UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Mark One
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[ X ]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the Fiscal Year ended December 31, 2013
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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BALTIA AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK
(State of Incorporation)
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11-2989648
(IRS Employer Identification No.)
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JFK International Airport,
Building 151, Jamaica, NY
11430
(Address of principal executive offices)
(718) 244 8880
(Registrant's telephone number, including area code)
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Title of each class
-None-
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Name of each Exchange on which registered
-None-
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Securities Registered pursuant to Section 12(g) of the Exchange Act:
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Common Stock,
(Title of Class)
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$.0001 Par Value
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Indicate by check mark if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [ ] - - No [X]
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes [ ] - - No [X]
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Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] - - No [ ]
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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 definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer [ ]
Non-accelerated filer [ ]
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Accelerated filer [ ]
Smaller reporting company [X]
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Indicate by check mark whether the Registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act of 1934). Yes [ ] No [X]
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The aggregate market value of the voting common equity
held by non-affiliates as of December 31, 2013 is
$20,757,704.
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The number of shares of the registrant's common stock
outstanding as of March 31, 2014
was 3,599,981,650
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TABLE OF CONTENTS
PART 1
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Item 1.
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Business
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Item 1A.
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Risk Factors
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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PART II
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Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Item 6.
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Selected Financial Information
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Item 7.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 8.
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Financial Statement Supplementary Data
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Item 9.
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Changes in and Disagreements with Accountants on Accounting And
Financial Disclosures
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Item 9A
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Controls and Procedures
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Item 9B
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Other Information - Required FD Disclosure of Nonpublic Material Information
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PART III
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Item 10.
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Directors and Executive Officers of the Registrant
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Item 11.
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Executive Compensation
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Item 12.
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Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions
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Item 14.
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Principal Accountant Fees and Services
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PART IV
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Item 15.
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Financial Statements and Other Exhibits
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PART
I
Item
1. Business.
Baltia Air Lines, Inc. (the
"Company" or "Baltia" or "Baltia Air Lines") is a Part 121
(heavy jet operator) start-up United States airline with
Government fitness approval and is currently conducting the
FAA Air Carrier Certification. Upon completion of the Air
Carrier Certification, Baltia will 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.Baltia Air Lines, Inc. was organized in the
State of New York on August 24, 1989.
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 International Airport, New York, New York to Pulkovo
International Airport, St. Petersburg Russia. Baltia was also
authorized for worldwide charter services. Baltia had filed
its application with the DOT in October 2007.
On March 20, 2009 the DOT
awarded Baltia Air Lines its initial frequencies for flights
from JFK to St. Petersburg.
In the last quarter of 2010,
we purchased a Boeing 747 aircraft from Kalitta
Air.
Baltia carries $500,000,000
aircraft liability insurance, and has placed $1.2 billion
airline liability insurance through JLT Aerospace meeting the
regulatory requirement in preparation for the commencement of
revenue service. The Company will carry airline liability
insurance as required for a US airline by DOT
regulation.
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 intends to provide
full service, i.e. passenger, cargo and mail. 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 Swiss International 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 two Russian airlines, Aeroflot and
Transaero, 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 intends to apply.
Baltia's objective is to
establish itself as the leading non-stop carrier in the
market niche over the North Atlantic with operations with
profitable growth 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.
Because of the increased
reliability and comfort of a non-stop flight, Baltia expects
to capture a portion of the existing traffic.
With the Boeing 747
wide-body aircraft Baltia intends to provide cargo service
from JFK to St. Petersburg, offering containers, pallets, and
block space arrangements. Baltia expects to carry contract
cargo for express shippers. Baltia also plans to market its
own "Baltia Courier", "Baltia Express", and "Baltia Priority"
express service for letters and packages. Baltia also expects
revenues from diplomatic mail and cargo, under the Fly
America Act.
Baltia has passenger service
and ground service arrangements at JFK and at Pulkovo II
Airport in St. Petersburg. As a US carrier flying into a
foreign country, Baltia will be eligible to the same degree
of priority that a foreign carrier receives when arriving in
the US.
Baltia intends to start the
JFK-St. Petersburg service with one round- trip flight per
week, then increase the frequency to three round trips, and
then to five round trips.
Baltia plans to build
operating modules and apply them in developing new markets.
Once established, Baltia plans to duplicate its JFK-St.
Petersburg standards on flights on other transatlantic
routes.
Additional revenues from
charter flying. Concurrently with its Part 121 air
carrier certification ("Part 121") for scheduled service,
Baltia is certifying for world wide charter service. Baltia
plans to utilize aircraft time available between scheduled
service, to earn additional revenues from charters. We may
also qualify our aircraft for military contracts.
As of December 31, 2013,
Baltia's staff of thirty-one includes professionals who have
extensive major US airline experience in aircraft
maintenance, airline operations, airline regulatory
compliance, reservation, info technology, passenger service,
and administration.
Item
1A. Risk Factors.
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information
under this item.
Item
1B. Unresolved Staff Comments.
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information
under this item.
Item
2. Properties.
The Company rents space at
Concourse A, Terminal 4, JFK International Airport and has
headquarters at Building 151, JFK Airport. Baltia has an
office space in Pulkovo Airport, St. Petersburg, Russia. In
addition, in 2012, Baltia opened its operations office in at
Willow Run Airport, Ypsilanti, Michigan.
Item
3. Legal Proceedings.
None.
Item 4. Reserved
PART
II.
Item
5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The following table sets
forth the high and low sales prices, as quoted by the OTCBB,
for our common stock for each quarter during our two most
recent fiscal years ended December 31, 2012 and 2013. These
quotations reflect inter-dealers prices, without retail
mark-ups, mark-downs or commissions, and may not represent
actual transactions.
Fiscal Quarter
Ended
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High
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Low
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March 31, 2012
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.05
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.03
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June 30, 2012
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.04
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.01
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September 30,
2012
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.04
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.01
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December 31,
2012
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.04
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.01
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March 31, 2013
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.04
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.01
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June 30,2013
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.03
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.02
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September 30,
2013
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.02
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.01
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December 31,
2013
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.02
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.01
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The Company currently
estimates that there are more than 1000 holders of record of
its common stock. Given its continuing need to retain any
earnings to fund its future operations and desired growth,
the Company has not declared or paid, nor does it currently
anticipate declaring or paying for the foreseeable future,
any dividends on the Company's common stock.
Baltia currently has no equity purchase plan,
written purchase, savings, option, bonus, appreciation,
profit sharing, thrift, incentive, or pension.
Item 6. Selected Financial Information.
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information
under this item.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Statements in this discussion 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
The Company was organized in
the State of New York on August 24, 1989. Its objective is to
provide scheduled air transportation from the U.S. to Russia,
and former Soviet Union countries.
Baltia is currently in Phase
II of the FAA Air Carrier Certification process. 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.
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 subject to registration.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a minimum cash balance available for payment of ongoing operating expenses, which would allow it to cover its operational costs, and it has incurred operating losses and experienced negative cash flows from operations since inception. The Company has funded its activities through December 31, 2013 almost exclusively from debt and equity financings. For the years ended December 31, 2013 and 2012, the Company raised approximately $4.1 and $3.6 million, respectively, from private placements, funds needed to continue with the certification process, a process that must be completed before it can launch nonstop revenue service from JFK to St Petersburg, Russia with its747 aircraft. In addition to raising funds from private placements, the Company supplemented the financing of its ongoing operations through the issuance of common stock to pay certain operating expenses.
The Company's operational success may be dependent upon its timely procuring significant external debt and/or equity financing to fund its immediate and nearer-term operations, and subsequently realizing operating cash flows from ticket sales sufficient to sustain its longer-term operations and growth initiatives.
PLAN OF OPERATION
In order to meet its ongoing operating cash requirements, management's plans include financing activities such as private placements of its common stock and the continued issuance of common stock for services rendered by vendors, consultants, and other professionals. As indicated above, we continued to finance our operations through the issuance of our common stock during 2013 and 2012. Until revenue operations begin, our monthly expenditures for administrative and regulatory compliance can be controlled at about $350,000-$500,000. At the time flight service is inaugurated, the Company plans to employee approximately 20 management and 45 staff personnel.
