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 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.
Baltia's Initial Public Offering Registration Statement 333-20006-
NY became effective September 16, 1996.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, $.0001 par value per share, and 15,000
shares of Preferred Stock, $1.00 par value. At the 333-20006 NY
Effective Date, a total of 2,675,000 of Common Stock were issued
and outstanding and held by over 100 shareholders. As of March 31,
1998, 2,442,500 shares of Common Stock are issued and outstanding.
No shares of Preferred Stock are issued and outstanding. No stock
was sold under
333-21006-NY and all securities registered therein are carried
forward into Registration 333-37409 pending an effective date.
Common Stock
All outstanding shares of Common Stock are, and the shares offered
hereby will be, duly authorized, validly issued, fully paid and
non-assessable. Holders of Common Stock are entitled to receive
dividends, when and if declared by the board of directors, out of
funds legally available therefor and, subject to prior rights of
holders of any Preferred Stock then outstanding, if any, to share
rateably in the net assets of the Company upon liquidation.
Holders of Common Stock do not have preemptive or other rights to
subscribe for additional shares, nor are there any redemption or
sinking fund provisions associated with the Common Stock. The
Certificate of Incorporation does not provide for cumulative
voting. Shares of Common Stock have equal voting, dividend,
liquidation and other rights, and have no preference, exchange or
appraisal rights.
Lack of Control by Minority Shareholders
Holders of shares of Common Stock are entitled to one vote per
share on all matters requiring a vote of stockholders. Since the
Common Stock does not have cumulative voting rights in electing
directors, the holders of a majority of the outstanding shares of
Common Stock voting for the election of directors can elect all of
the directors, excepting one board seat reserved for the
Underwriter's nominee for three years.
Stock Transfer Agent
The Transfer Agent and Registrar for the shares of Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York,
NY 10004, telephone: (212) 509-4000.
Warrants
In the Offering under 333-37409 the Company will issue 1,100,000
Warrants. Each Warrant entitles the holder to purchase one share of
Common Stock at $6.05 commencing six months from the date of this
Prospectus until five years from the date of this Prospectus. The
Company may redeem outstanding Warrants, once they become
exercisable
at a price of $.10 per Warrant on not less than 30 days written
notice, provided the closing bid quotations of the Shares have
exceeded $10 for 20 consecutive trading days ending on the third
day prior to the date on which notice is given. Baltia intends to
redeem the Warrants at the earliest opportunity. Warrants may not
be exercised following redemption. Therefore, the investor may
have to exercise the Warrant earlier than he or she intended. If
the Warrants are called for redemption by the Company, an investor
may have to exercise the Warrants before maximum profit can be
gained. The Warrants expire five years after the Effective Date,
or sooner if the Warrants are called for redemption. The
Prospectus will become "stale" nine months following the Effective
Date. The Company will try to maintain, and will provide, a
current prospectus at such time as the Company may call for
redemption, but assumes no obligation to maintain a current
prospectus otherwise. Warrants may not be exercised or redeemed in
the absence of a current prospectus and the Company's Warrant and
Transfer agents are forbidden to accept Warrants unaccompanied a
current prospectus.
Warrant Exercise Procedure
Warrants may be exercised by mailing or delivering a dully executed
and completed Warrant Subscription Certificate together with
payment in full of the subscription price of $6.50 per share of
Common Stock. Except as described herein under "Late Delivery of
Warrants," Warrant Subscription Certificates must arrive on or
before the Expiration Date and any subscriptions received after the
Expiration Date will not be honored. Payment must be made in
United States dollars in cash or by bank certified or cashier's
check, or by wire transfer of good funds payable to the order of
the Warrant Agent. Once a holder has exercised a Warrant, the
exercise is irrevocable. Certificates representing the shares of
Common Stock purchased upon the exercise of Warrants will be
delivered to the purchasers as soon as practicable after receipt of
the Subscription Agreement and funds.
