As filed with the Securities and Exchange Commission on December 16, 1997.
Registration No. 333-37409
_______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT No. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
Baltia Air Lines, Inc.
(Name of small business issuer in its charter)
New York 4500 11-2989648
(State or (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
organization) Code) No.)
East Wing Building #51
IcelandAir Terminal
JFK International Airport
Jamaica, NY 11430
Tel: (718) 553-6636
(Address and telephone number of principal executive offices)
Igor Dmitrowsky, President
Baltia Air Lines, Inc.
63-25 Saunders St., Suite 7I
Rego Park, NY 11374
Tel: (718) 275-5205
(Name, address and telephone number of agent for service)
Copies to:
Steffanie J. Lewis, Esq. Michael R. Koblenz, Esq.
Counsel for Baltia Counsel for Underwriter
International Business Law Mound, Cotton & Wollan
Firm One Battery Park Plaza
3511 N. 13th Street New York, NY 10004
Arlington, VA 22201 Tel: (212) 804-4247
Tel: (703) 522-1198 Fax: (212) 344-8066
Fax: (703) 522-1197
The date of proposed sale to the public: Within approximately
five days after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis, pursuant to Rule 415
under the Securities Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number for the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the
earlier effective registration for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box: [ ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
Title of Each Class of Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Security<FN1> Offering Price<FN1> Registration
Fee <FN4>
<S> <C> <C> <C> <C>
Common Stock 1,000,000 $6.125 $6,125,000 $1,856.06
Warrants <FN2> 3,000,000 0.125 375,000 113.64
Common Stock underlying Warrants <FN2> 3,000,000 6.50 19,500,000 5,909.09
Over-Allotment - Common Stock 150,000 6.125 918,750 278.41
Over-Allotment Warrants <FN2> 450,000 .125 56,250 17.04
Over-Allotment - Common Stock
underlying Warrants <FN2> 450,000 6.50 2,925,000 886.36
Underwriter's Option - Common 100,000 8.575 857,500 259.85
Stock <FN3>
Underwriter's Option - Warrants <FN3> 300,000 .175 52,500 15.91
Underwriter's Option - Common Stock
underlying underwriter's Warrants <FN3> 300,000 9.10 2,730,000 827.27
Total
$10,163.63
Fee initially paid by Company $9,641.43
Additional payment $522.20
<FN>
Notes:
<FN1>
(1) Estimated for purposes of calculating registration fee.
<FN2>
(2) Warrants are exercisable over the four-year period commencing one year
from the date of Prospectus (unless Warrants are redeemed sooner by
Company) at $6.50 per share of Common Stock.
<FN3>
(3) Under the underwriter's option, the underwriter is entitled to
purchase from the Company up to 100,000 shares of Common Stock at $8.575
per share and up to 300,000 Warrants at $.175 per Warrant. The exercise
price of Warrants underlying underwriter's Option is at $9.10 per share.
Underwriter's price represents an amount of 140% of initial public offering
price.
<FN4>
(4) Amount of Registration Fee is calculated as 1/33rd of one percent of
the aggregate Offering price.
</FN>
</TABLE>
The 4,950,000 securities (3,300,000 common stock and 1,650,000 warrants)
previously registered in SB-2 333-20006-NY approved 9/16/97, are carried
forward and included in the calculation of Registration Fee table in this
Registration Statement 333-37409. The fee previously paid to register such
securities, $9,269.01, is carried forward and off set against the current
registration fee of $10,163.63, leaving a balance of $522.20, which was
submitted by wire transfer on October 8, 1997.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Baltia Air Lines, Inc.
Cross Reference Sheet
Between Items on Form SB-2 and the Prospectus
Item in Form SB-2 Prospectus Caption
1. Front of Registration Statement and Forepart of Registration Statement
Outside Front Cover of Prospectus and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Page of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings N/A
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Legal Matters; Experts
Counsel
14. Disclosure of Commission Underwriting; Item 24 and Item 28
position on Indemnification for
Securities Act Liabilities
15. Organization within Last Five Summary; Business
Years
16. Description of Business Summary; Business
17. Management's Discussion and Management's Discussion and
Analysis or Plan of Operation Analysis of Financial Condition
and Results of Operation
18. Description of Property Business - Facilities
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity and Description of Securities
Related Stockholder Matters
21. Executive Compensation Management - Compensation
22. Financial Statements Selected Financial Data;
Financial Statements
23. Changes and Disagreements with N/A
Accountants on Accounting and
Financial Disclosure
SUBJECT TO COMPLETION, DATED SEPTEMBER ___, 1997
PROSPECTUS
(c) BALTIA AIR LINES - U.S. INTERNATIONAL AIR CARRIER
1,000,000 Shares of Common Stock and The New Way to Europe(tm)
3,000,000 Redeemable Common Stock Purchase Warrants
All of the 1,000,000 shares of common stock of $.0001 par value
("Common Stock" or "Shares") and 3,000,000 Redeemable Common Stock
Purchase Warrants ("Warrants") offered hereby (together, the
"Securities") by Baltia Air Lines, Inc. (the "Company") are being sold
through Global Equities Group, Inc. as the lead managing underwriter
("Lead-Manager" or Representative ) and [to be named] as the co-
managing underwriter ("Co-Manager"), together referred to as
("Underwriters"). The initial public offering price is $6.125 per
Share and $.125 per Warrant. The Shares and Warrants will be
separately tradable as of the date hereof. Investors may purchase
Common Stock, Warrants or both securities. Each Warrant entitles the
holder to purchase one Share for $6.50 during the four-year period
commencing one year from the date of this Prospectus. The Company may
redeem outstanding Warrants, once they become exercisable, at a price
of $.125 per Warrant on not less than 30 days' written notice,
provided the closing bid quotations of the Shares have exceeded $10
for 20 consecutive trading days ending on the third day prior to the
date on which notice is given. See "Description of Securities."
Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance that any such market will
develop or, if developed, that it will be sustained. The initial
public offering prices as well as Warrant exercise and redemption
prices were determined by negotiations between the Company and the
Lead-Manager. See "Underwriting." The Company has applied for
quotation of the Shares and Warrants on the SmallCap tier of the
NASDAQ Stock Market (The NASDAQ SmallCap Market ) under symbols "BALT"
and "BALTW," respectively, and for listing on the Boston Stock
Exchange under the symbols _______ and ______ , respectively.
-------------------------------------
The Securities offered hereby are speculative and involve a high
degree of risk and immediate substantial dilution. See "Risk Factors"
at page 7 and "Dilution" at page 19.
-------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions <FN1> Company <FN2>
<S> <C> <C> <C>
Per Share . . . . . . $6.125 $0.6125 $5.5125
Per Warrant . . . . . $0.125 $0.0125 $0.1125
Total <FN3> . . . . . $6,500,000 $650,000 $5,850,000
<FN>
<FN1>
(1) Does not include a 3% non-accountable expense allowance which the
Company has agreed to pay to the Lead-Manager. The Company has
also agreed to issue to the Lead-Manager warrants to purchase up
to 100,000 Shares and 300,000 Warrants (Representative's
Warrants), to retain Global Equities Group, Inc. as financial
consultant and to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
<FN2>
(2) Before deducting other expenses of this offering payable by the
Company estimated at $235,000, and the Underwriter's non-
accountable expense allowance of $195,000.
<FN3>
(3) The Company has granted the Lead-Manager an option, exercisable
within 45 days from the date of this Prospectus, to purchase up
to 150,000 additional Shares and 450,000 additional Warrants on
the terms set forth above, solely for the purpose of covering
over-allotments, if any (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $7,470,000, $747,500 and $6,722,500 respectively.
See "Underwriting."
</FN>
</TABLE>
The Securities are being sold by the Underwriters on a firm commitment
basis, subject to prior sale, when, as, and if delivered to and
accepted by the Underwriters, and subject to the right to reject any
order, in whole or in part, and subject to certain other conditions.
It is expected that delivery of certificates representing the
Securities will be made against payment therefor at the offices of
Global Equities Group, Inc. in New York City, on or about
, 1997.
GLOBAL EQUITIES GROUP, INC. SUNCOAST CAPITAL CORP.
The date of this Prospectus is , 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
AND WARRANTS SOLD. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION". IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICES OF COMMON STOCK OR WARRANTS AT A LEVEL ABOVE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ SMALLCAP MARKET AND BOSTON STOCK EXCHANGE.
SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the
information contained herein assumes no exercise of the Over-allotment
Option, the Warrants and the Representative's Warrant. Investors
should carefully consider the information set forth under the caption "
Risk Factors."
The Company
The Company , a U.S. airline incorporated in 1989 under the laws of New
York to provide full-service commercial, passenger, cargo and mail
transportation between New York City and the former Soviet Union,
competed in 1990 with eleven airlines (American Airlines, Delta,
Continental, TWA, PanAm, Northwest Airlines, American Trans Air, United
Airlines, Alaska Airlines, Federal Express and Evergreen International
Airlines) before the U.S. Department of Transportation ("DOT") for
rights to fly to the former Soviet Republics. See "Business - U.S.
Carrier Operations Under Bilateral Rights."
In 1991, under the U.S. - U.S.S.R. Civil Air Transport Agreement of
1990 ("US-USSR Bilateral Agreement"), the DOT granted the Company non-
stop authority to carry passengers, cargo and mail between JFK - St.