While the Company believes it will be successful in obtaining the necessary financing to fund its operations, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund operations
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis
of our financial condition and results of operations are
based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted
in the U.S. The preparation of our financial statements
requires us to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Our estimates, judgments and
assumptions are continually re-evaluated based upon available
information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results
could differ from those estimates. Areas in which significant
judgment and estimates are used include, but are not limited
to, valuation of long-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
The Company complies with
FASB ASC Topic 718
Compensation - Stock Compensation,
which
establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity
incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity
instruments. FASB ASC Topic 718 focuses primarily on
accounting for transactions in which an entity obtains
employee services in share-based payment transactions. FASB
ASC Topic 718 requires an entity to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be
recognized over the period during which
an employee is required to provide service in exchange for
the award the requisite service period (usually the vesting
period). No compensation costs are recognized for equity
instruments for which employees do not render the requisite
service. The grant-date fair value of employee share options
and similar instruments will be estimated using
option-pricing models adjusted for the unique characteristics
of those instruments (unless observable market prices for the
same or similar instruments are available). If an equity
award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to
the excess of the fair value of the modified award over the
fair value of the original award immediately before the
modification.
Our primary type of share-based compensation consists of stock-based awards. We use the fair value method in accordance with ASC 718. We also may use stock options. We use the Black-Scholes option pricing model in valuing options. No stock options were issued during the year ended December 31, 2013. All outstanding stock options were canceled in 2012.
Income taxes
Income taxes are recorded in accordance with ASC Topic 740,
Accounting for Income Taxes
("ASC 740"), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
The determination of the Company's provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the Company's financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.
In accordance with GAAP, The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months
Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2010.
RESULTS OF OPERATIONS
We had no revenues during
the fiscal years ended December 31, 2013 and 2012, because
(1) we did not fly aircraft in passenger, charter, or freight
service, and (2) we could not sell tickets for those
services.
For the years ended December 31, 2013 and 2012, general and administrative expenses were $5,910,517 and $11,125,526, respectively, a decrease of $5,215,009, or 47%. This decrease resulted from the reduction in general and administrative costs incurred in connection with air carrier certification.
FAA certification costs increased $192,92 (31%) for the year ended December 31, 2013 from $622,062 reported for the year ended December 31, 2012. This increase resulted from the additional costs incurred for FAA certification activities incurred in connection the air certification process.
Primarily as a result of air carrier certification activities, we reported net losses of $6,868,196 and $13,623,873 for the years ended December 31, 2013 and 2012, respectively, a decrease of $6,755,677, or 50%, which includes a loss of approximately 1.6 million in the sale of a B747 aircraft, replaced by Company's current aircraft purchased in 2010. This decrease is primarily attributable to the $5,215,009 decrease in general and administrative expenses, a $126,956 decrease in interest expense, and a $1,607,183 decrease in loss on the sale of an asset, partially offset by the increase in FAA certification costs of $192,920.
Our future ability to
achieve profitability in any given future fiscal period
remains highly contingent upon our beginning flight
operations. Our ability to realize revenue from flight
operations in any given future fiscal period remains highly
contingent upon our obtaining significant equity infusions
and/or long-term debt financing sufficient to fund initial
operations. Even if we were to be successful in procuring
such funding, there can be no assurance that we will be
successful in commencing revenue operations or, if commenced,
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 December 31, 2013, we had cash of $11,549, decrease of $777 from the cash balance of $12,326 reported at December 31,2012. At December 31, 2013, our stockholders' deficit was $302,528, a decrease of $449,715 from the stockholders' equity balance of $147,187 reported at December 31, 2012.
Our operating activities utilized $4,093,273 in cash during the fiscal year ended December 31, 2013, an increase of $410,208 from the $3,683,065 in cash utilized during the fiscal year ended December 31, 2012.
Our financing activities provided $4,132,514 and $3,626,882 in cash during the fiscal year ended December 31, 2013 and 2012, respectively.
We had no significant planned capital expenditures, budgeted or otherwise, as of December 31, 2013, except for an investment of approximately $100,000 in office equipment this year and continuous support in air carrier certification activities.
Off-Balance Sheet Arrangements: We do not have any off-balance sheet arrangements which have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information
under this item.
Item
8. Financial Statement Supplementary Data.
None.
Item 9. Changes in and Disagreements with Accountants on Accounting And Financial Disclosures
As reported by Form 8-K filed April 14, 2014, the Company changed its certifying accountant as the prior certifying auditor withdrew due to time constraints created by the Company.
Item 9A(T). Controls and Procedures.
Evaluation of Disclosure
Controls and Procedures. As of the end of the period covered
by this report, we conducted an evaluation under the
supervision and with the participation of our chief executive
and financial officer of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) of the Exchange Act). Based upon this
evaluation, our chief executive and financial
officer concluded that our disclosure controls and procedures
are effective to ensure 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.
Management's Annual Report
on Internal Control over Financial Reporting. Our management
is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act). Our internal control over
financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes of accounting principles generally accepted
in the United States.
Because of its inherent
limitations, internal control over financial reporting may
not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only
reasonable assurance of achieving their control
objectives.
Our management evaluated the
effectiveness of our internal control over financial
reporting as of December 31, 2013. Based on this
evaluation, our management concluded that, as of December 31,
2013, our internal control over financial reporting was
effective.
This annual report does not
include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation
by our registered public accounting firm pursuant to
temporary rules of the SEC that permit the company to provide
only management's report in this annual report.
Changes in Internal Control
Over Financial Reporting. There was no change in our internal
controls or in other factors that could affect these controls
during our last fiscal quarter 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.
Item 9B. Other Information.
None.
PART III
Item 10. Directors and Executive Officers of the
Registrant.
The following table
summarizes certain information with respect to the executive
officers and directors of the board :
Name
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Age
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Position
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Igor Dmitrowsky
|
58
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President, CEO, CFO,
Chairman of the Board
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Russell Thal
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79
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Executive Vice President
|
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Barry Clare
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55
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Vice President Finance
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Walter Kaplinsky
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76
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Secretary, Director
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Andris Rukmanis
|
52
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Vice President Europe, Director
|
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Vick Luis Bolanos
|
54
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Director
|
|
Our directors serve until
the next annual meeting and until their successors are
elected and qualified. Our officers are appointed to serve
for one year until the meeting of the board of directors
following the annual meeting of stockholders and until their
successors have been elected and qualified. There are no
family relationships between any of our directors or
officers.
A. Board of Directors:
Igor Dmitrowsky
Igor Dmitrowsky, chairman
and president, chief executive officer and CFO, founded the
Company in August 24, 1989. Guiding, directing and
maintaining daily operations of the Company has been his
full-time occupation and executive profession throughout the
years. Prior to founding Baltia Air Lines, Inc., in 1979, Mr.
Dmitrowsky immigrated from Latvia, learned the English
language, attended a U.S. university in engineering and business,
founded American Kefir Corporation, a dairy distribution
company, which completed a public offering in 1986 and from
which he retired in 1987 and became a U.S. citizen. As a
hobby, he designed and began construction of a personal flying
machine, became a pilot, and pursued an interest in
securities.
Mr. Dmitrowsky has the language, culture and social skills
necessary to structure a business involving both the United
States and Russia. His engineering and business education as
well as the above-stated experience enables him to manage the
various aspects of an international airline.
No organization to which Mr.
Dmitrowsky has been associated is a parent, subsidiary or
other affiliate of Baltia Air Lines.
Walter Kaplinsky
Walter Kaplinsky, director
and corporate secretary since 1993, has been a retired
engineer for the past six years, contributing his time to the
Company. Together with Mr. Dmitrowsky, Mr. Kaplinsky was a
co-founder of American Kefir Corporation, where he served
full-time professionally as secretary and vice president. As
an emigre from Russia, he has substantial knowledge of the
culture which will be the primary destination of the
Company.
Mr. Kaplinsky has knowledge of the Company business operations
and efforts, collaborating in the development of the Company
business plan since inception, through its earlier efforts to
commence operations and to date. In exercising the functions
of a corporate secretary, he served the Company diligently
over many years, and provides institutional memory and
experience with the problems and powers of the corporate
structure.
No organization to which Mr. Kaplinsky has been
associated is a parent, subsidiary or
other affiliate of Baltia Air Lines.
Andris Rukmanis
Andris Rukmanis, director
and vice president Europe, is and has been for more than
twenty years a full-time qualified licensed attorney in
Latvia, specializing in business law, and has been a Director
of the Company since 1990. From 1988 through 1989, he was
Senior Legal Counsel for the Town of Adazhi in Riga County,
Latvia. From 1989 to 1990, he served as Deputy Mayor of
Adazhi.
Mr. Rukmanis has the political experience, legal education, and
language as well as cultural skills that were needed by the
Company in light of the Baltia's initial market in Europe
and previously Soviet-controlled countries.
No organization to which Mr.
Rukmanis has been associated is a parent, subsidiary or other
affiliate of Baltia Air Lines.