The Warrant Agent is Continental Stock Transfer and Trust Company,
2 Broadway, New York, NY 10004, telephone: (212) 509-4000.
The instructions in the Warrant Subscription Certificate should be
read carefully and followed in detail. Do not send Warrant
Subscription Certificates or payment to the Company or to the
Underwriters. Except as described herein under "Late Delivery of
Warrants," no subscriptions will be accepted until the Warrant
Agent has received delivery of a duly executed Warrant Subscription
Certificate and payment of the subscription price. The risk of
delivery of Warrant Subscription Certificates and payments to the
Warrant Agent will be borne by the holders of Warrants and not by
the Company or the Warrant Agent. If the mail is used to exercise
Warrants, it is recommended that insured, registered mail be used.
Any questions or requests for assistance concerning the method of
subscribing for shares or for additional copies of this Prospectus
should be directed to the Warrant Agent.
All questions as to the validity, form, eligibility and acceptance
of any exercise of Warrants will be determined by the Company at
its sole discretion. The Company may waive any defect or
irregularity, permit a defect or irregularity to be corrected
within such time as it may determine, or reject any exercise of a
Warrant which it determines to have been made improperly.
Late Delivery of Warrants
If on or before the Warrant Expiration Date the Warrant Agent
receives the full subscription price for the shares of Common
Stock, together with a letter or telegraphic guaranty from a bank
or trust company which is a member of the New York Clearing House
(or is a correspondent of such a bank) or a member firm of the New
York Stock Exchange or American Stock Exchange or Nasdaq, that the
Warrant Subscription Certificate to which it relates will be
surrendered to the Warrant Agent within five business days after
the Expiration Date, the subscription will be accepted subject to
receipt of the duly executed Warrant Subscription Certificate
within the five business days.
Purchase and Sale of Warrants
The Warrants are immediately detachable, exercisable and separately
tradable. The Company has applied for the Nasdaq listing symbol
"BALTW" for Warrants. No assurance can be given that a trading
market for the Warrants will develop, or if one does develop,
whether it will sustain or at what price the Warrants will trade.
Prior to this Offering, there has been no public market for the
Warrants.
Representative's Warrants
At the Closing of this Offering the Company will sell to the
Representative, for a total purchase price of $100.00, Warrants
entitling the Representative to purchase up to 110,000 shares of
Common Stock at $6.05 per Share (110% of initial public offering
price) and 110,000 Warrants at $.11 per Warrant (10% of initial
public offering price). Warrants underlying the Representative's
Warrants differ from the Warrants offered to the public hereunder
to the extent that the Warrants are non-redeemable by the Company.
The exercise prices of the Option and underlying Warrants are
subject to anti-dilution adjustment under certain conditions. The
Representative's Warrants are exercisable during the four-year
period commencing one year form the date of this Prospectus, and
the Warrants are non-transferable for one year except to the
officers of the Representative, members of the underwriting group
and their respective officers or partners. The Securities issuable
upon the exercise of the Representative's Warrants have been
reserved by the Company and have been included in the Registration
Statement of which this Prospectus is a part.
Preferred Stock
The Company has authorized 15,000 Preferred Shares which may be
issued from time to time, as authorized by the board of directors.
Preferred shares have $1 par value and no voting rights. As of the
present date thereof, no shares of Preferred Stock are outstanding
and the Company has no present plans to issue any shares of
Preferred Stock.
BALTIA IS A CORPORATE ISSUER
The number of shares outstanding of each of the issuer's classes of
common equity, as of March 31, 1997:
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.
BALTIA AIR LINES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
Contents Page
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets - December 31, 1997 and
(Unaudited) March 31, 1998 F-3
Statement of Operations - Years ended
December 31, 1997 and 1996 and (Unaudited)
the three months ended March 31, 1998 and
1997 and August 24, 1989 (Inception) through
March 31, 1998 F-4
Statement of Cash Flows - Years ended
December 31, 1997 and 1996 and (Unaudited)
the three months ended March 31, 1998 and
1997 and August 24, 1989 (Inception) through
March 31, 1998 F-5 - F-6
Statement of Changes in Stockholders'
Deficit - Years ended December 31, 1997
and 1996 and (Unaudited) the three months
ended March 31, 1998 and 1997 and the
balance at December 31, 1992 and (not covered
by Auditors' Report) the years ended December
31, 1993, 1994 and 1995 F-7 - F-8
Notes to the Financial Statements F-9 - F-20
F-1
<PAGE>
Independent Auditors' Report
To the Shareholders of and the Board of Directors of
Baltia Air Lines, Inc.
