
PART II -OTHER INFORMATION
Item 1. Intentionally omitted.
Item 2. Intentionally omitted.
Item 3. Intentionally omitted.
Item 4. Intentionally omitted.
Item 5. Intentionally omitted.
Item 6. Exhibits and Reports
Exhibit 5 - Opinion of Legality - Steffanie J. Lewis, IBLF P.C. *
Exhibits 23.1 - Consent of Expert - J.R. Lupo, P.A. CPA *
Exhibits 23.2 - Consent of Counsel - Steffanie J. Lewis, IBLF P.C.
*
Exhibits 23.3 - Consent of Expert - Airline Economics, Inc. *
Exhibit 27 - Financial Data Schedule
as required by Item 601 of Regulation S-B which
is based on the foregoing Financial Statement
submitted in Item 1.
* incorporated herein as filed in SB-2 Registration Statement No.
333-37409, Amendment #5, filed June 29, 1998
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Baltia Air Lines, Inc., Registrant
Date: 8-27-1998 _________________________________________
By: Igor Dmitrowsky, President
Date: 8-27-1998 _________________________________________
By: Walter Kaplinsky, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 203,141
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 203,141
<PP&E> 81,791
<DEPRECIATION> 0
<TOTAL-ASSETS> 784,932
<CURRENT-LIABILITIES> 1,540,325
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 6,857,425
<TOTAL-LIABILITY-AND-EQUITY> 784,932
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 241,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,698
<INCOME-PRETAX> (829,467)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (829,467)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