Vick Luis
Bolanos
Vick Luis Bolanos, has
served as director since 2009. Mr. Bolanos is, and has been
since 1992, full-time president of Eastern Construction &
Electric, Inc. Since May 2005, Eastern has been the
Simplified Acquisition Base Engineering Requirements ("SABER")
contractor. The USAF uses the SABER contractor to fulfill
engineering requirements on a variety of projects, ranging
from small renovations to large scale infrastructure needs
involving pipelines, electrical substations, and life safety
issues. Eastern is also working on McGuire AFB for the Corps
of Engineers under a Basic Agreement to both design and build
or install several projects and is currently working for the
Air Force at Willow Grove Air Station and a Task Order
Contract at Fort Monmouth, New Jersey.
Mr. Bolanos has the specific experience of developing a company
from the start as an 8a set-aside business. He understands managing large projects
to produce growth and profit. He is familiar with working
with government agencies and has specific experience working
projects in the aviation field. These skills are critical to
the Company in light of Baltia's being a start-up company in
aviation with the need to initiate and bring to fruition many
projects to enable the Company to grow profitably.
No organization to which Mr.
Bolanos has been associated is a parent, subsidiary or other
affiliate of Baltia Air Lines.
B. Executive Officers In
Addition to Mr. Dmitrowsky, Mr. Kaplinsky, and Mr. Rukmanis:
Russell Thal
Russell Thal, executive vice
president, joined the Company in year 2000 and his full-time
occupation has been as executive vice president of the
Company where he has maintained his executive profession. In
1958, he left the US Army and entered the civilian human
relations field. In 1964, he joined Seaboard World Airlines as
personnel manager. Soon was moved to Director of Crew
Scheduling and Dispatch and finished as interface with
Military Airlift Command for Seaboard. From 1980 to 1981 he
was Director of Stations with responsibility for hiring and
outfitting all stations for the start-up New York Air. In
1981, Mr. Thal started Compuflight, Inc., and served as
president and chairman until he retired in 2001. Compuflight
provided both flight planning and engineering services to the
airline industry.
Mr. Thal has the specific experience in airline operations and
management to assist Baltia president Igor Dmitrowsky. He
functions as head of human resources, and purchasing manager, and provides
management services required by the Company. Mr. Thal's
experience and skill is particularly needed as Baltia is
starting up. A limited number of people are required with
skills in many fields.
No organization to which Mr.
Thal has been associated is a parent, subsidiary or other
affiliate of Baltia Air Lines, Inc.
Barry Clare
Barry Clare, vice president of finance, joined the Company in 2006 and it has been his
full-time occupation and profession for the past five years.
From 2004 to 2006 Mr. Clare owned his own business as a
full-time and profession investment banker. From 2001 to 2004,
Mr. Clare had been chief operating officer for Advance Plant
Pharmaceuticals, Inc. From 1995 to 1996, Mr. Clare served as
vice president of Intermediaries, Inc., an investment banking
firm.
Mr. Clare has the specific experience in raising capital that has
been absolutely critical to the Company's being able to
purchase aircraft, hire specialized experts for pursuing
certifications, to enlarge the staff and physical workplace,
create and maintain a station in St. Petersburg, Russia, and
support the extensive travel required to prepare for commencing
international scheduled flights. All this has been maintained
financially over the past five years with zero operating
revenue.
No organization to which Mr. Clare has been associated is a
parent, subsidiary or other affiliate of Baltia Air Lines, Inc.
C. Nominations for Director:
Baltia Air Lines, Inc., has
had only one recent nomination for director, Vick Luis
Bolanos, who was nominated and chosen as a director in 2009
because Baltia sought someone with the skills stated above.
The Baltia has four Board members. Each has direct access to
others and "hands on" opportunities to advance the Company.
Mr. Bolanos was unanimously selected to replace the retiring
Board member because he brought insight, experience, and
skills that had enabled him to bring Eastern Construction
& Electric, Inc. from inception to a large company
operating in several geographic locations. Similar to the
operations which Mr. Bolanos has been a part of, Baltia is a
start-up with plans to become a large company with stations
in Russia and in several former Soviet controlled
countries.
Item 11. Executive Compensation.
No base salary has been paid to our executive officers during the fiscal years ended
December 31, 2013 and 2012.
During the fiscal year ended December 31, 2013, no executive options were granted.
During the fiscal year ended December 31, 2013, no executive stock options were
exercised.
In 2013, the Company issued a total of 19,000,000 of its $.0001 par value common stock to an
executive officer and a member of the board of directors. These shares were awarded as bonus fully earned and non-assessable, and containing no future earned performance or forfeiture requirements. Of this, 19,000,000 total, 18,000,000 of the shares, valued at $180,000 were issued to the Company's president and CEO, Igor Dmitrowsky.
During the year ended December 31, 2012, the Company issued 194,000,000 shares of its $.0001 par value common stock to its executive officers; the shares were recorded at fair value and were awarded as bonus fully earned and non-assessable, and containing no future earned performance of forfeiture requirements. Of this 194,000,000 total, 140,000,000 of the shares, valued at $3,220,000, were issued to Igor Dmitrowsky, president and CEO
SUMMARY COMPENSATION TABLE
Name & Principal
Position
|
Year
|
Bonus
|
Stock
Awards*
|
Option
Awards*
|
Non-Equity
Incentive Plan
Compensation
Earnings
|
Change in Pension
Value and
Non-qualified
Incentive Plan
Compensation
|
All Other
Compensation**
|
Total
|
Igor Dmitrowsky
President, CEO
|
2013
2012
|
$ 0
0
|
$ 180,000
3,888,000
|
$ 0
0
|
$ 0
0
|
$ 0
0
|
$ 27,853
50,957
|
$ 207,853
3,938,957
|
Barry Clare
Vice-President
|
2013
2012
|
0
0
|
16,200
858,000
|
0
0
|
0
0
|
0
0
|
443,550
198,285
|
427,350
1,056,285
|
Russell Thal
Vice-President
|
2013
2012
|
0
0
|
0
289,000
|
0
0
|
0
0
|
0
0
|
46,500
30,500
|
46,500
319,500
|
Walter Kaplinsky
Secretary
|
2013
2012
|
0
0
|
0
76,000
|
0
0
|
0
0
|
0
0
|
15,800
15,960
|
15,800
235,600
|
Andris Rukmanis
VP, Europe
|
2013
2012
|
0
0
|
0
20,000
|
0
0
|
0
0
|
0
0
|
0
0
|
0
20,000
|
* These columns represent
the grant date fair value of the awards as calculated in
accordance with FASB ASC Topic 718,
Compensation
– Stock Compensation.
The fair value of these equity awards on the date of grant was approximately
$196,200 and $7,686,586 for stock awards for the years ended December 31, 2013 and 2012, respectively .
** Mr. Dmitrowsky was charged additional compensation of $15,000 and $15,000, which represents one-hundred percent of the rent the Company paid for its original corporate headquarters during the years ended December 31, 2013 and 2012, respectively. In addition, during the years ended December 31, 2013 and 2012, Mr. Dmitrowsky received other compensation of $12,853 and $35,957 respectively for services provided to the Company in lieu of salary.
** Mr. Clare was paid additional compensation of $427,350 and $198,285 for the years ended December 31, 2013 and 2012, respectively, which represents amounts paid him for negotiating services in connection with the raise of new equity capital.
** Russell Thal was paid additional compensation of $46,500 and $30,500 for services provided the Company during the years ended December 31, 2013 and 2012.
** Mr. Kaplinsky was paid additional compensation of $15,800 and $15,960 for services provided the Company during the years ended December 31, 2013 and 2012.
EMPLOYMENT AGREEMENTS
The Company has no
individual employment agreements with any of its executive
officers or employees.
Future Compensation of
Executive Officers
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 financing sufficient to commence flight operations, the rate of compensation for the Company's executive officers is expected to be: president $198,000, executive vice president $130,000, vice president-finance $120,000, vice president marketing $110,000,and vice president-Europe $90,000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
As of December 31, 2013, there were 3,296,126,988 shares of common stock, par value $0.0001 outstanding. The following table sets forth, as of December 31, 2013, the ownership of the Company's Common Stock by (i) each director and officers of the Company, (ii) all executive officers and directors of the Company as a group, and (iii) all other persons known to the Company to own more than 5% of the Company's Common Stock. Each person named in the table has or shares voting and investment power with respect to all shares shown as beneficially owned by such person.
Directors and
Officers
|
Common Shares
Beneficially Owned
|
Percent of Total
Outstanding, %
|
Igor Dmitrowsky
63-26
Saunders St., Suite 7-I
Rego Park, NY 11374
|
797,662,766
|
24.20
|
Russell Thal
26 Ridge
Drive
Port Washington, NY 11050
|
26,850,000
|
0.82
|
Barry Clare
4319 215th St.
Bayside, NY 11361
|
115,849,998
|
3.52
|
Vick Luis Bolanos
633 Monroe St.
Riverside, NJ 08075
|
258,025,001
|
7.83
|
Walter Kaplinsky
2000
Quentin Rd.