We have audited the balance sheet of Baltia Air Lines, Inc. (A
Development Stage Company) as of December 31, 1997 and the related
statements of operations, cash flows, and changes in stockholders'
deficit for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
also includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Baltia
Air Lines, Inc. as of December 31, 1997 and the results of its
operations and its cash flows for the years ended December 31, 1997
and 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the
financial statements, the Company has not generated any revenues
and has incurred losses in excess of $6,500,000 since its incep-
tion. In addition, the Company has a capital deficit and sub-
stanial excess of current liabilities over current assets. These
factors, and the others discussed in Note 1 (C), raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in respect to these matters are referenced in
Note 1 (C). The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities
that might be necessary in the event the Company cannot continue in
existence.
J.R. Lupo, P.A. CPA
Verona, NJ
June 4, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
March 31,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
Assets
Current Assets:
Cash $ 26,703 $ 3,135
Property & Equipment (net) 35,511 0
Other Assets:
Deferred financing costs 200,000 0
Total Assets $ 262,214 $ 3,135
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 544,654 $ 571,154
Accounts payable to
stockholders 38,318 65,318
Accrued interest 2,466 0
Notes payable 250,000 0
Notes payable to stock-
holders 151,000 303,572
Total current liabilities 986,438 940,044
Commitments and contingencies
Stockholders' deficit:
Preferred stock - no par value;
15,000 shares authorized, 0
shares issued and outstand-
ing at March 31, 1998 and
December 31, 1997, respectively 0 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 245 245
Additional paid-in capital 6,257,425 5,846,442
Prepaid media costs ( 396,090) ( 396,090)
Deficit accumulated during
development stage (6,585,804) (6,387,506)
Total stockholders'
deficit ( 724,224) ( 936,909)
Total liabilities and
stockholders' deficit $ 262,214 $ 3,135
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended August 24, 1989
March 31, Years Ended (Inception) to
1998 1997 December 31, March 31, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Expenses
General and
Administrative 101,832 39,230 84,512 92,749 2,328,715
Professional
fees 44,000 0 58,625 77,817 2,028,945
Service
contributions 0 0 0 0 1,352,516
Training Expense 0 0 0 0 225,637
Abandoned fixed
assets 0 0 0 0 205,162
Total expenses 145,832 39,230 143,137 170,566 6,140,975
Interest expense 52,466 5,382 0 68,120 444,829
Net loss $(198,298) $(44,612) $(143,137) $(238,686) $(6,585,804)
Net loss per
common share -
basic and
diluted $(0.08) (0.02) $(0.06) $(0.11) $(2.70)
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended August 24, 1989
March 31, Years Ended (Inception) to
1998 1997 December 31, March 31, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss $( 198,298) $(44,612) $(143,137) $(238,686) $(6,585,804)
Adjustment to
reconcile net
loss to net cash
provided by oper-
ations:
Depreciation 516 0 0 0 219,926
Amortization of
deferred financing
costs 50,000 0 0 0 50,000
Stock issued for
interest 0 0 0 0 63,500
Contributed services 0 0 0 0 1,352,516
Increase(Decrease) in
accounts payable( 26,500) 28,217 17,749 24,407 2,349,098
Increase in
accrued interest 2,466 0 0 0 2,466
Net cash
(used) for
operating
activities ( 171,816) (16,395) (125,388) (214,279) (2,548,298)
Cash flows from invest-
ing activities:
Purchase of
equipment ( 36,027) 0 0 0 ( 255,437)
Net cash (used)
for investing
