UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB/A ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 (as amended May 2, 2005) BALTIA AIR LINES, INC. (Baltia) (Exact name of registrant as specified in its charter) STATE of NEW YORK 11-2989648 (State of Incorporation) (IRS Employer Identification No.) 63-25 SAUNDERS STREET, SUITE 7 I, REGO PARK, NY 11374 (Address of principal executive offices) Registrant's telephone number, including area code: (718) 275 5205 Securities Registered: 12 G #O-28502, Common Stock Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has been subject to such filing requirements for the past 90 days. [x] yes [] no Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x] Baltia has not commenced revenue operations to date. Registrant's revenues for its fiscal year 2003: $-0- The aggregate market value of the voting common equity held by non-affiliates computed by December 31, 2003: $7,824,877 Class Number Outstanding Common Stock - Par Value $.0001 Per Share 52,165,847 Preferred Stock - $.01 Per Share 66,500 DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, $.0001 par value per share, and 2,000,000 shares of Preferred Stock, $.01 par value. As of December 31, 2003, a total of 52,165,847 shares of Common Stock are issued and outstanding and held by over 100 shareholders. A total of 66,500 shares of Preferred Stock are issued and outstanding. No stock was issued under 333-21006-NY and all securities registered therein are carried forward into Registration 333-37409. Registration 333-37409 was effective 2/12/99. Common Stock All outstanding shares of Common Stock are, and the shares offered hereby will be, duly authorized, validly issued, fully paid and non-assessable. Holders of Common Stock are entitled to receive dividends, when and if declared by the board of directors, out of funds legally available therefor and, subject to prior rights of holders of any Preferred Stock then outstanding, if any, to share rateably in the net assets of the Company upon liquidation. Holders of Common Stock do not have preemptive or other rights to subscribe for additional shares, nor are there any redemption or sinking fund provisions associated with the Common Stock. The Certificate of Incorporation does not provide for cumulative voting. Shares of Common Stock have equal voting, dividend, liquidation and other rights, and have no preference, exchange or appraisal rights. Lack of Control by Minority Shareholders Holders of shares of Common Stock are entitled to one vote per share on all matters requiring a vote of stockholders. Since the Common Stock does not have cumulative voting rights in electing directors, the holders of a majority of the outstanding shares of Common Stock voting for the election of directors can elect all of the directors, excepting one board seat reserved for a future underwriter's nominee, if required by the underwriter. Stock Transfer Agent The Transfer Agent and Registrar for the shares of Common Stock is The Nevada Agency and Trust Company, 50 West Liberty Street, Bank of America Plaza Suite 880, Reno, Nevada 89501: Telephone (775)322-0626. Warrants The Company registered Redeemable Purchase Warrants, effective February 12, 1999. Warrants have expired and no shares have been issued on the Warrants. Purchase and Sale of Warrants No assurance can be given that a trading market for the Warrants will develop, or if one does develop, whether it will sustain or at what price the Warrants will trade. Representative's Warrants No Representative's Warrants were issued. Preferred Stock The Company has authorized 2,000,000 Preferred Shares which may be issued from time to time, as authorized by the Board of Directors. Preferred shares have $.01 par value and no voting rights. As of the present date 66,500 shares of Preferred Stock are outstanding. BALTIA IS A CORPORATE ISSUER The number of shares outstanding of each of the issuer's classes of common equity, as of December 31, 2003: Class Number of Shares Common Stock Par Value $.0001 Per Share 52,165,847 Preferred Stock Par Value $.01 Per Share 66,500 Transitional Small Business Disclosure Format (Check one): No [X] DOCUMENTS INCORPORATED BY REFERENCE PART I Item 1. Description of Business. The Company was organized in the State of New York, August 24, 1989 to provide air transportation to Russia and, the then, Soviet Union countries. Prior to 1999 the Company was preparing authorities, licenses, personnel, equipment, and financing to commence flight operations. At the beginning of 1999 the Company had all variables in place for commencing revenue service and needed only working capital to meet the U.S. Department of Transportation's regulatory requirement, i.e. cash equal to an average 1/4 of total annual expenses assuming zero revenue on the proposed Boeing 747 nonstop flights between New York and St. Petersburg, Russia. This amount was to be obtained from the Company's Initial Public Offering. The underwriter had indications for the full offering and offered the full amount of the offering to his exclusive clearing agent. The tender was refused. The clearing agent, CIBC Oppenheimer Corp., a wholy-owned subsidiary of the Canadian Imperial Bank of Commerce with significant financial interests in the airlines with which the Company would have been competing, selectively and without rationale or notice