UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
- Amendment No. 2 -
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
March 31,
1998
(Unaudited)
<S> <C>
Assets
Current Assets:
Cash $ 26,703
Property & Equipment (net) 35,511
Other Assets:
Deferred financing costs 200,000
Total Assets $ 262,214
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 544,654
Accounts payable to stockholders 38,318
Accrued interest 2,466
Notes payable 250,000
Notes payable to stockholders 151,000
Total current liabilities 986,438
Commitments and contingencies
Stockholders' deficit:
Preferred stock - no par value; 15,000 shares
authorized, 0 shares issued and
outstanding at March 31, 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 March 31,
1998 and December 31, 1997, respectively 245
Additional paid-in capital 6,257,425
Prepaid media costs ( 396,090)
Deficit accumulated during
development stage (6,585,804)
Total stockholders' deficit ( 724,224)
Total liabilities and stockholders' deficit $ 262,214
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended August 24, 1989
March 31, (Inception) to
1998 1997 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
Expenses
General and
Administrative 101,832 39,230 2,328,715
Professional fees 44,000 0 2,028,945
Service contributions 0 0 1,352,516
Training Expense 0 0 225,637
Abandoned fixed assets 0 0 205,162
Total expenses 145,832 39,230 6,140,975
Interest expense 52,466 5,382 444,829
Net loss $(198,298) $(44,612) $(6,585,804)
Net loss per common share
- basic and diluted $(0.08) (0.02) $(2.70)
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended August 24, 1989
March 31, (Inception) to
1998 1997 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net loss $( 198,298) $(44,612) $(6,585,804)
Adjustment to reconcile net
loss to net cash provided by
operations:
Depreciation 516 0 219,926
Amortization of deferred
financing costs 50,000 0 50,000
Stock issued for interest 0 0 63,500
Contributed services 0 0 1,352,516
Increase(Decrease)in accounts
payable ( 26,500) 28,217 2,349,098
Increase in accrued interest 2,466 0 2,466
Net cash (used) for
operating activities ( 171,816) (16,395) (2,548,298)
Cash flows from investing
activities:
Purchase of equipment ( 36,027) 0 ( 255,437)
Net cash (used) for
investing activities ( 36,027) ( 0) ( 255,437)
Cash flows from
financing activities:
Proceeds from shareholder
loans (net) ( 18,589) 18,803 1,332,984
Proceeds from notes payable 250,000 0 250,000
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>
Three Months Ended August 24, 1989
March 31, (Inception) to
1998 1997 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Purchase and retirement
of treasury stock $ 0 $ 0 $ $( 500,000)
Net cash provided from
financing activities 231,411 18,803 2,830,438
Net increase (decrease)in cash 23,568 2,408 26,703
Cash at beginning of period 3,135 340 0
Cash at end of period $ 26,703 $ 2,748 $ 26,703
Supplemental Cash Flow Information
Cash paid for interest $ 0 $ 0 $ 0
Cash paid for income taxes $ 380 $ 0 $ 3,437
Non-Cash Items:
Acquisition of prepaid media costs $ $ 0 $ 396,090
Deferred financing costs $ 250,000 $ 0 $ 250,000
Conversion of liabilities $ 160,983 $ 0 $ 3,291,420
Reclassification of redeemable
common stock $ 0 $ 0 $( 400,000)
Surrender of rights to redeem
common stock $ $ 0 $ 400,000
Contributed services $ $ 0 $ 1,081,588
Stock issued for interest $ 0 $ 0 $ 63,500
</TABLE>
Notes:
Since inception, the Company's primary activities have been the
raising of capital, obtaining financing and obtaining Route Authority
and approval from the U.S. Department of Transportation. The Company
has not yet commenced revenue producing activities. Accordingly, the
Company is deemed to be a Development Stage Company. As of March 31,
1998 the Company has not yet commenced its scheduled air line
service. The Company currently maintains office space at J.F.K.
Airport, New York.
Prepaid Advertising
On June 23, 1997 the Company entered into an agreement with Kent
Trading, Inc., a media placement company whereby, the Company
exchanged 32,500 common stock shares, as negotiated with the
management of the Company, for future media placements in various
international and national media publications, with a current value of
$396,090 as based on the related publications published advertising
rates. Kent Trading, Inc. may terminate the Agreement if the closing
of the proposed Public Offering has not occurred prior to August 30,
1998. The Company has recorded prepaid media costs as a reduction to
equity, in a manner similar to accounting for a stock subscription
receivable. At such time the Company utilizes the media placements,
the Company will charge off the related costs to expense.