Brooklyn, NY 11229
|
15,500,000
|
0.47
|
Andris Rukmanis
Kundzinsala,
8 Linija 9.
Riga, Latvia LV-1005
|
6,468,750
|
0.19
|
Shares of all
directors and executive officers as a group (6
persons)
|
1,220,356,515
|
37.02
|
Item 13. Certain Relationships and Related Transactions.
Mr. Vick Luis Bolanos was elected to the Baltia board of directors while he was, and remains, president and chairman of Eastern Construction & Electric, Inc. The transaction between Baltia and Eastern was made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender; and did not involve more than the normal risk of collectibility or present other unfavorable features. This transaction is discussed further in Note 7 to the Financial Statements infra.
The principal of $1.150 million remained outstanding during 2012 and accrued interest of $215,625 was outstanding as of December 31, 2013. By agreement of Parties, no interest was paid in 2012, and the rate of interest is 9% per annum. An amended agreement was concluded and submitted in Company's 10-Q filing for 3rd quarter 2013, filed November 19, 2013, Exhibit 10.18 therein.
Item 14. Principal Accountant Fees and Services.
In 2012 and 2011 the Company paid its independent accountant $7,000 for services in providing an audit of the previous year. In 2013, the Company paid $11,500 for audit services. All other Company accounting and tax preparations have been done in-house.
PART IV.
Item
15. Exhibits and Financial Statements.
APPENDIX
A - Financial Statements for the Years Ended December 31,
2013 ad 2012
Report of Independent Registered Accounting firm
|
F-1
|
Balance Sheet as of December 31, 2013 and 2012
|
F-2
|
Statement of Operations for the years ended December 31, 2013 and
2012, and the period August 29, 1989 (inception) to December 31, 2013
|
F-3
|
Statement of Changes of Stockholders' Equity for the years ended
December 31, 2008 through 2013
|
F-4
|
Statement of Cash Flows for the years ended December 31, 2013 and 2012,
and the period August 9, 1989 (inception) to December 31, 2013
|
F-5
|
Notes to Financial Statements
|
F-6 to F-14
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Years Ended December 31, 2013 and
2012
Board of Directors and
Shareholders
Baltia Air Lines, Inc.
New York, NY
I have audited the accompanying consolidated balance sheets of Baltia Air Lines, Inc. and its subsidiaries (the "Company") as of December 31, 2013 and 2012 and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2013 and 2012. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were I engaged to perform, an audit of its internal control over financial reporting. my audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for the years ended December 31, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 of the financial statements, the Company has incurred a deficit during its development stage of approximately $95 million and consumed approximately $29 million of cash due to its operating activities. The Company may not have adequate readily available resources to fund operations through December 31, 2014. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty
/s/
Terry L. Johnson, CPA
Casselberry, Florida 32707
April 15, 2014
F-1
Baltia Air Lines, Inc.
(A Development Stage Company)
BALANCE SHEETS
|
December
31,
|
|
2013
|
2012
|
|
|
ASSETS
|
|
|
Current assets
|
|
|
|
Cash
|
$ 11,549
|
$ 12,326
|
|
|
Total current assets
|
11,549
|
12,326
|
|
Property
and equipment, net
|
1,794,486
|
1,807,456
|
|
Other assets:
|
|
|
|
Security deposit and other
|
317,293
|
317,293
|
|
|
Total assets
|
$ 2,123,328
|
$ 2,137,075
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued expenses
|
$ 621,208
|
$ 587,763
|
|
|
Accrued interest
|
319,125
|
215,625
|
|
|
Total current liabilities
|
940,333
|
803,388
|
|
Noncurrent liabilities
|
|
|
|
Long-term debt, net of discount
|
$ 1,150,000
|
$ 1,186,500
|
|
|
Long-term accounts payable and accrued expenses
|
335,523
|
-
|
|
|
Total noncurrent liabilities
|
1,485,523
|
1,186,500
|
|
|
Total liabilities
|
2,425,856
|
1,989,888
|
|
Stockholders' equity (deficit)
|
|
|
|
Preferred stock, $0.01 par value; 2,000,000 shares
authorized, 66,500 issued and outstanding
|
665
|
665
|
|
|
Common stock, $.0001 par value; 3,986,000,000 shares
authorized, 3,296,126,988 and 2,466,538,050 issued and
outstanding at December 31, 2013 and 2012, respectively
|
329,612
|
246,654
|
|
|
Additional paid-in capital
|
94,507,702
|
88,172,179
|
|
|
Deficit accumulated during development stage
|
(95,140,507)
|
(88,272,311)
|
|
|
Total stockholders' equity (deficit)
|
(302,528)
|
147,187
|
|
|
Total liabilities and stockholders' equity (deficit)
|
$ 2,123,328
|
$ 2,137,075
|
The accompanying footnotes are an integral part of these financial statements.
F-2
Baltia Air Lines, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
December 31,
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
|
|
$ -
|
|
$ -
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
5,910,517
|
|
11,125,526
|
|
86,685,412
|
|
|
|
FAA certification costs
|
|
814,982
|
|
622,062
|
|
3,961,191
|
|
|
|
Training
|
|
-
|
|
-
|
|
225,637
|
|
|
|
Depreciation
|
|
16,488
|
|
15,000
|
|
386,428
|
|
|
|
Other
|
|
-
|
|
-
|
|
568,245
|
|
|
|
Interest
|
|
122,609
|
|
249,565
|
|
1,683,393
|
|
|
|
Loss on sale of assets
|
|
-
|
|
1,607,183
|
|
1,607,183
|
|
|
|
Total
costs and expenses
|
|
6,864,596
|
|
13,619,336
|
|
95,117,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
(6,864,596)
|
|
(13,619,336)
|
|
(95,117,489)
|
|
|
|
provision
for income taxes
|
|
3,600
|
|
4,537
|
|
23,018
|
|
|
Deficit
accumulated during development stage
|
|
$ (6,868,196)
|
|
$ (13,623,873)
|
|
$ (95,140,507)
|
|
|
Net loss per weighted share,
basic and fully diluted
|
|
$ (0.00)
|
|
$ (0.01)
|
|
|
|
|
|
Weighted
average number of common shares
outstanding, basic and fully diluted
|
2,984,068,462
|
|
2,295,011,425
|
The accompanying footnotes are an integral part of these financial statements.
F-3
Baltia Air Lines, Inc.
(A Development Stage Company)
STATEMENT
OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Total
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
(Unaudited)
|
66,500
|
$ 665
|
355,767,159
|
$ 35,577
|
$ 18,716,994
|
$ (18,002,863)
|
$ 750,375
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants and options
|
|
|
32,000,000
|
3,200
|
|
|
3,200
|
|
Shares
issued and issuable for cash
|
|
|
154,034,244
|
15,403
|
3,686,497
|
|
3,701,900
|
|
Shares
issued for services
|
|
|
200,778,636
|
20,078
|
9,430,413
|
|
9,450,491
|
|
Options
issued for services
|
|
|
|
|
243,787
|
|
243,787
|
|
Stock
issued to purchase airplane
|
|
|
1,000,000
|
100
|
24,900
|
|
25,000
|
|
Net
loss
|
|
|
|
|
|
(12,175,550)
|
(12,175,550)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
66,500
|
665
|
743,580,039
|
74,358
|
32,102,591
|
(30,178,413)
|
1,999,201
|
|
|
|
|
|
|
|
|
|
|
Stock
issued and issuable for cash
|
|
|
115,776,464
|
11,578
|
4,365,876
|
|
4,377,454
|
|
Stock
issued for services
|
|
|
252,658,491
|
25,266
|
14,984,584
|
|
15,009,850
|
|
Fair
value of options issued as
|
|
|
|
|
|
|
|
|
loan incentive
|
|
|
|
|
92,745
|
|
92,745
|
|
Stock
issued as loan incentive
|
|
|
6,800,000
|
680
|
201,552
|
|
202,232
|
|
Net
loss
|
|
|
|
|
|
(19,394,527)
|
(19,394,527)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2010
|
66,500
|
665
|
1,118,814,994
|
111,881
|
51,747,348
|
(49,572,940)
|
2,286,954
|
|
|
|
|
|
|
|
|
|
|
Stock
issued and issuable for cash
|
|
|
241,369,947
|
24,137
|
7,783,105
|
|
7,807,242
|
|
Stock
issued for services
|
|
|
357,846,441
|
35,786
|
17,403,106
|
|
17,438,892
|
|
Net
loss
|
|
|
|
|
|
(25,075,498)
|
(25,075,498)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2011
|
66,500
|
665
|
1,718,031,382
|
171,804
|
76,933,559
|
(74,648,438)
|
2,457,590
|
|
|
|
|
|
|
|
|
|
|
Prior Period Adjustment
|
|
|
147,987,304
|
14,798
|
(14,798)
|
|
-
|
|
Stock
issued and issuable for cash
|
|
|
271,270,882
|
27,127
|
3,599,755
|
|
3,626,882
|
|
Stock
issued for services
|
|
|
329,248,482
|
32,925
|
7,653,663
|
|
7,686,588
|
|
Net
loss
|
|
|
|
|
|
(13,623,873)
|
(13,623,873)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2012
|
66,500
|
665
|
2,466,538,050
|
246,654
|
88,172,179
|
(88,272,311)
|
147,187
|
|
|
|
|
|
|
|
|
|
|
Stock
issued and issuable for cash
|
|
|
701,621,438
|
70,162
|
4,062,352
|
|
4,132,514
|
|
Stock
issued for services
|
|
|
127,967,500
|
12,796
|
2,273,171
|
|
2,285,967
|
|
Net
loss
|
|
|
|
|
|
(6,535,172)
|
(6,535,172)
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2013
|
66,500
|
$ 665
|
3,296,126,988
|
$ 329,612
|
$ 94,507,702
|
$ (94,807,483)
|
$ 30,496
|
|
|
|
|
|
|
|
|
The accompanying footnotes are an integral part of these financial statements.