activities ( 36,027) ( 0) ( 0) 0 ( 255,437)
Cash flows from
financing activities:
Proceeds from
shareholder
loans (net) ( 18,589) 18,803 128,183 207,706 1,332,984
Proceeds from
notes payable 250,000 0 0 0 250,000
Proceeds from
issuance of
common stock 0 0 0 0 1,133,214
Increase
paid-in
capital 0 0 0 0 614,240
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended August 24, 1989
March 31, Years Ended (Inception) to
1998 1997 December 31, March 31, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Purchase and
retirement
of treasury
stock $ 0 $ 0 $ 0 $ 0 $( 500,000)
Net cash
provided from
financing
activities 231,411 18,803 128,183 207,706 2,830,438
Net increase (decrease)
in cash 23,568 2,408 2,795 ( 6,573) 26,703
Cash at begin-
ning of period 3,135 340 340 6,913 0
Cash at end
of period $ 26,703 $ 2,748 $ 3,135 $ 340 $ 26,703
Supplemental Cash
Flow Information
Cash paid for
interest $ 0 $ 0 $ 0 $ 0 $ 0
Cash paid for
income taxes $ 380 $ 0 $ 776 $ 52 $ 3,437
Non-Cash Items:
Acquisition of prepaid
media costs $ $ 0 $ 396,090 $ 0 $ 396,090
Deferred financing
costs $ 250,000 $ 0 $ 0 $ 0 $ 250,000
Conversion
of liabilities $ 160,983 $ 0 $3,130,437 $ 0 $ 3,291,420
Reclassification of
redeemable
common stock $ 0 $ 0 $ 0 $ 0 $( 400,000)
Surrender of rights
to redeem common
stock $ $ 0 $ 400,000 $ 0 $ 400,000
Contributed
services $ $ 0 $ 270,928 $ 0 $ 1,081,588
Stock issued
for interest $ 0 $ 0 $ 0 $ 0 $ 63,500
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<CAPTION>
Deficit
Common Accumulated
Stock Additional During the Prepaid Total
Par Paid-in Development Media Stockholders'
Shares Value Capital Stage Costs Deficit
<S> <C> <C> <C> <C> <C> <C>
August 24,
1989 (Inception)
through
Dec 31,1992
(Unaudited) 558,200 $ 56 $ 978,484 $(4,190,584)$ 0 $(3,212,044)
1993 *;
Issuance
of Common
Stock 1,368,675 137 42,199 0 0 42,336
Net Loss 0 0 0 ( 266,889) 0 ( 266,889)
1994 *;
Issuance
of Common
Stock 95,050 10 $ 1,892 0 0 1,902
Contributed
Capital 0 0 457,250 0 0 457,250
Net Loss 0 0 0 ( 638,160) 0 ( 638,160)
1995 *;
Issuance
of Common
Stock 140,575 14 107,834 0 0 107,848
Issuance
of Common
Stock as
non-refund-
able prepaid
interest 12,500 1 63,499 0 0 63,500
Reclassification
of redeemable
Common Stock 0 0 ( 400,000) 0 0 ( 400,000)
* - Not covered by accompanying Auditors' Report.
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<CAPTION>
Deficit
Common Accumulated
Stock Additional During the Prepaid Total
Par Paid-in Development Media Stockholders'
Shares Value Capital Stage Costs Deficit
<S> <C> <C> <C> <C> <C> <C>
Contributed
Capital 0 $ 0 $ 397,856 $ 0 $ 0 $ 397,856
Net Loss 0 0 ( 910,050)$ 0 ( 910,050)
Balance at
December
31, 1995 2,175,000 $218 $ 1,649,014 $(6,005,683)$ 0 $(4,356,451)
Net Loss 0 $ 0 $ 0 $( 238,686)$ 0 $( 238,686)
Balance at
December
31, 1996 2,175,000 $218 $ 1,649,014 $(6,244,369)$ 0 $(4,595,137)
Net Loss 0 $ 0 $ 0 $( 143,137)$ 0 $( 143,137)
Acquisition of
prepaid
media costs 32,500 3 396,087 0 (396,090) 0
Conversion of
liabilities 235,000 24 3,130,413 0 0 3,130,437
Contributed
capital 0 0 270,928 0 0 270,928
Surrender of
rights to
redeem common
Stock 0 0 400,000 0 0 400,000
Balance at
December 31,
1997 2,442,500 $245 $ 5,846,442 $(6,387,506)$(396,090) $( 936,909)
(Unaudited)
Net Loss 0 $ 0 $ 0 $( 198,298)$ 0 $( 198,298)
Deferred
financing
costs 0 0 250,000 0 0 250,000
Conversion of
liabilities 0 0 160,983 0 0 160,983
Balance at March
31, 1998 2,442,500 $245 $ 6,257,425 $(6,535,804)$(396,090) $( 724,224)
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-8
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF OPERATIONS, GOING CONCERN CONSIDERATIONS
(A) Organization
The Company was incorporated under the laws of the state of New York on
August 24, 1989.