Petersburg, Russia; and JFK - Riga, Latvia, with on-line service beyond
Riga to Minsk, Kiev, and Tbilisi. Anticipating utilization of the
authorities, in 1992, the Company commenced the US Federal Aviation
Administration ("FAA") certification process, and trained 30 pilots, 38
flight attendants, 17 mechanics, and 8 dispatchers, but did not
complete the process because the Company did not have sufficient
financing to take delivery of aircraft.
At the time the Company received authority in 1991, the capital markets
were slow, the airline industry was in a down-turn, and the USSR was
transforming into separate sovereign nations, all of which the Company
believed limited its access to public or private financing. Resources
of the Company's officers and directors were insufficient to commence
revenue operations. Due to incomplete financing, the DOT withdrew the
Company's authorities in 1993.
In 1995, believing the capital markets to be favorable, the airline
industry to be in an up-turn, and Russia to have expanded its political
and economic ties with the United States which were reflected in the
growth of passenger traffic and freight, the Company reapplied for JFK-
St. Petersburg authority. Based upon the Company's planned Initial
Public Offering ("IPO") and having examined the Company's operating
plan and management, its background and qualifications, the US
Department of Transportation found the management fit to operate a US
flag carrier (DOT Order 96-1-24, and 96-2-51). The DOT authority is
conditional upon the Company's obtaining FAA air carrier certification
and meeting the DOT regulatory one-time financial requirement to have,
upon commencement of flight operations, working capital equal to an
averaged three months operating expenses. Founder, Chairman and
President Igor Dmitrowsky foresaw the dissolution of the Soviet Union,
realized the immense commercial opportunities for a US airline to serve
this rapidly developing market, and testified to such in 1991 before
the House Aviation Subcommittee. Mr. Dmitrowsky, a US citizen and
native of Riga, Latvia, has traveled extensively in the Republics of
the former Soviet Union and he speaks fluent Latvian and Russian.
The Company's activities, from inception to the present, have been
devoted to raising capital, obtaining route authority and approval from
the US Department of Transportation and the Federal Aviation
Administration, and on market research and development of the Company's
overall marketing program. Upon reexamination of the Company's fitness
as a US air carrier, in 1996 the DOT reissued JFK-St. Petersburg route
authority to the Company. In June 1997, the Company's president met
with the FAA regarding the air carrier certification process which is
based upon a 90-day schedule of events consisting of document approval,
crew training, and flight demonstration. Following its IPO closing
the Company will commence this process. The Company expects to
commence revenue operations 90 days after close of this Offering.
Prior to commencement of this service, the Company is required to
complete the FAA air carrier certification.
The Company's business strategy is to establish itself as a leading
carrier in the US - Russia niche market, but there is no assurance that
such will occur. The Company's marketing strategy is to associate the
Company's name with quality service. As part of its marketing
strategy, in 1992 the Company sponsored the St. Petersburg Festival in
New York featuring the Kirov Ballet and Opera at the Met. As a result,
the Company established relationships with key individuals within the
St. Petersburg's community, the Conductor, Director, and Assistant
General Manager of Kirov Opera & Ballet; and management of Hotel
Astoria, Grand Hotel Europa, and Pribaltiyskaya Hotel. There is no
assurance written contracts will evolve. The Company's Director of
Public Relations maintains these relationships presently, but no
promotion is currently conducted. The Company does not plan to use
Offering proceeds for promotion of art in St. Petersburg. The cost of
promotion of the arts of St. Petersburg will be paid from operating
revenues. The Department of Commerce ("DOC") describes St. Petersburg
as the former capital of Russia, with a population of just under five
million people, which makes it the second largest city in Russia and
the fourth largest in Europe. It is a central hub for commercial
activity in the Northwestern Region of Russia, and is the major
intellectual, cultural, financial, and industrial center of the Russian
Federation. The DOC statistics record that US-Russia air cargo more
than doubled in both directions from 1992 to 1995 (DOC, Bureau of the
Census).
The Company will offer non-stop and palletized and containerized air
cargo service from the United States into the St. Petersburg market, a
service presently not offered by any other airline. The US Postal
service stated that the Company may be required to carry about half of
all US mail to Russia (approximately 14,000 lbs per mo.), which the
Company can carry profitably and has no impact on the Company's flight
schedule. Currently all priority mail is channeled through Moscow
because non-stop service to St. Petersburg is not available. See
"Management Discussion and Analysis of Financial Condition and Results
of Operations." A number
of freight forwarders, ex. Paramount Cargo Marketing, Inc., RAF
International Sales, Inc., Transatlantic Royal Company, Inc., The
International Grapevine, Quantum International Forwarding, Ltd.,
American Export Lines, who specialize in the US-Russian market want to
use the Company's cargo service. Negotiations have included quantities
to be carried at quantity market rates and contracts with Paramount
Cargo Marketing and RAF International Sales are expected to be signed
following closing of the IPO, at which time the Company can approximate
the date of inaugurating flights. However, there are no assurances
that agreements will be reached at that time, or that cargo shipments
will materialize as expected. Paramount Cargo Marketing projected that
it would ship 20 tons five times per week, and RAF International Sales
projected its shipments at 50 to 75 tons per week to St. Petersburg.