arbitrarily refused to clear the Company's registered stock. Without the required working capital. The US Department of Transportation terminated the Company's route authority without prejudice to reapply when financing was in hand. The Company expects to maintain over the next twelve months. In the absence of outside investors, management is foregoing compensation and expects to contribute administrative costs incurred in developing another approach to alternate funding. On November 16, 2001 the Company was listed on the pink sheets. The Company plans no product research or development at this time and no equipment purchases or sales. There is no significant change, and none expected, in the personnel disclosed in Registration Statement 333-37409. The change in aggregate financial data during this year reflects the relatively small administrative costs that were incurred and added to the pre-launching costs disclosed in the Registration Statement 333-37409. Item 2. Description of Property. Office equipment Item 3. Intentionally Omitted Item 4. Intentionally Omitted. PART II. Item 5. Market for Common Equity and Related Stockholder Matters. No shares were issued by Restrant during 2003. Registrant has over 180 holder's of common equity. No dividends have been paid and it is anticipated that none will be paid during the year 2003. Registrant has no equity compensation plans, no written purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension or similar plan or written compensation contracts. Shares were issued in 2001 upon Board approval, as reported in relevant 10QSB filings, to principals who have received no other compensation for services rendered. Item 6. Management's Discussion and Analysis or Plan of Operation. The Company will proceed with obtaining alternate funds by which to effect its plan to initiate nonstop direct flights between New York and St. Petersburg, Russia, using Boeing 747 aircraft to carry three-class passengers, cargo and mail as has been fully described in Registration Statement 333-037409. Assuming funding is obtained and timing is appropriate, within the next twelve months the Company will resume its flight operations plan. Item 7. Financial Statements. BALTIA AIR LINES, INC. (a development stage company) REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Baltia Air Lines, Inc. I have audited the accompanying balance sheet of Baltia Air Lines, Inc. (a development stage company) as of December 31, 2003 and the related statements of operations, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of Baltia Air Lines, Inc. as of December 31, 2002 were audited by other auditors whose report dated March 4, 2003 expressed an unqualified opinion on those financial statements. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Baltia Air Lines, Inc. as of December 31, 2003 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.. The Company has incurred operating losses since inception and does not currently have sufficient capital to commence revenue flight operations. Note 4 of the financial statements addresses Management's Plan regarding the future operations of the Company. Michael F. Cronin, CPA Rochester. New York April 10, 2004 Baltia Air Lines, Inc. Balance Sheets (A Development Stage Company) 12/31/2003 12/31/2002 Assets Current Assets $ 2,432 $ 2,416 Property & Equipment: Equipment 60,191 60,191 Accumulated Depreciation (40,979) (28,171) Net Property & Equipment 19,212 32,020 Other: Lease deposit on airplane 50,000 0 Total Assets $ 71,644 $ 34,436 Liabilities & Equity Current Liabilities: Accounts Payable $ 700 700 Equity: Preferred stock - 2,000,000 authorized $0.01 par value 66,500 issued & outstanding (275,250 in 2002) 665 2,753 Common Stock - 100,000,000 authorized $0.0001 par value 52,165,847 issued & outstanding (48,679,757 in 2002) 5,217 4,868 Additional paid in capital 8,291,223 8,151,370 Deficit Accumulated During Development Stage (8,226,161) (8,125,255) Total Equity $ 70,944 $ 33,736 Total Liabilities & Equity $ 71,644 $ 34,436 See Summary of Significant Accounting Policies and Notes to Financial Statements. Baltia Air Lines, Inc. Statements of Operations (A Development Stage Company) Fiscal Years Ended Inception to 12/31/2003 12/31/2002 12/31/2003 Revenue $ 0 $ 0 $ 0 Costs & Expenses General & administrative FAA certification costs 0 0 206,633 Training 0 0 225,637 Depreciation 12,808 12,808 286,652 Other 0 52,812 568,245 Interest 0 0 1,066,659 Loss before income taxes (100,581) (76,106) (8,225,338) Income Taxes 325 0 823 Deficit Accumulated During Development Stage $ (100,906) $ (76,106) $ (8,226,161) Per share amounts: Basic & Diluted: Loss $ (0.00) (0.00) Weighted Average 49,769,573 48,679,757 See Summary of Significant Accounting Policies and Notes to Financial Statements. Baltia Air Lines, Inc. Statements of Cash Flows (A Development Stage Company) Fiscal Years Ended Inception to 12/31/2003 12/31/2002 12/31/2003 Cash flows from operating activities: Deficit Accumulated During Development Stage $ (100,906) $ (76,106) $ (8,226,161) Adjustments required to reconcile deficit accumulated during development stage to cash used in operating activities: Depreciation 12,808 12,808 286,652 Expenses paid by issuance of common stock 402 0 63,902 (Increase) decrease in prepaid expenses 0 52,812 400,301 Increase (decrease) in accounts payable & accrued expenses 0 (3,179) 3,152,181 Cash flows used by operating activities: (87,696) (13,665) (4,323,125) Cash flows from investing activities: Purchase of equipment 0 0 (309,066) Deposit on airplane lease (50,000) 0 (50,000) Cash used in investing activities (50,000) 0 (359,066) Cash flows from financing activities: Proceeds from issuance of common stock 137,712 12,877 4,199,287 Proceeds from issuance of preferred stock 0 0 2,753 Loans from related parties 0 0 1,351,573 Repayment of related party loans 0 0 (368,890) Acquisition of treasury stock 0 0 (500,100) Cash generated by financing activities 137,712 12,877 4,684,623 Change in cash 16 (788) 2,432 Cash-beginning of period 2,416 3,204 0 Cash-end of period $ 2,432 $ 2,416 $ 2,432 See Summary of Significant Accounting Policies and Notes to Financial Statements Baltia Air Lines, Inc. Statements of Shareholders' Equity (A Development Stage Company) Preferred Common Deficit Accumulated Common Additional During Development Par Stock Paid-In Stage Shares Value Shares Amount Capital Balance at December 31, 2001 275,250 $ 2,753 48,679,757 $ 4,868 $ 8,138,593 $ 8,049,149) Contribution of Additional Capital 12,877 Net Loss (76,106) Balance at December 31, 2002 275,250 2,753 48,679,757 4,868 8,151,470 (8,125,255) Exercise of Warrants and Options 2,934,662 293 86,906 Stock issued for cash 696,428 70 50,442 Stock issued for services (145,000) (15) 417 Eliminated Treasury Stock Account (100) Correct error in Preferred Stock (208,750) (2,088) 2,088 Net Loss (100,906) Balance at December 31, 2003 66,500 $ 665 52,165,847 $ 5,217 $ 8,291,881 $ (8,226,161) See Summary of Significant Accounting Policies and Notes to Financial Statements BALTIA AIR LINES, INC. ( a development stage company ) BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES December 31, 2003 The Company 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 non-stop 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. 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 obtaining Route Authority and approval from the U.S. Department of Transportation. We have not commenced our principal revenue producing activities. Significant Accounting Policies: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires 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. Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 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. Preoperating costs related to the integration of new types of aircraft are charged to expense as incurred. The cost of modifications to the aircraft interior are capitalized and depreciated over the lesser of the life of the aircraft or the life of the modification. For the years ended December 31, 2003 and 2002, depreciation expense amounted to $12,808 for each year. Valuation of Long-Lived Assets: We review the recoverability of our long-lived assets including equipment, goodwill and other 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. Revenue Recognition: Passenger revenue is recognized when the passenger travels. Tickets sold but not yet used are reported as air traffic liability. Freight and mail revenues are recognized when service is provided. Stock Based Compensation: Stock-based awards to non-employees are accounted for using the fair value method in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, Accounting for Stock-Based Compensation --- Transition and Disclosure, effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to require companies to account for their employee stock-based awards using the fair value method. The disclosure provisions are required, however, for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. We account for stock-based awards to employees using the intrinsic value method in accordance with APB Opinion No. 25 and FIN No. 44. As permitted by SFAS No. 123, as amended by SFAS No. 148, we have chosen to continue to account for our employee stock-based compensation plans under APB Opinion No. 25 and provide the expanded disclosures specified in SFAS No. 123, as amended by SFAS No. 148. We have adopted the disclosure requirements of SFAS No. 148 effective January 1, 2003. The adoption of this standard had no impact on the our financial condition or operating results. Fair Value of Financial Instruments: Statements of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2002. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. Earnings per Common Share: Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding during the period. Dilutive common equivalent shares consist of options to purchase common stock (only if those options are exercisable and at prices below the average share price for the period) and shares issueable upon the conversion of our Preferred Stock. Due to the net losses reported, dilutive common equivalent shares were excluded from the computation of diluted loss per share, as inclusion would be anti-dilutive for the periods presented. If we had generated earnings during the year ended December 31, 2003, we would have added 3,970,662 common equivalent shares, to the basic weighted average shares outstanding to arrive at diluted weighted average shares outstanding. This consists of 3,771,162 stock options and warrants outstanding and exercisable with exercise prices below the average share price for the period and 199,500 shares issuable upon the conversion