(B) Nature of Operations
The Company was formed to provide commercial, passenger, cargo and mail
air transportation between New York and Russia.
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.
The Company currently maintains office space at J.F.K. Airport, New York.
(C) Going Concern Considerations
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern. However, the Company has not generated any
revenues and sustained substantial losses during the development stage since
its inception and has an accumulated deficit at March 31, 1998 and December 31,
1997 of $6,535,804 (unaudited) and $6,387,506, respectively.
The Company's ability to continue as a going concern is dependent on its
ability to raise sufficient capital and/or obtain sufficient financing, to be
used for the commencement of operations and the satisfaction of current
obligations and ultimately to achieve profitable operations.
If the Company is unable to raise sufficient capital and/or obtain
sufficient financing, such as described in Note 9 (D), Proposed Public
Offering, it is doubtful that it will be able to commence scheduled air line
service. Management believes that if it is able to commence operations it will
be able to generate operating revenues, which in its judgement, shall be
adequate to fund all current expenses and retire currently outstanding debt.
As of March 31, 1998 the Company has not yet commenced its scheduled air
line service.
2. ACCOUNTING POLICIES
(A) Cash and Equivalents
The Company considers cash and cash equivalents to be all short-term
investments which have an initial maturity of three months or less.
(B) Prepaid Media Costs
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
F-9
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(B) Prepaid Media Costs (Continued)
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.
(C) Property and Equipment
The cost of property and equipment is depreciated over the estimated use-
ful 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.
(D) Start-up Activities
On July 5, 1990, the Company filed an application for a Certificate of
Authority to engage in foreign scheduled air transportation between New York
and St. Petersburg, Russia.
On March 28, 1991, the U.S. Department of Transportation granted to the
Company an exclusive Route Authority to fly between New York and Russia. The
Order found the company to be fit, willing and able to conduct scheduled
passenger service. However, the Order stipulated that if scheduled passenger
service did not commence within one year from the date of the Fitness
determination, March 28, 1991, the Route Authority would be revoked.
On September 20, 1991, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through April 1, 1992.
On April 14, 1992, the U.S. Department of Transportation granted a further
extension of time to commence operations, through August 31, 1992.
On April 8, 1993, the Company again requested an extension of time to commence
operations however, the U.S. Department of Transportation denied
the request.
On August 14, 1995, the Company re-filed its application with the U.S.
Department of Transportation for the Certificate of Route Authority.
On January 22, 1996, the U.S. Department of Transportation issued an Order
F-10
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(D) Start-up Activities (Continued)
of Show Cause, whereby, they tentatively concluded that the Company is fit,
willing and able to provide scheduled air transportation between New York and
Russia and, should be issued a Certificate of Public Convenience and Necessity
authorizing such operations.
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.
(E) Income Taxes
Deferred income taxes arise from temporary differences between the recording of
assets and/or liabilities reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or non-current,
depending on the classification of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. To
the extent the total of deferred tax assets are not realized, a reserve is
established.
(F) Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
(G) Fair Value of Financial Instruments
The Company considers the carrying value of its financial instruments (cash and
liabilities) to approximate their fair value.