The Company will commence revenue flight operations with one round trip
per week and increase frequency as economically advantageous.
Operating one round trip per week with full cargo payload, the Company
expects to carry less than a quarter of the requirements of these
forwarders. Thus initially, the Company expects to operate with full
cargo payload. The Company is authorized by its DOT authority to
operate up to five round trip flights per week.
The Company is presently in discussions with United Airlines for the
acquisition of B747 aircraft. The Company has allocated $1 million for
aircraft acquisition deposit. The aircraft acquisition will include
training, spare parts, and certain ground equipment. See "Use of Proceeds."
BALTIA(c), VOYAGER CLASS(c), THE NEW WAY TO EUROPE(tm), CLUB BALTIA(tm),
BALTIA CARGO(tm), AIR BALTIA(tm), and BALTIA EXPRESS(tm) are trademarks
of the Company.
The Company's office is located in the East Wing of the International
Arrivals Building (IAB) at JFK International Airport, Jamaica, NY
11430 and its telephone number is (718) 553-6636.
The Offering
Securities Offered(1) . . . . . . 1,000,000 shares of Common Stock
and 3,000,000 Warrants. The
Common Stock and Warrants are
separately tradeable as of the
date of this Prospectus.
Description of Warrants . . . . . Each Warrant entitles the
registered holder to purchase one
share of Common Stock for $6.50
during the four-year period
commencing one year from the date
of this Prospectus. The Company
may redeem the outstanding
Warrants, once they become
exercisable, at a price of $.125
per Warrant on not less than 30
days prior written notice,
provided the closing bid
quotations of the Shares have
exceeded $10 for 20 consecutive
trading days ending on the third
day prior to the date on which
notice of redemption is given.
See "Description of Securities."
Common Stock Outstanding . . . . . . . . . . . . 4,885,000 shares.
Common Stock Outstanding After Offering . . . . . 5,885,000 shares(1)
Proposed Nasdaq SmallCap Market Symbols . . . . . Common Stock: BALT
Warrants: BALTW
Proposed Boston Stock Exchange Symbols . . . . . . Common Stock:
Warrants:
Use of Proceeds
Of the $5,420,000 (2) net proceeds of this Offering, the Company intends
to reserve approximately $90,000 to pay liabilities; approximately
$2,626,000 for commencement of scheduled nonstop service on the JFK-St.
Petersburg route, including costs for aircraft deposit, spare
parts/ground equipment, office facilities, compensation, contract
services, marketing, consultants, mini-evacuation tests; and
approximately $2,704,000 as reserve working capital. See "Use of
Proceeds."
Risk Factors
The Securities offered hereby involve a high degree of risk. An
investment in the Securities should be considered only by investors who
can afford the loss of their entire investment. Prospective investors
should review carefully the information set forth under "Risk Factors."
(1) Does not include the Over-Allotment option of up to 150,000
additional Shares.
(2) Based upon the initial public offering price of $6.125 per Share
and $.125 per Warrant, net proceeds to the Company of $5,420,000
are calculated by deducting from the total Offering proceeds of
$6,500,000 the Underwriting Discounts and Commissions of $650,000,
the Lead-Manager's non-accountable expense allowance of $195,000
and expenses of this Offering payable by the Company estimated at
$235,000.
Summary Financial and Operating Data
The following table sets forth certain selected financial data for six
months ended June 30, 1997 and 1996 (unaudited), and years ended
December 31, 1996, and 1995, as derived from the financial statements
of the Company. The information should be read in conjunction with the
"Management Discussion and Analysis of Financial Condition and Results
of Operations" ("Management Discussion and Analysis"), and the
financial statements and related notes included in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30 December 31
1997 1996 1996 1995
Statement of Operations Data:
(Development Stage)
<S> <C> <C> <C> <C>
Operating revenue . . . . . . . . 0 0 0 0
Pre-operating expenses . . . . . $43,646 $85,700 $170,566 $775,416
Pre-operating loss . . . . . . . (43,646) (85,000) (170,566) (775,416)
Interest expense net . . . . . . 0 34,090 68,120 134,635
Net loss . . . . . . . . . . . . (43,646) (119,790) (238,686) (910,051)
Loss per share of Common Stock . (.00) (.03) (.05) (.20)
<CAPTION>
June 30, 1997
Pro forma Adjusted
Actual for Offering <FN1><FN2>
Balance Sheet Data:
<S> <C> <C>
Working capital (deficit) . . . . . . . . . $(837,419) $4,582,581
Total assets . . . . . . . . . . . . . . . 402,243 5,822,243
Total liabilities . . . . . . . . . . . . . 843,572 843,572
Redeemable common shares <FN4>. . . . . . . 0 0
Stockholders' equity (deficit) <FN3>. . . . (441,329) 4,978,671
Net Tangible Book Value per share . . . . . (.17) .77
<FN>
<FN1>
(1) Does not include proceeds from the Over-Allotment option of up to
150,000 additional Shares.