F-4
Baltia Air Lines, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
|
Years Ended December 31,
|
|
December 31,
|
|
|
|
|
2013
|
|
2012
|
|
2013
|
Cash flows from operations
|
|
|
|
|
|
(Unaudited)
|
|
Deficit accumulated during development stage
|
|
$ (6,868,196)
|
|
$ (13,623,873)
|
|
$ (95,140,507)
|
Adjustment to reconcile deficit accumulated during
|
|
|
|
|
|
|
|
development stage to cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
16,488
|
|
15,000
|
|
386,428
|
|
Amortization of loan discount
|
|
-
|
|
146,059
|
|
294,977
|
|
Expenses paid by issuance of common stock and options
|
2,285,967
|
|
7,686,586
|
|
59,435,709
|
|
Loss on sale of assets
|
|
-
|
|
1,607,183
|
|
1,607,183
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
-
|
|
-
|
|
400,301
|
|
|
Accounts payable and accrued expenses
|
|
472,468
|
|
485,980
|
|
4,427,339
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
(4,093,273)
|
|
(3,683,065)
|
|
(28,588,570)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
(40,018)
|
|
(133,045)
|
|
(3,869,646)
|
|
Proceeds from sale of assets
|
|
-
|
|
144,164
|
|
144,164
|
|
Security deposits
|
|
-
|
|
-
|
|
(317,293)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
(40,018)
|
|
11,119
|
|
(4,042,775)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
4,132,514
|
|
3,626,882
|
|
31,048,375
|
|
Proceeds from issuance of preferred stock
|
|
-
|
|
-
|
|
2,753
|
|
Loans from related parties
|
|
-
|
|
-
|
|
1,351,573
|
|
Repayment of related party loans
|
|
-
|
|
-
|
|
(368,890)
|
|
Principal payments on long-term debt
|
|
-
|
|
-
|
|
1,109,183
|
|
Acquisition of treasury stock
|
|
-
|
|
-
|
|
(500,100)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
4,132,514
|
|
3,626,882
|
|
32,642,894
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
(777)
|
|
(45,064)
|
|
11,549
|
|
Cash, beginning of period
|
|
12,326
|
|
57,390
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash, end
of period
|
|
$ 11,549
|
|
$ 12,326
|
|
$ 11,549
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$ -
|
|
$ 6
|
|
|
The accompanying footnotes are an integral part of these financial statements.
F-5
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
1. Nature of Operations
The Company was formed as a U.S. airline on August 24, 1989 in the State of New York. Our objective is to provide scheduled air transportation from the U.S. to Russia, the Baltic States and Ukraine. In 1991, the Department of Transportation (DOT) granted the Company routes to provide nonstop passenger, cargo and mail service from JFK to St. Petersburg and from JFK to Riga, with online service to Minsk, Kiev and Tbilisi as well as back up service to Moscow. We have two registered trademarks, "BALTIA" and "VOYAGER CLASS," and five trademarks subject to registration. Our activities to date have been devoted principally to raising capital, obtaining route authority and approval from the DOT and the FAA, training crews, and conducting market research to develop the Company's marketing strategy.
Regulatory Compliance
We intend to operate as a Part 121 carrier, a heavy jet operator. As such, following certification we will be required to maintain our air carrier standards as prescribed by DOT and FAA regulation and as specified in the FAA approved Company manuals. As part of its regulatory compliance, we will be required to submit periodic reports of our operations to the DOT.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The financial statements have been
presented in a “development stage” format. Since
inception, our primary activities have been raising of
capital, obtaining financing and of obtaining route authority
and approval from the DOT and the FAA. We have not commenced
our principal revenue producing activities.
Use of Estimates
The preparation of financial
statements in conformity with generally accepted accounting
principles requires our management to make estimates and
assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the
estimates.
F-6
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
2. Summary of Significant Accounting Policies (continued)
Cash
and Cash Equivalents
For financial statement
presentation purposes, we consider those short-term, highly
liquid investments with original maturities of three months
or less to be cash or cash equivalents. Excepting certain lines of credit
agreements by certain shareholders, there are no cash
equivalents at December 31, 2013 and 2012.
Fair
Value of Financial Instruments
FASB ASC 825, "
Financial
Instruments
"
requires entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable
to estimate fair value. FASB ASC 825 defines fair value of a
financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing
parties. At December 31, 2013 and 2012, the carrying
value of certain financial instruments (cash and cash
equivalents, accounts payable and accrued expenses.)
approximates fair value due to the short-term nature of the
instruments or interest rates, which are comparable with
current rates.
Fair
Value Measurements
FASB ASC 820 defines fair value
and establishes a framework for measuring fair value and
establishes a fair value hierarchy which prioritizes the
inputs to the inputs to the valuation techniques. Fair value
is the price that would be received to sell an asset or
amount paid to transfer a liability in an orderly transaction
between market participants at the measurement date. A fair
value measurement assumes that the transaction to sell the
asset or transfer the liability occurs in the principal
market for the asset or liability or, in the absence of a
principal market, the most advantageous market. Valuation
techniques that are consistent with the market, income or
cost approach, as specified by FASB ASC 820, are used to
measure fair value.
Fair
Value Hierarchy
FASB ASC 820 specifies a hierarchy of valuation techniques based
upon whether the inputs to those valuation techniques reflect
assumptions other market participants would use based upon
market data obtained from independent sources (observable
inputs), or reflect the Company's own assumptions of
market participant valuation (unobservable inputs). In
accordance with FASB ASC 820, these two types of inputs have
created the following fair value hierarchy:
-
Level 1 – Quoted
prices in active markets that are unadjusted and
accessible at the measurement date for identical,
unrestricted assets or liabilities.
-
Level 2 – Quoted
prices for identical assets and liabilities in markets
that are not active, quoted prices for similar assets
and liabilities in active markets or financial
instruments for which significant inputs are
observable, either directly or indirectly.
-
Level 3 – Prices
or valuations that require inputs that are both
significant to the fair value measurement and
unobservable.
FASB ASC 820 requires the
use of observable market data if such data is available
without undue cost and effort.
F-7
BALTIA AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
2. Summary of Significant Accounting Policies (continued)
Measurement of Fair Value
The Company measures fair value as an exit price using the procedures
described below for all assets and liabilities measured at
fair value. When available, the Company uses unadjusted
quoted market prices to measure fair value and classifies
such items within Level 1. If quoted market prices are not
available, fair value is based upon internally developed
models that use, where possible, current market-based or
independently-sourced market parameters such as interest
rates and currency rates. Items valued using internally
generated models are classified according to the lowest level
input or value driver that is significant to the valuation.
Thus, an item may be classified in Level 3 even though there
may be inputs that are readily observable. If quoted market
prices are not available, the valuation model used generally
depends on the specific asset or liability being valued. The
determination of fair value considers various factors
including interest rate yield curves and time value
underlying the financial instruments.
Property
and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization.
Improvements are amortized using the straight-line method over the shorter of the estimated
useful lives of the respective assets or the lease term. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally 5-15 years.
Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs,
and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due
to obsolescence is reflected in the operating results in the period the event takes place.
Valuation of Long-Lived Assets
The Company periodically evaluates its long-lived assets for potential impairment
in accordance with ASC 360, Property, Plant and Equipment, and records impairment losses
on long-lived assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than the assets'
carrying amounts. There was no impairment charges during the years ended December 31, 2013 and 2012.