F-11
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY and EQUIPMENT
Property and equipment at March 31, 1998 (Unaudited) consisted of the
following;
Office equipment $ 12,586
Automobiles 23,441
Total 36,027
Less, accumulated depreciation ( 516)
Total Property and Equipment $ 35,511
Depreciation expense charged to operations for the (Unaudited) three months
ended March 31, 1998 and 1997 and the years ended December 31, 1997 and 1996
was $516, $0, $0 and $0, respectively.
The useful lives of property and equipment for purposes of computing
depreciation are;
Office equipment 5 - 7 years
Automobiles 5 years
4. DEFERRED FINANCING COSTS
(A) 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 three months ended March 31, 1998 (Unaudited) the Company charged
$50,000 to interest expense.
(B) Additional Bridge Loan
In June 1998, the Company anticipates borrowing $550,000, an "additional"
Bridge Loan (see Note 7) and in consideration plans to issue five-hundred fifty
thousand (550,000) 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.
5. RELATED PARTY TRANSACTIONS
The Company's legal counsel, Steffanie Lewis, of the International Business
Law Firm, P.C. owns 190,000 shares of common stock at December 31, 1997 or
approximately 7.78% of the Company's issued and outstanding common stock. Ms.
Lewis was issued 150,000 common shares in June 1997 in exchange for legal work
performed in connection with various certifications, authorities and financial
F-12
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (Continued)
matters. She was previously issued 40,000 of common shares in exchange for the
first six months preparation of the 1990 application to the Department of
Transportation for Air Line Fitness Certification.
For the period beginning January 1990 through December 31, 1997 the total legal
costs incurred in the amount of $1,760,062 were for legal work performed by
Steffanie Lewis for the Company in connection with various certifications,
authorities and financial matters.
Legal costs incurred and charged to professional fees for the (Unaudited)
three months ended March 31, 1998 and 1997 and the years ended December 31,
1997 and 1996 total $21,500 $0, $4,875, $2,100, respectively.
At March 31, 1998 and December 31, 1997 the account payable to this shareholder
totals $0 and $0, respectively.
On June 30, 1997, Steffanie Lewis was issued 150,000 common shares, as
negotiated with the management of the Company, in exchange for the total due to
her, in the amount of $1,628,432.
Legal costs associated with the proposed Public Offering, as described in Note
9 (D) totaling $150,000 have not been accrued and are only payable in the event
of a successful offering and shall be charged against the Offering proceeds.
Additionally, other current accounts payable to shareholders at March 31, 1998,
(unaudited) and December 31, 1997, total $38,318 and $65,318, respectively.
On June 23, 1997, Airline Economics International, Inc., a shareholder, was
issued 10,000 common shares, as negotiated with the management of the Company,
in exchange for the total due them, in the amount of $110,695.
See Note 6 relating to Other Liabilities to shareholders.
On June 23, 1997, Igor Dmitrowsky, President of the Company and a shareholder,
relinquished the amount due to him totaling $22,142. Accordingly, the Company
has recorded Contributed Capital in the amount of $22,142.
On March 30, 1998, various shareholders including Igor Dmitrowsky, President of
the Company relinquished the amounts due to them totaling $160,983.
Accordingly, the Company recorded Contributed Capital in the amount of
$160,983.
6. 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.
F-13
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. NOTES PAYABLE - STOCKHOLDERS (Continued)
Interest expense related to the above incurred for the (Unaudited) three months
ended March 31, 1998 and 1997 and the years ended December 31, 1997 and 1996,
totaled $0, $0, $0 and $68,120, respectively.
At March 31, 1998 (Unaudited) and December 31, 1997, interest expense related
to the above incurred since inception totals $321,168, $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.
7. 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 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. 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. (See Note 4)
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 1998, the Company anticipates borrowing $550,000, an "additional"
Bridge Loan, 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
F-14
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. NOTE PAYABLE
(B) Additional Bridge Loan (Continued)
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 fifty 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. 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. (See Note 4)
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.
8. 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.