<FN2>
(2) Based upon the initial public offering price of $6.125 per Share
and $.125 per Warrant, net proceeds to the Company of $5,420,000
are calculated by deducting from the total Offering proceeds of
$6,500,000 the Underwriting Discounts and Commissions of $650,000,
the Lead-Manager's non-accountable expense allowance of $195,000
and expenses of this Offering payable by the Company estimated at
$235,000.
<FN3>
(3) In June 1997 the Company converted the following liabilities: (1)
$1,048,000 in demand notes issued in 1992, together with accrued
interest, were converted into 150,000 restricted Shares;
$1,628,000 in accounts payable were converted into 300,000
restricted Shares; (3) $110,000 in accounts payable to a
consultant were converted into 20,000 restricted Shares; and
$270,928 and $22,142 in accrued expenses were forgiven by certain
shareholders. See Management Discussion and Analysis - Results
During Development.
<FN4>
(4) In June 1997 certain shareholders canceled their option to sell
back to the Company 50,000 Shares at total buy-back amount of
$400,000.
</FN>
</TABLE>
Subscribers' Flight Coupon
In order to introduce its non-stop JFK - St. Petersburg service to its
IPO shareholders, the Company will issue Flight Coupons. For each
1,500 Shares purchased, the Subscriber receives one Flight Coupon to
purchase for $650 two round-trip tickets from JFK to St. Petersburg.
The Subscribers' Flight Coupon is not a security. See "Subscribers'
Flight Coupon.
RISK FACTORS
Investment in the Securities offered hereby involves a high degree of
risk. Prospective investors should carefully review the following
factors together with the other information in this Prospectus prior to
making an investment decision. Such risks include, among others:
Risks Relating to the Company
No Operating Revenue History
The Company has not yet commenced revenue operations. Excepting
investments and loans from present shareholders, the Company has not
had revenues. Since inception to June 30, 1997, the Company has
accumulated a loss of $6,288,016 in preparation for revenue service.
With the net proceeds from this Offering, the Company expects to start
revenue service on the JFK - St. Petersburg route. Accordingly, the
Company is in its development stage of business. As a "development
stage" business, the Company is subject to many of the risks common to
such enterprises, including under capitalization, cash shortages,
limitations with respect to personnel, financing and other resources,
and uncertainty of customers and revenues. There is no assurance that
the Company's activities will be successful or result in any revenues
or profit for the Company, and the likelihood of the Company's success
must be considered in the light of its stage of development. See
"Business."
The Company's Continuing as a Going Concern Depends Upon Financing
The Company's plans are dependent upon the closing of this firm IPO
for $6.5 million which the Company believes, and the US Department of
Transportation affirms, would be sufficient to meet the Departments
financial fitness criteria for an operation consisting of one round-trip
flight per week between new York and St. Petersburg with one
B-747-100 aircraft. (DOT Order 97-9-11, p.5.) If the Company does
not raise sufficient working capital and continues to experience
pre-operating losses, there will most likely be substantial doubt as
to its ability to continue as a going concern. If the IPO does not
close or sufficient working capital is not raised prior to
February 7, 1998, there is a risk that the Company's New
York - St. Petersburg route authority may not be renewed by the
US Department of Transportation and may cause the
Department to terminate the NY-St. Petersburg authority for
dormancy. Because the Company has generated no revenue, all expenditures
during the development stage have been recorded as pre-operating losses.
Revenue operations have not commenced because the Company has not raised
the necessary capital. The independent auditors have qualified their report
on the Company's financial statements to state that if the Company does not
raise sufficient capital there is substantial doubt as to its ability to
continue as a going concern. See "Use of Proceeds, Business and
Management Discussion and Analysis."
Obtaining FAA Air Carrier Certification is Prerequisite to Commencing
Revenue Service
Obtaining FAA air carrier certification,
a 90-day schedule of events, is a condition of commencing
revenue flight operations under the Company's DOT fitness certificate.