or our Preferred Stock. Income Taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. Recent Accounting Pronouncements In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Standards No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 is effective for business combinations completed after June 30, 2001, and SFAS 142 is effective for fiscal years beginning after December 15, 2001. SFAS 141 proscribes the exclusive use of the purchase method of accounting for all business combinations subsequent to the effective date. SFAS 142 mandates that acquired goodwill and intangible assets deemed to have indefinite lives will no longer be amortized. Rather, goodwill and these intangibles will be subject to regular impairment tests in accordance with SFAS 142. All other intangible assets will continue to be amortized over their estimated useful lives. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 is effective for the fiscal years beginning after June 15, 2002. SFAS 143 is expected to improve financial reporting because all asset retirement obligations that fall within the scope of this Statement and their related asset retirement cost will be accounted for consistently and financial statements of different entities will be more comparable. As provided for in SFAS 143, we have elected early adoption of this statement in our fiscal year beginning January 1, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business. SFAS 144 is effective for fiscal years beginning after December 15, 2001 (with early adoption permitted under certain circumstances). SFAS 144 is expected to improve financial reporting by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and by broadening the presentation of discontinued operations to include more disposal transactions. As provided for in SFAS 144, we have elected early adoption of this statement in our fiscal year beginning January 1, 2002. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." This statement addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities. SFAS No. 146 is applicable to restructuring activities and costs related to terminating a contract that is not a capital lease and one time benefit arrangements received by employees who are involuntarily terminated. SFAS No. 146 supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146 the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the Company committed to the exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Previously issued financial statements will not be restated. The provisions of EITF Issue No. 94-3 will continue to apply for exit plans initiated prior to the adoption of SFAS No. 146. As of December 31, 2003, management has not determined the impact of SFAS No. 146 on the Company's financial statements. In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The Company adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities ("SPE). The consolidation requirements apply to all SPE's in the first fiscal year or interim period ending after December 15, 2003. The Company adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no SPE's. BALTIA AIR LINES, INC. (a development stage company) NOTES TO FINANCIAL STATEMENTS December 31, 2003 1. Income Taxes: The Company has approximately $7,700,000 in net operating loss carryovers available to reduce future income taxes. These carryovers expire at various dates through the year 2021. The Company has adopted SFAS 109 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 our net operating loss carry-forwards will not be utilized; therefore we have provided for a valuation allowance against the related deferred tax asset A summary of the deferred tax asset presented on the accompanying balance sheets is as follows: December 31, December 31, 2003 2002 Federal Deferred Tax Asset Relating to Net Operating Losses $ 2,000,852 $ 1,966,960 State Deferred Tax Asset Relating to Net Operating Losses 511,726 503,059 Less: Valuation Allowance (2,512,578) (2,470,019) Total Deferred Tax Asset $ 0 $ 0 2. Commitments: Facilities The Company leases its office space for its administrative offices, under a month to month agreement, at a monthly rental of approximately $ 800. Airplane Lease On December 16, 2003 we signed a Letter of Intent, and remitted a $ 50,000 deposit to secure an operating lease on a 316 seat aircraft. Delivery was postponed and the $ 50,000 was returned pending a rescheduling of the delivery date. 3. Stockholders' Equity: 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. Stock Issued for Cash In August 2003, we issued 696,428 shares of our common stock for a total of $50,512. The shares are not registered and subject to restrictions as to transferability. Stock Issued for Services In 2003, we issued 10,000 shares of our common stock in exchange for services. The shares were valued at $ 402 or $0.04 per share which approximated the market value at the time of issuance. The shares are not registered and are subject to restrictions as to transferability. We also issued 20,000 shares to correct a prior issuance and cancelled 175,000 shares issued in error in a previous fiscal year. Stock Issued Due to Exercise of Warrants & Options During 2003 holders of 2,934,662 warrants, registered in our 1999 registration statement, exercised their option to acquire a like amount of shares of Common Stock. The options were at various