The Company retains the right to resell the media placements to third
parties, although it has no current plans to do so. Although as
current market rates for media placements are stable, if rates were to
decline the Company could realize a loss on resale. To the extent
that the carrying amount is determined not to be realizable, it will
be charged off to expense.
Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are
depreciated over the lesser of the term of the related lease or the
estimated lives of the assets. Depreciation is computed on the
straight line method for financial reporting purposes and modified
accelerated recovery method for tax purposes.
DOT Route Authority
On February 26, 1996, the U.S. Department of Transportation issued a
Final Order thereby, authorizing the Company to engage in foreign
scheduled air transportation between New York and St. Petersburg,
Russia. On February 6, 1997, the U.S. Department of Transportation
granted the Company an extension of time to commence operations,
through August 7, 1997. On September 10, 1997, the U.S. Department of
Transportation granted the Company an extension of time to commence
operations, through February 7, 1998. On February 11, 1998, the U.S.
Department of Transportation granted the Company an extension of time
to commence operations, through August 7, 1998.
Obtaining Federal Aviation Administration air carrier certification
and meeting Department of Transportation financial requirements are
prerequisites to the Company's commencement of revenue service. Costs
associated with the development and approval of the authorized route,
such as legal and consulting fees, have been written off in the period
in which the expense was incurred.
Bridge Loan
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan 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 three months ended March 31, 1998 (Unaudited) the Company
charged $50,000 to interest expense.
Additional Bridge Loan
In June 1998, the Company anticipates borrowing $575,000, an
"additional" Bridge Loan and in consideration plans to issue five-
hundred seventy-five thousand (575,000) Warrants, 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 two (2) months
beginning June 1998 and ending July 1998, the estimated period the
loan will be outstanding.
Notes Payable
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan,
from Hobbs Melville & Co., Inc. This Note is due and payable in full
on the date of and at the time as, 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.
In June 1998, the Company anticipates borrowing $575,000, an
"additional" Bridge Loan, from various private investors. These 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
Loan, the Company plans to issue to the private investors five-hundred
seventy-five thousand Warrants in aggregate, 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.
Income Taxes
At December 31, 1997, the Company has a net operating loss
carryforward of $5,072,844, which is available to offset future
taxable income. The carry-forwards expire between the year 2006 and
2013. The Company is still liable for certain minimum state taxes.
As of December 31, 1997, a net deferred tax benefit has not been
reflected to record temporary differences between the amount of assets
and liabilities recorded for financial reporting and income tax
purposes due to the establishment of a 100% valuation allowance
relating to the uncertainty of recoverability.
Proposed Public Offering
In June 1998, the Company entered into an agreement with Hornblower &
Weeks, Inc. and Madison Capital Markets Corp. as the Co-Managing
Underwriters, 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.
Line of Credit
On March 16, 1998, for short term uses, the Company was granted a
credit line in the amount of $6,200,000 through December 31, 1998,
with a foreign bank.
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.
In addition to the IPO proceeds and LOC, the Company may issue $6
million in bonds through W.R. Lazard. The Company has no specific
present intent to issue the bonds, but has an agreement with W.R.
Lazard to effect optimum timing of the bond issue should the Company
so choose. If the Company were to issue bonds it would incur debt
equal to the amount of bonds issued plus a current monthly liability
for 10% to 15% interest on the debt. 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. Changes in Securities.
On December 30, 1997, the Board of Directors authorized and
the majority of the current shareholders ratified a two for
one reverse stock split of the Company's $.0001 par value
common stock. All references in the accompanying
financial statements to the number of common shares and
per share amounts have been restated to reflect the
reverse stock splits.
Item 3. Intentionally omitted.
Item 4. Submission of Matters to a Vote of Security Holders
On December 30, 1997, the Board of Directors authorized and
the majority of the current shareholders ratified a two for
one reverse stock split of the Company's $.0001 par value
common stock. All references in the accompanying
financial statements to the number of common shares and
per share amounts have been restated to reflect the
reverse stock splits.
Item 5. Intentionally omitted.
Item 6. Exhibits and Reports
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.
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: 8-21-1998 _________________________________________
By: Igor Dmitrowsky, President
Date: 8-21-1998 _________________________________________
By: Walter Kaplinsky, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,703
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,703
<PP&E> 35,511
<DEPRECIATION> 0
<TOTAL-ASSETS> 262,214
<CURRENT-LIABILITIES> 986,438
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 6,257,425
<TOTAL-LIABILITY-AND-EQUITY> 262,214
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 44,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,466
<INCOME-PRETAX> (198,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198,298)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