The certification process includes FAA approval of the Company's
written operation procedures, approval of Company training for
compliance with the written procedures, and the Company's demonstration
to the FAA in actual flight operations. At the time the Company
received authority in 1991, the capital markets were slow, the airline
industry was in a down-turn, and the USSR was transforming into
separate nations, all of which the Company believed limited its access
to public and private financing. Due to incomplete financing, in 1992
the Company could not take delivery of airplanes and as a result could
not complete the FAA certification process. Although at no time in
1992 was the Company deficient in any FAA certification task
undertaken, the FAA air carrier certification process must be
recommenced because of the five-year lapse. While the Company believes
the net proceeds from the Offering are adequate to complete the FAA
process, satisfy the DOT financial requirement (discussed below), and
commence revenue service, nevertheless, it is possible that some
unforeseeable event could occur that could prevent the Company from
obtaining FAA air carrier certification. See "Use of Proceeds, and
Management Discussion and Analysis."
Meeting DOT Financial Requirement is Prerequisite to Commencing Revenue
Service
The DOT requires that, at the time it commences revenue service, a new
airline have cash or credit in a one-time amount equal to expenses
reasonably to be incurred during the first three months of operations.
In practice the DOT takes one fourth of the total annual forecast
expenses. Projected revenues cannot be used to offset the three months
average expenses. ("DOT Financial Requirement"). The Company will
commence operations with one round trip per week. The averaged three
months operating expenses approximates $2.8 million. Assuming net
proceeds from the Offering, the Company will have reserve working
capital in the amount of $2,704,000 and a line of credit with Lateko
Bank in the amount of $6.5 million with which to meet the DOT financial
requirement to commence service with one round trip per week. Once
operations have commenced, the Company may increase service as traffic
demands up to the DOT authorized five round trips per week, and
regardless of demand, will not increase frequency of service at a rate
that might diminish quality of service. If some unforeseeable pre-
operating cost is incurred, to meet the DOT financial requirement the
Company may have to raise additional financing causing further dilution
of book value per share. See "Use of Proceeds, Business and
Management Discussion and Analysis."
Need for Additional Financing
With proceeds from this Offering, assuming no additional financing, the
Company expects to commence revenue operations with one JFK- St
Petersburg round trip per week; however, it is possible that
unforeseeable circumstances may arise so that capital raised in this
Offering may be insufficient to commence revenue operations. If
additional financing is required to meet the DOT financial
requirement, or other unforeseeable event, the Company will have to
raise additional funds and may have to negotiate equity for funds. See
discussion of additional potential sources of financing under
Liquidity and Capital Resources subsection of Management Discussion
and Analysis . There are no present commitments by anyone for future
financing. Risk is that future financing will dilute book value per
share and would most likely delay revenue flight operations
indefinitely. If revenue operations commence, no guarantee can be
given that the Company's JFK - St. Petersburg operation will generate
sufficient revenues to satisfy its cash needs at various periods in the
future. In which case, equity may be negotiated for debt and book
value per share would be further diluted. See "Use of Proceeds" and
"Management Discussion and Analysis."
The Company's International Route May Not Have Resale Value
In contrast to domestic airline routes, which became unlimited-entry
markets following air transport deregulation, international airline
routes are limited-entry markets with competition restricted by
bilateral agreements between contracting nations. Each contracting
nation designates its national carrier[s] to provide international
service on air routes permitted by the agreement. Subject to DOT
approval, US airlines have sold international route authorities to each
other for value. The Company's route authority has no resale value
during one year following commencement of air service because the
route's transferability is prohibited by the DOT until the Company has
operated the route for at least one year, and then may have no resale
value. Accordingly, route valuation should not be relied upon when
evaluating the equity of the Company. See "Management Discussion and
Analysis - Liquidity and Capital Resources".
Dependence on DOT Qualified Management
The management and directors of the board are required to meet the
qualifications of the DOT in order to operate a US airline. The loss
of their services may have an adverse effect on the Company's
operations, and qualified replacements acceptable to the DOT and FAA
would have to be retained. There can be no assurance that the Company
will be able to attract qualified personnel in the future on terms
attractive to the Company. The Company has a policy of engaging in
no employment contracts and the Company has entered into none. The
Company will have key-man life insurance in place 90 days
after the Closing. See "Management."
Management Has Discretion as to the Use of Proceeds
Management has discretion as to the use of proceeds with respect to
working capital which represents 49.9% of the net proceeds to the
Company from the Offering. There can be no assurance that management's
decisions will cause the most positive results for the Company or are
the spending decisions that individual investors would make if they
were in management's position. Investors will have no control over
such decisions because officers, directors and existing shareholders of
the Company will still control the board of directors following the
Offering. Unforeseen events or changed circumstances may cause
management to change the allocations of net proceeds set forth in the
Use of Proceeds section and one of the major allocations is for
working capital. See "Description of Securities - Lack of Control by
Minority Shareholders."