exercise prices and resulted in proceeds of $ 81,200. Stock Based Compensation Stock based compensation is accounted for by using the intrinsic value based method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The Company has adopted Statements of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation, ("SFAS 123") which allows companies to either continue to account for stock based compensation to employees under APB 25, or adopt a fair value based method of accounting. The Company has elected to continue to account for stock based compensation to employees under APB 25. APB 25 recognizes compensation expense for options granted to employees only when the market price of the stock exceeds the grant exercise price at the date of the grant. The amount reflected as compensation expense is measured as the difference between the exercise price and the market value at the date of the grant. There were no employee or non-employee options granted in either fiscal year ended December 31, 2003 or 2002. Warrants and Options No warrants or options were granted in 2003. The following table summarizes warrants and options outstanding at December 31, 2003: Weighted Weighted Average Average Exercise Fair Shares Price Value Balance 1/1/03 46,445,824 $0.0001 Nil Granted during 2003 0 $0.00 Nil Exercised/Lapsed during 2003 (2,934,662) $0.03 Nil Balance 12/31/03 43,511,162 $0.0001 Nil Options Outstanding & Exercisable at 12/31/03: Options Outstanding at 12/31/03: Weighted Weighted Average Average Remaining Weighted Remaining Weighted Range of Contractual Average Range of Contractual Average Exercise Life in Exercise Exercise Life in Exercise Prices Shares Months Price Prices Shares Months Price $ 0.0001 3,771,162 2.0 $ 0.03 $ 0.0001 39,740,000 60.0 $ 0.0001 The outstanding options of 39,740,000 are primarily granted to management and vest upon the completion of the first revenue flight. 4. Management's Plan of Operation. We do not currently have sufficient capital to commence revenue flight operations and must rely on additional sources of financing in order to maintain our current level of operations. During 2003 and into 2004 we continued to finance our operations through the issuance of our common stock and the continued exercise of warrants associated with our 1999 public offering. Until revenue operations begin, our monthly expenditures for administrative and regulatory compliance can be controlled at about $1,500-$2,000. Based on current reserves we have sufficient capital to support our development stage operations through the end of 2004. In 2004 we plan to raise $1 to 1.3 mm in a private placement in order to start revenue flight operations. Based on our prior experience with certification and current preparations the management believes that the launch budget, previously reviewed by the DOT, will be adequate to complete certification and to commence flight service. Approximately $300,000 is budgeted for aircraft, $450,000 for certification tasks, and $300,000 for general and administrative expenses. At the time flight service is inaugurated the company plans to have approximately 15 management and 45 staff personnel. Management has 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. In order that a new airline would 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 mm for the company, accumulate in an escrow account, and are released upon the issuance of the air carrier certificate. There can be no assurance that additional financing will be available on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund expansion. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. In January 2004 Want & Ender CPA, PC, our former certifying accountant, advised our chief financial officer by telephone that they had not registered with the Public Company Accounting Oversight Board (PCAOB) and did not intend to do so. While Want & Ender did not formally resign or decline to stand for re-election as our certifying accountant, it advised management that our company should retain a PCAOB registered firm to audit its financial statements for the year ended December 31, 2003. On February, 2004, our board of directors voted to dismiss the firm of Want & Ender as our company's certifying accountant and retain a successor auditor. The report of Want & Ender on our financial statements for the years ended December 31, 2001 and 2002 did not contain an adverse opinion or disclaimer of opinion. During the years ended December 31, 2001 and 2002 and the subsequent interim periods, there were no disagreements between our company and Want & Ender on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Want & Ender's satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report. During the years ended December 31, 2001 and 2002 and the subsequent interim periods, Want & Ender did not advise our company with respect to any of the matters specified in sub-paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K. On February 27, 2004, Michael F. Cronin, CPA, was retained to audit our financial statements for the year ended December 31, 2003 and to serve as our certifying accountant until the board elects a successor. Our company has not consulted Michael F. Cronin, CPA with respect to either a) the application of accounting principles to a specified transaction,either completed or proposed, or the type of audit opinion that might be rendered on our financial statements; or (b) any matter that was either subject of a disagreement or a reportable event specified in sub-paragraphs (a)(1)(iv) or (a)(1(v) of Item 304 of Regulation S-K). PART III Item 9. Directors, Executive officers, Promoters and Control Persons: MANAGEMENT Executive Officers and Directors The following table summarizes certain information with respect to the executive officers and directors of the board: Name Age Position Igor Dmitrowsky . . . . 