Stock-Based
Compensation Plans
Stock-based awards are accounted
for using the fair value method in accordance with ASC
718,
Share-Based
Payments.
Our
primary type of share-based compensation consists of stock
options and stock-based awards. We use the Black-Scholes option pricing model in
valuing options. The inputs for the valuation analysis of the
options include the market value of the Company's
common stock, the estimated volatility of the Company's
common stock, the exercise price of the warrants and the risk
free interest rate.
Loss
per Common Share
The Company complies with accounting and disclosure requirements of ASC 262, Earnings Per Share.
Basic loss per common share is computed by dividing net loss available to common stockholders
by the weighted average number of common shares outstanding during the period. Diluted loss per
common share incorporates the dilutive effect of common stock equivalents on an average basis during
the period. All stock options either expired or were canceled during the year ended December 31, 2012.
No adjustment was made to the weighted-average number of shares outstanding in the calculation of
loss per share for the years ended December 31, 2013 and 2012.
F-8
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
2.
Summary of Significant Accounting Policies (continued)
Income
Taxes
Income taxes are recorded in accordance with ASC Topic 740,
Accounting for Income Taxes
,
which provides for deferred taxes using an asset and liability
approach. The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements
or tax returns. The Company determines its deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities, which
are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Valuation allowances are provided, when necessary, to reduce
the deferred income tax assets to the amount expected to be realized.
The Company accounts for uncertain tax positions in accordance with the provisions
of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit
of tax positions to the extent that the benefit will more likely than not be realized.
The determination as to whether the tax benefit will more likely than not be realized
is based upon the technical merits of the tax position as well as consideration of
the available facts and circumstances. As of December 31, 2013 and 2012, the Company
did not have any uncertain tax positions
Generally, tax fillings are no longer subject to income tax examinations by major
taxing authorities for years before 2010. Any potential examinations may include questioning
the timing and amount of deductions, the nexus of income among various tax jurisdictions
and compliance with U.S. federal, state, and local tax laws. The Company's management
does not expect that the total amount of unrecognized tax benefits will materially
change over the next twelve months.
The Company's policy is to record interest and penalties on uncertain tax
provisions as income tax expense. As of December 31, 2013 and 2012, the Company
has not accrued interest or penalties related to uncertain tax positions.
Upon the attainment of taxable income by the Company, management will assess the
likelihood of realizing the tax benefit associated with the use of the carryforwards
and will recognize a deferred tax asset at that time..
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11,
Income Taxes
(Topic 740) which provides guidance on financial statement presentation of
an unrecognized tax benefit when a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward exits. The update is effective for years
beginning after December 15, 2013. The Company does not expect the implementation
of this standard to have a material impact on its financial position or results
of operations.
In March 2013, the FASB issued Accounting Standards Update No. 2013-05,
Foreign Currency Matters
(Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon
Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity
or of an Investment in a Foreign Entity
(ASU 2013-05). ASU 2013-05 provides guidance on releasing cumulative translation
adjustments when a reporting entity (parent) ceases to have a controlling
financial interest in a subsidiary or a business within a foreign entity.
ASU 2013-05 is effective on a prospective basis for fiscal years and interim
reporting periods within those years, beginning after December 15, 2013.
Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have
a material impact on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU No. 2013-02,
Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified out of Accumulative Other Comprehensive Income
(ASU 2013-02), which replaces the presentation requirements for reclassifications out of
accumulated other comprehensive income in ASU 2011-05 and ASU 2011-12. ASU 2013-02
requires an entity to provide information about the amounts reclassified out of
accumulated other comprehensive income by component and to present significant
amounts reclassified out of accumulated other comprehensive income by respective
line items of net income if the amount reclassified is required to be reclassified to
net income in its entirety. The adoption of ASU 2013-02 did not have any impact on
our financial position, results of operations or cash flows.
F-9
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
Recent Accounting Pronouncements (continued)
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the Securities Exchange Commission
(the "SEC") did not or are not believed by management to have a material impact
on the Company's present or future financial statements.
3.
Property and Equipment
A summary of property and equipment is as follows:
|
|
|
|
|
Estimated Useful
Life
|
2013
|
2012
|
Airplane
|
10-15 years
|
$ 1,540,756
|
$ 1,505,738
|
Office equipment and
other
|
5-7 years
|
394,486
|
425,986
|
Less accumulated
depreciation
|
|
(140,756)
|
(124,268)
|
|
|
|
|
Net
|
|
$ 1,794,486
|
$ 1,807,456
|
Current depreciation
|
|
$ 16,500
|
$ 15,000
|
On August 18, 2009, the Company purchased a Boeing 747 (N705BL)
with the intent to refurbish it. Engines were leased on a power-by-the-hour basis,
installed on the aircraft, and it was flown to Malaysia where an FAA certified
maintenance facility was to do the work. In 2010, Baltia purchased a second
Boeing 747 (N706BL) at a price less than was projected to refurbish N705BL. On
May 4, 2012, Baltia removed the engines, sold N705BL at a loss of $1.6 million and
installed the engines on the second aircraft, N706BL, which was purchased at Oscoda,
Michigan, where it remains while Baltia proceeds with its FAA certification.
Recovery of the carrying value of N706BL will occur in the first year of operations, when
it will be used in scheduled flight operations between New York and St. Petersburg, Russia.
4. Stockholders' Equity
Description of Securities
Common Stock
We are authorized to issue 3,986,000,000 shares of common Stock at $.0001 par value per share. As of December 31, 2013, a total of 3,296,126,988 shares of common Stock were issued and outstanding and held by 968 shareholders. Holders of common Stock are entitled to receive dividends, when and if declared by the board of directors, subject to prior rights of holders of any Preferred Stock then outstanding and to share ratably 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. 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.
F-10
BALTIA AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
4. Stockholders' Equity (continued)
Preferred
Stock
We are authorized to issue up to a maximum of 2 million shares
(66,500 shares outstanding) of Preferred Stock. We can issue
these shares as our board of directors shall from time to
time fix by resolution. Our Preferred Stock is not entitled
to share in any dividends declared on the Common Stock and
has no voting rights. Each share is convertible in to 3
shares of Common. The liquidation preference is set by this
conversion formula and results in a pro rata claim on the
Company's assets based upon the underlying common
shares issuable (199,500) upon conversion.
Recent Issuance of Unregistered Securities
2013:
Stock Issued
for Cash
We issued 701,621,438 shares of our common stock in exchange for receiving a total of $4,132,514 in cash net of offering expenses. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration transactions by an issuer not involving any public offering.
Stock Issued for Services
We issued 127,967,500 shares of our common stock in exchange for services. The shares were valued at $2,285,967 or approximately $0.018 per share, which reflected the weighted average market value at the time of issuance. Of the total shares issued for services, 18,000,000 of these shares valued at approximately $180,000 were issued to Igor Dmitrowsky, our president and CEO.
2012:
Stock Issued
for Cash
We issued 271,270,882 shares of our common stock in exchange for receiving a total of $3,626,882 in cash net of offering expenses. The shares were deemed to have been issued pursuant to an exemption provided by Section 4(2) of the Act, which exempts from registration transactions by an issuer not involving any public offering
Stock Issued for Services
We issued 329,248,482 shares of our common stock in exchange for services. The shares were valued at $7,686,588 or approximately $0.023 per share, which reflected the weighted average market value at the time of issuance. Of the total shares issued for services, 140,000,000 of these shares valued at approximately $3,220,000 were issued to Igor Dmitrowsky, our president and CEO.
5. Stock Options and Warrants of Option Activity
Stock Options
No stock options were issued during the year ended December 31, 2013. All existing
options were canceled in 2012.