No Assurance of Future Profitability
As a US start-up airline, the Company is likely to be subjected to
greater initial scrutiny by the FAA than established mainstream
airlines, and the Company is likely to spend extra resources to make
required adjustments. A start-up airline can be expected to confront
many problems, delays, expenses and unforeseen difficulties relating to
operations, marketing and compliance with applicable regulations.
Despite offering the only non-stop service from JFK to St. Petersburg,
the Company may experience periods of operating losses. The Company
believes that its results of operations will be affected by various
factors, including market acceptance of its new non-stop flights,
seasonality variation, economic and political factors, and the need for
additional capital. There can be no assurance that the Company, and
its operations, will experience profitability in the future, if at all.
See "Management Discussion and Analysis."
Revenue Operations are Dependent upon Initial FAA Certification and
Continued Regulatory Compliance
The Company is a US start-up airline. In order to commence service on
the JFK - St. Petersburg route, the Company is required to complete its
FAA air carrier certification. Following the certification, a US
airline is required to maintain its air carrier standards as prescribed
by regulation. Failure to do so may ground the aircraft. See
"Business - Air Carrier Certification, and - Regulatory Compliance."
US International Air Carrier Operations are Subject to Terms and
Conditions in Bilateral Agreements
The Company's operation on its route from JFK to St. Petersburg, Russia
is conducted pursuant to the Air Transport Agreement Between the
Government of the United States of America and the Government of the
Russian Federation, signed 14 January 1994 ("US-Russia Bilateral
Agreement"), entitling the Company to certain rights and privileges
backed by the US government. However, the Company is subject to any
change negotiated by US and Russia which may not be to the Company's
advantage. By operating its service, the Company will establish
"grandfather rights" on its route, however, there can be no assurance
that the bilateral agreement will not be modified in the future to the
effect that certain provisions which are beneficial to the Company may
be diminished in the future. See "Business - US Carrier Operations
Under Bilateral Rights."
Political Risk may Affect the Company's Growth
The Company's long-term business strategy is to build a niche market
for itself in the US-Russia market. Because the Company's right to
operate from the US to Russia is protected by bilateral agreement, the
Company's service is not likely to be interrupted by political change,
unless a breakdown in diplomatic relations occurs between the US and
Russia. However, adverse political developments in Russia may slow
the present rapid growth of passenger and cargo traffic between the
United States and Russia. This in turn, may impact the Company's
operations. See "Business - US Carrier Operations Under Bilateral
Rights."
Dependence Upon Aircraft Availability
United Airlines has offered to Baltia a Boeing 747-100, accompanied by
crew training, spare engine, parts pool, heavy maintenance, and ground
equipment. The aircraft is presently available for delivery in 1997.
United Airlines has additional sister ships also available to Baltia.
However, until successful completion of this Offering, an acquisition
contract cannot be completed. The Company does not currently own or
lease any planes, and is not currently a party to a lease or contract
granting it access to a plane, and intends to contract for
aircraft acquisition at the earliest time following the Closing. The
Company may purchase or lease depending upon acquisition terms. The
Company expects to make monthly lease or purchase payments from
operating revenue in an amount ranging from $75,000 to $150,000 per
month. In the event the Company is unable to meet such monthly
payments, as in most lease or purchase plans, the aircraft may be
repossessed. If the Company's sole aircraft were repossessed, there is
a risk that the Company would cease flight operations and cessation
could be permanent. See "Business - Pending Aircraft Acquisition."
Risk of Escalating Fuel Cost and Labor Costs
The Company's fuel costs are based upon a Texaco quote at JFK and an
Aer Rianta quote at St. Petersburg. However, no assurance can be
given that future fuel costs will not escalate beyond the current
level. The Company's business is fuel-intensive. Fuel is one of the
most significant cost elements over which the Company has very little
or no control. A significant increase in the fuel cost may diminish or
eliminate the Company's profit, or create an operating loss.
Labor cost is a significant operating cost which can vary over time.
Despite the Company's long-term labor strategies, there can be no
assurance that the Company will be able to control escalating labor
costs over time, or that in the future it will not be exposed to
collective bargaining that may adversely affect future operating costs
and efficiency. See "Management Discussion and Analysis - Market
Statistics."
Security & Drug Testing Requirements
The Company is required to follow its FAA approved program for air
carrier security and drug testing. The Port Authority at JFK and
authorities in St. Petersburg, Russia have additional security
requirements. However, even when complying with these measures, no
guarantee can be given that security violations, as well as controlled
substance violations, can be totally prevented by the Company. There
may be situations over which the Company has no control. Any such
potential violation presents a significant risk for the Company, a risk
which appears to be inherent in the airline industry.