48 President, CEO, Director of the Board Walter Kaplinsky . . . 64 Secretary and Director of the Board Andris Rukmanis . . . . 41 V.P. Europe and Director of the Board Anita Schiff-Spielman 48 Director of the Board Igor Dmitrowsky, President and Chief Executive Officer, founded the Company and served as Chairman of the Board from its inception in August 24, 1989 to date. Mr. Dmitrowsky, a US citizen, born in Riga, Latvia, attended the State University of Latvia from 1972 to 1974 and Queens College from 1976 through 1979. In 1979, he founded American Kefir Corporation, a dairy distribution company, which completed a public offering in 1986, and from which he retired in 1987. Mr. Dmitrowsky has financed aircraft and automotive projects, speaks fluent Latvian and Russian, and has traveled extensively in the republics of the former Soviet Union. In 1990, he testified before the House Aviation Subcommittee on the implementation of United States' aviation authorities by US airlines. Walter Kaplinsky, a US citizen, has been with the Company since 1990. Mr. Kaplinsky has been corporate secretary and a director of the board since 1993. In 1979, together with Mr. Dmitrowsky, Mr. Kaplinsky was one of the co-founders of American Kefir Corporation, where from 1979 through 1982, Mr. Kaplinsky served as secretary and vice president. Andris Rukmanis, a citizen of Latvia, is the Company's Vice President in Europe. Mr. Rukmanis joined the Company in 1989. In Latvia, Mr. Rukmanis has worked as an attorney specializing in business law. 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. Anita Schiff-Spielman, a US citizen, serves as a director of the board. She has been associated with the Company since its inception in 1989. Ms. Schiff-Spielman has owned Schiff Dental Labs, New York, NY, for the past seventeen years. Item 10. Executive Compensation. Management, Compensation. Employment Agreements The Company has no individual employment agreements. Compensation The board of directors approves salaries for the Company's executive officers as well as the Company's overall salary structure. For year one following the closing of financing sufficient to commence flight operations, the rate of compensation for the Company's executive officers is:(i) President $186,000, (ii) Vice President Marketing $82,000,and (iii) Vice President Europe $68,000. To this date, the Company has paid officers no salaries. Board directors are not presently compensated and shall receive no compensation prior to commencement of revenue service. Item 11. Security Ownership of Certain Beneficial Owners and Management. Principal Stockholders. PRINCIPAL STOCKHOLDERS The following table sets forth, as of December 31, 2002, 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. Common Shares Beneficially Owned Percent of Total Directors and Officers Igor Dmitrowsky . . . . . . 24,422,825 46.82% 63-26 Saunders St., Suite 7I Rego Park, NY 11374 Walter Kaplinsky . . . . . 3,717,294 7.13% 2000 Quentin Rd. Brooklyn, NY 11229 Andris Rukmanis . . . . . . 638,750 1.22% Kundzinsala, 8 Linija 9. Riga, Latvia LV-1005 Anita Schiff-Spielman . . . 13,118 0.03% 1149 Kensington Rd. Teaneck, NJ 07666 Counsel Steffanie J. Lewis . . . . . 5,623,331 10.78% 3511 North 13th St. Arlington, VA 22201 5% or more Shareholder Item 12. Intentionally omitted. Item 13. Intentionally omitted. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Baltia Air Lines, Inc., Registrant Date: May 2, 2005 _______ IGOR DMITROWSKY _______ By: Igor Dmitrowsky, President Date: May 2, 2005 _______ WALTER KAPLINSKY ______ By: Walter Kaplinsky, Secretary SIGNATURES and CERTIFICATIONS I, Igor Dmitrowsky, the Registrant's Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-KSB of Baltia Air Lines, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 annual report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 2, 2005 ____IGOR DMITROWSKY (signed)_________ By: Igor Dmitrowsky, Chief Executive Officer I, Igor Dmitrowsky, the Registrant's Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-KSB of Baltia Air Lines, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 annual report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 2, 2005 ______ IGOR DMITROWSKY (signed) _____ By: Igor Dmitrowsky, Chief Financial Officer BALTIA AIR LINES, INC., Registrant Date: May 2, 2005 ______ IGOR DMITROWSKY (signed) _____ By: Igor Dmitrowsky, President Date: May 2, 2005 ____ WALTER KAPLINKSY (signed)_____ By: Walter Kaplinsky, Secretary [bltk03a.txt/2005-05-02] (1) The bylaws limit the number of directors on the board to a maximum of four, with a provision that an additional seat on the board is created for a future Underwriter's designee for a period of five years, if required by the underwriter. Officers and Directors have a one year term and are elected at, and after, the Annual Meeting in August.