F-11
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
5. Stock options and Warrants (continued)
Warrants
For the years ended December 31, 2013 and 2012, warrant activity was as follows:
Warrants Outstanding
|
Warrants Exercisable
|
Exercise
Price
|
Number
Outstanding
at
December 31,
2013
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
December 31,
2013
|
Weighted
Average
Exercise
Price
|
$
|
0.02
|
12,151,166
|
0.66
|
$
|
0.02
|
12,151,166
|
$ 0.02
|
$
|
0.05
|
45,334,000
|
0.83
|
$
|
0.05
|
45,334,000
|
$ 0.05
|
$
|
0.08
|
12,908,333
|
0.87
|
$
|
0.08
|
12,908,333
|
$ 0.08
|
$
|
0.10
|
1,566,509
|
0.73
|
$
|
0.10
|
1,566,509
|
$ 0.10
|
$
|
0.15
|
40,000
|
0.50
|
$
|
0.15
|
40,000
|
$ 0.15
|
$
|
0.25
|
328,000
|
0.94
|
$
|
0.25
|
328,000
|
$ 0.25
|
|
|
72,328,008
|
0.80
|
$
|
0.05
|
72,328,008
|
|
|
|
Number of
Warrants
Outstanding
|
Weighted
Average
Price
|
Remaining
Term
(In Years)
|
Warrants outstanding At December 31, 2011
|
71,176,000
|
$
0.16
|
1.23
|
Granted in 2012
|
34,275,495
|
|
|
Exercised
|
3,775,000
|
|
|
Canceled in 2012
|
41,248,429
|
|
|
Warrants outstanding at December 31, 2012
|
60,428,066
|
$ 0.07
|
1.19
|
Granted in 2013
|
32,046,508
|
|
|
Exercised
|
-
|
|
|
Canceled in 2013
|
20,146,566
|
|
|
Warrants outstanding at December 31, 2013
|
72,328,008
|
$ 0.05
|
0.80
|
Warrants exercisable at December 31, 2013
|
72,328,008
|
|
|
6. Income
Taxes
The Company has approximately $37.7 million in available net operating loss carryovers available to reduce future income taxes. These carryovers expire at various dates through the year 2033. The Company has adopted ASC 740,
Accounting for
Income Taxes
which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits. We have determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against our entire net deferred tax asset of approximately $7.5 million
Utilization of federal and state NOL and tax credit carry-forwards may be subject to a
substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation
may result in the expiration of NOL and tax credit
carry-forwards before full utilization.
F-12
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
7.
Commitments and Contingencies
Facilities
The Company leases office space for its administrative offices and an airport terminal facility under terms of two operating leases, which expire on November 15, 2015 and February 1, 2014, respectively. The payments are charged to rental expense as incurred. Rental payments for these two operating leases for the years ended December 31, 2013 and 2012 were $465,000 and $450,000, respectively, and are included in general administrative expenses in the statement of operations. Future minimum payments are $467,000 and $427,075 for the years ended December 31, 2014 and 2015, respectively.
The Company also leases office space, an airport terminal facility, and other facilities under terms of month to month operating leases at approximately $40,000 each month. Rental payments are charged to rent expense as incurred. Rental payments for the years ended December 31, 2013 and 2012 were $116,000 and $132,000, respectively, and are included in general administrative expenses in the statement of operations.
8.
Long-Term Debt - Related Party:
On December 1, 2010, the Company entered into a loan arrangement with a company owned or controlled by one of our directors for a total amount of $1,150,000. The Company issued a note ("Note") bearing interest at 9% per annum, payable quarterly, with a maturity date of March 31, 2013. Under terms of the Note dated December 1, 2010, the Company was obligated to repay the $1,150,000 prior to the maturity date upon raising $4 million or from proceeds of operating revenue. In connection with the terms of the Note, the Company issued the lender 6.8 million shares of common stock and 3.4 million warrants. The Company recorded the relative fair value of the shares and warrants of $294,297 as additional paid-in capital and established a discount on the debt. The discount was amortized over 24 months at an effective rate of 14.98%. The note is secured by aircraft to a limit of $2.9 million.
On March 31, 2013, the repayment terms of the Note were modified, wherein the Company is obligated to repay the principal amount of $1,150,000 to the lender on or before the second anniversary of the date upon which the Company commences its revenue flight operations. The modification further provides that the Company will pay accrued interest to date on or before the first anniversary of the date upon which the Company commences its revenue flight operations. There were no other changes to the terms of the original note.
9. Development Stage Activities and Going Concern
The Company is currently in the development stage and has not as of yet generated any revenue from its planned operation to provide scheduled air transportation from the United States to Russia, the Baltic States, and the Ukraine.
The accompanying financial statements have been prepared using the accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.
Currently, the Company has a minimum cash balance available for the payment of ongoing operating expenses, which would allow it to cover its operational costs and allow it to continue as a going concern, and it has incurred operating losses and experienced negative cash flows from operations since inception. The Company has a deficit accumulated as of December 31, 2013 of approximately $95.1 million. The Company has funded its activities through December 31, 2013 almost exclusively from debt and equity financings. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
F-13
BALTIA
AIR LINES, INC. NOTES TO FINANCIAL STATEMENTS
DECEMBER
31, 2013
9. Development Stage Activities and Going Concern (continued)
For the years ended December 31, 2013 and 2012, the Company raised approximately $4.1 and $3.6 million, respectively, from private placements, funds needed to continue with the certification process, a process that must be completed before it can launch nonstop revenue service to Russia with its 747 aircraft. In addition to raising funds from private placements, the Company supplemented the financing of its ongoing operations through the issuance of common stock to pay operating expenses not paid with cash raised from the private placements. The continued operations of the Company over the long-term is dependent upon implementing airline service that will generate profits; until such time, however, it will continue to require substantial funds to continue with its aircraft and operational certification and carry out its business plan. In order to meet its ongoing operating cash requirements, management's plans include financing activities such as private placements of its common stock and the continued issuance of common stock for services rendered by vendors, consultants, and other professionals. Management has also considered the overall pipeline effect that enhances the initial cash position of a startup carrier. It is the industry practice for passengers to purchase tickets in advance of their flights while service vendors bill the carrier later. So that a new airline will not fly empty on day one, approximately 30 days prior to the expected inaugural date, the DOT authorizes sales of tickets and cargo. Such funds from advance sales, estimated at approximately $3 million for the company, accumulate in an escrow account, and are released upon the issuance of the air carrier certificate.
In the event we do not generate sufficient funds from revenues or financing through the issuance of our common stock or from debt financing, we may be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations
While the Company believes it will be successful in obtaining the necessary financing to fund its operations, there are no assurances that such additional funding will be achieved and that it will succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence.
10.
Related Party
During the year ended December 31, 2013 and 2012, the Company issued 19,000,000 and 194,000,000, respectively,
restricted shares of its $0.001 par value common stock to officers and directors. These restricted
shares were valued at $196,200 and $5,131,000, respectively, or a weighted average price of approximately
$ .010 and $0.026 per share, respectively. Its president and CEO was charged additional compensation of $15,000
and $15,000, which represents one hundred percent of the
rent the Company paid for its original corporate headquarters during the years ended December 31, 2013
and 2012, respectively. Also, during the years ended December 31, 2013 and 2012, this officer received
other compensation of $12,853 and $35,957, respectively, for services provided the Company in lieu of
salary. A second officer, vice president-finance, was paid additional compensation of $427,350 and $198,285
for the years ended December 31, 2013 and 2012, respectively, which represents amounts paid him for
negotiating services in connection with the raise of new equity capital. A third officer, vice president,
was paid additional compensation of $46,500 and $30,500 for services provided the Company during the years
ended December 31, 2013 and 2012, respectively. A fourth officer, corporate secretary, was additional
compensation of $15,800 and $15,960 for services provided the Company during the years ended December
31, 2013 and 2012, respectively.
F-14
Exhibits.
3.1.1
Certificate of Incorporation (as amended) of Baltia Air Lines, Inc.
Incorporated by reference to Exhibit 3.1.1 to Baltia Air Lines
Inc.'s reported on Form 10-K, for the year ended
December 31, 2012, as filed April 16, 2013
3.1.2
Certificate of Incorporation amendment of Baltia Air Lines,
Inc. (as amended and filed on June 24, 2011)
Incorporated by reference to Exhibit 3.1.2 to Baltia Air Lines
Inc.'s reported on Form 10-K, for the year ended
December 31, 2012, as filed April 16, 2013
3.1.3
Certificate of Incorporation amendment of Baltia Air Lines,
Inc. (as amended and filed on May 24, 2012)
Incorporated by reference to Exhibit 3.1.3 to Baltia Air Lines
Inc.'s reported on Form 10-K, for the year ended
December 31, 2012, as filed April 16, 2013
3.1.4
Certificate of Incorporation amendment of Baltia Air Lines,
Inc. (as amended and filed on December 27, 2012).
Incorporated by reference to Exhibit 3.1.4 to Baltia Air Lines
Inc.'s reported on Form 10-K, for the year ended
December 31, 2012, as filed April 16, 2013
3.1.5 Certificate of Incorporation amendment of Baltia Air Lines,
Inc. (as amended and filed on July 29, 2013).
Incorporated by reference to Exhibit 3.1.5 as reported on Baltia Air Lines's Form Q-10 filed 21 August 2013.
3.1.6 Certificate of Incorporation amendment of Baltia Air Lines, Inc.
(as amended and filed on February 12, 2014).
3.2 Bylaws of Baltia Air Lines, Inc. (amended and ratified November 7, 2011)
Incorporated by reference to Exhibit 3.2.2
to Baltia Air Lines Inc.'s reported on Form 10-K, 21 Dec 2011
from the year ended December 31, 2010
.