9. STOCKHOLDERS' DEFICIT
(A) Stock Options
In 1992, the Company granted options to purchase 52,300 shares of common stock,
at $66.67 per share, to certain private investors. These options
F-15
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' DEFICIT (Continued)
(A) Stock Options (Continued)
expire upon the passing of thirty full calendar months after the Company has
made a public sale of securities in compliance with the Securities Act of 1933,
as amended, or the passing of twenty years from the date of said agreements,
whichever is earlier. As of March 31, 1998, no options have been exercised.
(B) Retirement of Stock
On November 4, 1992, the Company issued 12,500 shares of stock for $500,000 to
a private investor. On November 24, 1992, these shares were repurchased for
the same amount from the investor and subsequently retired.
(C) Reverse Stock Split
On August 24, 1995, the Board of Directors authorized and the majority of the
current shareholders ratified a ten for one reverse stock split of the
Company's $.0001 par value common stock.
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.
(D) Proposed Public Offering
In 1996 the Company had engaged an underwriter to underwrite the Company's
Initial Public Offering on a best-efforts basis. The Offering did not raise the
required minimum of $6,000,000 and was withdrawn. Subsequently, the Company
received an offer from Hornblower & Weeks, Inc. to underwrite the Company's
proposed Public Offering on a firm-commitment basis.
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, as is described in Note 10
(A) (2).
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.
F-16
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' DEFICIT (Continued)
(E) Stock Buy-Back Requirements
As of December 31, 1997 the Company was required to buy-back 25,000 shares at
$16 per share, from certain current investors, if in the event said investor
wanted to sell his/her common stock within the two (2) year Lock-up period and
was denied such a waiver by the Underwriter.
On June 23, 1997 all current investors with redemption options referred to
above surrendered their redemption options. Accordingly, the Company recorded
Additional Paid-in Capital in the amount of $400,000.
(F) Contributed Capital
The Company has recorded service contributions from certain key officers who
have worked for and on behalf of the Company. The service contribution amounts
have been calculated based on a normal rate of compensation, on either a full
or part time basis, as based on the number of hours worked by each individual.
The Company maintains no obligation, present or future, to pay or repay for
any and all service contributions received. Accordingly, the Company has not
recorded a liability for, accrued for, and/or accounted for any monetary
reserves in connection with the service contributions.
On June 23, 1997, certain of the Company's management relinquished the amount
due them for back-pay totaling $270,928. Accordingly, the Company has recorded
Contributed Capital in the amount of $270,928.
(G) Stock Issuance
The following schedule summarizes common shares issued for cash;
Year Number Range of
Issued of Shares Amounts Per Share
1989 250,000 $ 0.2000 to $ 0.2000
1990 136,300 $ 0.9766 to $ 20.0000
1991 32,700 $ 2.0000 to $ 20.0000
1992 139,200 $ 2.0000 to $ 20.0000
1993 1,368,675 $ 0.0040 to $ 20.0000
1994 95,050 $ 2.0000 to $ 20.0000
1995 140,575 $ 0.2000 to $ 15.7616
The following schedule summarizes common shares issued in non-cash
exchanges (See Notes 2 (B), 5 and 6).;
Year Number Range of
Issued of Shares Amounts Per Share
1995 12,500 $ 5.0800 to $ 5.0800
1997 267,500 $ 10.8562 to $ 18.2556
F-17
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
(A) Commitments
(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) three months ended March 31, 1998 and 1997 and years ended December
30, 1997 and 1996 totaled $9,600, $0, $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) three months
ended March 31, 1998 and 1997 and years ended December 30, 1997 and 1996
totaled $957, $273, $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 ten thousand ($10,000)
dollar non-refundable advance against the non-accountable expense allowance.
Upon filing
of the registration statement in connection with the proposed public offering,
the Underwriter shall receive an additional advance of forty thousand ($40,000)
dollars.
(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.
F-18
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(3) Line of Credit
On March 16, 1998, the Company was granted a credit line in the amount of
$6,200,000 through December 31, 1998, with a foreign bank. Monies are
available as follows;
(a) When the Company registers a subsidiary in the Republic of
Latvia, pursuant to local applicable regulations and, opens
an account with the bank.