10. MATERIAL CONTRACTS
10.1. - Fuel supply
Agreement between Joint Stock Company “SOVEX” and
Baltia Air Lines, Inc. unavailable (awaiting execution and delivery from Russia).
10.2 - Letter evidencing
agreement that engines identified in Exhibit 10.3 below may
be removed from N705BL and installed on
N706BL.
Incorporated
by reference to Exhibit 10.5 to Company's 10-K/A for
year 2010 as filed December 21, 2011
. No engine lease agreement in effect.
New contract pending.
10.3 - Product and
Services Agreements between Navtech Systems Support Inc. and
Baltia Air Lines, Inc. Dated January 15, 2010 with
confidential portion omitted and filed separately with the
Commission pursuant to a request for confidential
treatment.
Incorporated
by reference to Exhibit 10.7 to Company's 10-K/A for
year 2010 as filed December 21, 2011
effective to January 14, 2015.
10.4 - Ground Handling Agreement at Pulkovo Airport between ZAO Cargo
Terminal Pulkovo and Baltia Air Lines, Inc. effective June 1, 2013 through May 31, 2014.
Incorporated
by reference to Exhibit 10.4 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.5 - Aircraft and/or Engine Maintenance Services Agreement between Kalitta Air, LLC and Baltia Air Lines, Inc., and Letter Agreement to Extend Aircraft Maintenance Service Agreement between Kalitta Air and Baltia Air Lines, Inc. effective December 24, 2013 until December 24, 2015 with 1-year extension with 60-day notice.
10.6 - First Amendment to Product and Services Agreements between Navtech Systems
Support Inc. and Baltia Air Lines, Inc. dated January 15,
2010.
Incorporated
by reference to Exhibit 10.10 to Company's 10-Q/A for
3rd quarter 2011, corrected and filed March 29, 2012
.
10.7 Lockton Excess Aviation Liability Insurance, Baltia Air Lines, Inc. insured, effective January 8, 2013 to April 1, 2014.
Incorporated
by reference to Exhibit 10.7 to Company's 10-Q for 3rd quarter 2013 filed November 19, 2013
.
10.8 Certificate of Insurance, The Boeing Company and Boeing Commercial Airplanes insured, Hull, Aircraft and Airport Premises, including war perils, ground risks only, excluding passenger liabilities, effective January 8, 2013 to January 8, 2014.
Incorporated
by reference to Exhibit 10.8 to Company's 10-Q for 3rd quarter 2013 filed November 19, 2013
.
10.8.1 Certificate of Insurance, Logistics Air Inc., respect to the Aircraft Engine Lease Agreement between Logistic Air, Inc. and Baltia
Airlines Inc. effective December 2009 for Engine Serial Numbers 685697, 662428, 662816, 662842, effective April 1, 2014 to April 1, 2015.
10.9 Kalitta Maintenance Agreement Certificate of Insurance, Kalitta Air, LLC insured, Hull & Liability ground only, Airport Premises, effective April 1, 2014 to April 1, 2015.
10.10 Certificate of Insurance, Port Authority of New York and New Jersey insured, Airport Premises, effective April 1, 2014 to April 1, 2015.
10.11 Financing Agreement by Premium Assignment Corporation. Effective as of January 8, 2013.
Incorporated by reference to Exhibit 10.19 in the Company's 10-Q for 1 quarter 2013 as filed May 20, 2013
.
10.12 - John F. Kennedy Airport - Terminal 4, Lease Agreement between JFK International Air Terminal, LLC and Baltia Air Lines, dated November 17, 2008, effective until terminated by either party.
Incorporated by reference to Exhibit 10.12 to Baltia Air Lines Inc.'s report on Form 10-K for the year ended December 31, 2012.
10.12.1 - Certificate of Insurance, JFK International Air Terminal LLC insured, Terminal 4 Leased space to Baltia Air Lines, Inc., effective April 1, 2014 to April 1, 2015.
10.13 - JFK Airport Building 151 Lease Agreement, between Japan Airlines Management Corp. and Baltia Air Lines, effective on September 1, 2011, valid through November 30, 2015.
Incorporated by reference to Exhibit 10.13 to Baltia Air Lines Inc.'s report on Form 10-K for the year ended December 31, 2012 as filed April 16, 2013.
10.13.1 - Certificate of Insurance, Japan Airlines Management Corp. insured, Building 151 Sublease Agreement, effective April 1, 2014 to April 1, 2015.
10.14 - Willow Run Airport facility lease between Wayne County Airport Authority and Baltia Air Lines, effective from June 1, 2013 until May 31, 2015.
Incorporated by reference to
Exhibit 10.14 to Company's 10-Q for 3rd quarter 2013 filed November 19, 2013
.
10.14.1 - Amendment to Willow Run Airport facility lease, effective October 13, 2013.
Incorporated
by reference to Exhibit 10.14.1 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.14.2 - Amendment to Willow Run Airport facility lease, effective February 2013.
Incorporated
by reference to Exhibit 10.14.2 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.14.3 - Certificate of Insurance, Wayne County Airport Authority insured, Airport Premises, effective April 1, 2014 to April 1, 2015.
10.15 - Pulkovo Airport facility Lease Agreement between Northern Capital Gateway, LLC and Baltia Air Lines, effective from February 28, 2013 to January 28, 2014.
Incorporated
by reference to Exhibit 10.15 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.16 - Contract affirmed by Board resolution affirming Agreements between the Company and its officers agreeing not to sell the shares issued to them until the Company receives FAA Certification and commence its revenue flights.
Incorporated by reference to Exhibit 10.16 to Baltia Air Lines Inc.'s report on Form 10-K for the year ended December 31, 2012.
10.17 - Purchase of Cessna Citation 500 aircraft N606KR,
Incorporated by reference to Form 8-K filed May 21, 2013.
10.17.1 - Certificate of Insurance, Baltia Air Lines, Inc. insured, Cessna 500 N606KR.
Incorporated
by reference to Exhibit 10.17.1 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.18 - Loan Agreement (amended) dated October 14, 2013 between Baltia Air Lines, Inc. and Eastern Construction & Electric, Inc. for purchase of Boeing 747 aircraft.
Incorporated
by reference to Exhibit 10.18 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.19 - Flight Training Agreement Aircraft Type B747-200 between Kalitta Air, LLC and Baltia Air Lines, Inc. effective October 10, 2013 to December 31, 2014.
Incorporated
by reference to Exhibit 10.19 to Company's 10-Q for
3rd quarter 2013 filed November 19, 2013
.
10.20 - B747 Aircraft Hull and Liability Binder - Renewal, Registration N706BL, Meadowbrook Insurance Group,
effective April 1, 2014 to April 1, 2015.
10.21 - Purchase Report - T-500 A/C Tractor, Costal Engine Service (2013)
10.22 - Loan Agreement - Legal services rendered by International Business Law Firm PC to Baltia Air Lines,
executed March 31, 2014.
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.
Baltia Air Lines, Inc.
Date: April 15, 2014
/s/ Igor Dmitrowsky
By: Igor
Dmitrowsky, President, CEO and CFO
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
SIGNATURE
|
TITLE
|
DATE
|
/s/ Igor Dmitrowsky
Igor Dmitrowsky
|
Chairman, CEO and
CFO
(Principal Executive Officer
and
Principal Accounting Officer)
|
April 15, 2014
|
/s/ Walter Kaplinsky
Walter Kaplinsky
|
Secretary and
Director
|
April 15, 2014
|
/s/ Andris Rukmanis
Andris Rukmanis
|
V.P. Europe and
Director
|
April 15, 2014
|
/s/ Vick Luis Bolanos
Vick Luis Bolanos
|
Director
|
April 15, 2014
|
Exhibit
31.1
BALTIA
AIR LINES INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Igor Dmitrowsky, certify
that:
1. I have reviewed this
annual report on Form 10-K 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 registrant 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)) and
internal controls over financial reporting (as defined in
Exchange Act Rules 13a- 15(f) and 15d-15(f))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
(d) 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: April 15, 2013
/s/ Igor Dmitrowsky
Chairman, CEO and CFO April 15, 2014
Igor Dmitrowsky
(Principal Executive Officer)
/s/ Igor Dmitrowsky
Chairman, CEO and CFO April 15, 2014
Igor Dmitrowsky
(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
Annual Report for Baltia Air Lines, Inc. (the "Company") on
Form 10-K for the period ended December 31, 2013 as filed
with the Securities and Exchange Commission on the date
hereof (the Report),
I, Igor Dmitrowsky, 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: April 15, 2014
/s/Igor Dmitrowsky
Chairman, CEO and CFO April 15, 2014
Igor Dmitrowsky
(Principal Executive Officer)
/s/ Igor Dmitrowsky
Chairman, CEO and CFO April 15, 2014
Igor Dmitrowsky
(Principal Accounting Officer)