(b) This credit facility cannot be utilized for primary funding of
capital investments.
(c) Terms of the borrowing's will be determined at the borrowing
date. Upon receipt of a written notice furnished by the Company.
Such notice must be received fourteen days (14) in advance of the
requested borrowing date.
(d) The interest rate will be between ten (10) to fourteen (14) percent
per annum.
(B) Contingencies
(1) Scandinavian Airline Systems
The Company will be liable to Scandinavian Airline Systems (SAS), for expenses
incurred by SAS on behalf of the Company should the Company eventually purchase
an aircraft from SAS.
In 1992, the Company forwarded a deposit to SAS for the purchase of a Boeing
767 aircraft, which the Company has since forfeited. SAS incurred costs
totaling $114,000 beyond the initial deposits for the preparation of the
aircraft for the delivery and subsequent demodification back to SAS upon the
Company's failure to obtain financing. SAS has agreed to collect these amounts
at the time of any aircraft sale to the Company should such a sale occur.
Should no sale occur, the Company will not be liable to SAS for the $114,000
(2) Transaction Management, Inc.
On October 11, 1991, the Company was required by an arbitrator to pay
Transaction Management, Inc. (TMI) an unspecified "finders fee". The Company
refused to pay TMI and on December 1994 filed a motion to Reconsider, citing 17
substantial errors In Fact, in the prior court's Order.
On November 2, 1995, the court ordered that the Company's motion for
Reconsideration be denied.
In October 1996 the Federal Court of Appeals of the District of Columbia
released the Company from all TMI threat of liability and dismissed the case.
F-19
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(B) Contingencies (Continued)
(3) Subscribers' Flight Coupon - Proposed Public Offering
At the closing, the Company will issue Flight Coupons to the subscribers in
its proposed Public Offering. For each 1,500 shares of common stock purchased,
the subscriber receives on Flight Coupon. One Flight Coupon plus $650 will
purchase two (2) Voyager Class round- trip tickets. Two (2) Flight Coupons
plus $650 will purchase two (2) Business Class round-trip tickets. Three (3)
flight Coupons plus $650 will purchase two (2) First Class round-trip tickets.
An estimate of the value of such a commitment by the Company cannot be
determined at this time. However, upon completion of the proposed Public
Offering, the Company will record deferred revenues and offset its costs of
rasing capital for all Subscribers' Flight Coupons issued.
(4) Compensation
The Board of Directors approves salaries for the Company's executive officers
as well as the Company's overall salary structure. For year one following the
closing of the proposed Public Offering, the rate of compensation for the
Company's executive officers is: (i) President $186,000, (ii) Vice-President
Marketing $82,000, and (iii) Vice-President Europe $68,000. Pursuant to
written agreement, during the 90-day period commencing once the offering
proceeds are released to the Company from the escrow account, the President and
the Vice Presidents will receive compensation reduced to an amount equal to 50%
of budgeted salaries. Upon commencement of flight services 100% of respective
budgeted salaries will be paid. To this date, the Company has paid officers no
salaries, nor otherwise have compensated officers. Board Directors are not
presently compensated and shall receive no compensation prior to commencement
of revenue service.
The following table identifies executive compensation to be paid. No executive
salaries have been paid to date and reduced salaries will not commence until
proceeds are available from the proposed Public Offering closes.
Name Position Salary
Igor Dmitrowsky President $186,000
Brian Glynn Vice-President Marketing 82,000
Andris Rukmanis Vice-President Europe 68,000
Inasmuch as the Company does not provide written individual contracts with its
personnel, for clarification purposes, the executives' agreement for the
temporarily reduced salaries was documented.
F-20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K. Refer to exhibits on file with
the Securities and Exchange Commission in conjunction with SB-2
Registration Statement No. 333-37409 incorporated herein.
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: _________________________________________
By: Igor Dmitrowsky, President
Date: _________________________________________
By: Walter Kaplinsky, Secretary