Single Aircraft Operation
The Company will operate a single wide body aircraft for a period of
time before acquiring another aircraft. The dispatch reliability of
the B747-100 is better than 97% (Boeing report ID:RM 23004). The FAA
requires that the Company have line maintenance at JFK and in St.
Petersburg, as well as spare parts reserves and parts pool arrangements
at both airports. Despite the technical servicing capability required
by the FAA, the Company may experience delays due to technical problems
which a multi-aircraft operator would be better equipped to resolve.
Such potential occurrences may impact adversely on the Company's
marketing objective to provide reliable on-time service to passengers
and cargo shippers. There is no additional safety risk associated with
operating a single aircraft because the FAA requires U.S. airlines to
observe uniform safety standards regardless of the number of aircraft.
For each hour of aircraft operation, the Company accumulates capital
reserves for various maintenance items. It is possible that during the
initial period, until sufficient maintenance cash reserves are
accumulated, an unexpected significant maintenance cost can adversely
impact the Company's operating cash flow. See Business - Description
of the Industry, and - Pending Aircraft Acquisition.
Currency Exchange Fluctuations
In addition to dollar sales throughout the United States and in Russia,
the Company will accept non-dollar currencies at St. Petersburg. The
Company is authorized to freely transfer its funds between the US and
Russia. Rubles are freely exchangeable to dollars, and the Company
will periodically make compensatory adjustments in its ticket prices,
purchased with rubles. However, for marketing reasons aimed at
maintaining an apparent stability of the Company's ticket pricing for
passengers and shipments originating abroad, the Company does not plan
to adjust its ticket prices simultaneously with exchange rate
fluctuations. Thus, an inherent exchange risk exists in the Company's
international currency transactions, risk which increases with exchange
rate volatility. The Russian government began freeing prices in 1992
which sparked devaluation of the Ruble. See Management Discussion and
Analysis - Currency Exchange Fluctuations.
Competition by Major Airlines
The rapidly growing US-Russian market is primarily being served by
foreign airlines providing a one- or two-stop service. The major
foreign competitors include Finnair, SAS, Lufthansa, KLM, Swissair,
British Air and other smaller foreign airlines. Only US and Russian
airlines derive rights to fly non-stop under the US-RUSSIA bilateral
agreement. Thus, excepting Aeroflot, no foreign carrier can obtain
rights to fly non-stop between the US and Russia. Delta is currently
providing non-stop service to Moscow, and the Company will fly non-stop
to St. Petersburg.
Despite the apparent advantage that the Company may have by providing
the only non-stop service to passengers and cargo shippers in the US -
St. Petersburg market, the major carriers have an established name and
reputation. As a start-up US airline, the Company will have to
establish its reputation and name recognition in the market in order to
capitalize on its non-stop service. Unlike some of its competitors, the
Company does not currently have interline agreements with other
airlines. The Company intends to sign interline agreements with other
airlines after the Company commences service, but there is no assurance
that such agreements would contain discounts equal to those of its
competitors. Interline agreements allow participating carriers to
reduce the total cost of a multi-legged ticket involving two or more
airlines, each airline contributing a certain discount for the leg on
which it provides service in order to bring down the overall price of
such a ticket. Prior to the Company's signing interline agreements
with other airlines, passengers will be able to purchase a multi-leg
ticket through the CRS (Computer Reservation System) at their local
travel agent without the benefit of interline discount. Without
interline discount, the multi-leg ticket may be more expensive than a
multi-leg ticket on a competitive airline that has interline agreements
in place. No assurance can be given that the Company's non-stop
service will offer a sufficient marketing advantage over the
established airlines. If the Company is unable to establish itself as
the leading US operator in the market, or if the Company is forced to
respond to overall price slashing, the Company's revenues will most
likely be adversely affected.
Based on reciprocity of the US-Russia Bilateral Agreement, a Russian
airline can also offer non-stop service, but none is presently offered.
It is likely that over time Russian airlines will upgrade their
services and will be able to compete for the mainstream market. There
can be no assurance that such future competition by a Russian airline
entering the market will not adversely affect the revenue growth of the
Company. See Business --- Competition, --- US Carrier Operations
Under Bilateral Rights, and --- Interlining at JFK and La Guardia
Airports.
Effects of Seasonality on the North Atlantic
Traffic over the North Atlantic fluctuates seasonally with higher load
factors in the summer and lower load factors in the winter.
Historically the February North Atlantic traffic (low point) is 25%
lower than the average monthly traffic and the August North Atlantic
traffic (high point) is 45% above the monthly average North Atlantic
traffic. During the low season, to mitigate the typical seasonal
traffic decline, the Company intends to market St. Petersburg's winter
cultural attractions and may reduce the frequency of its winter
scheduled flights while providing supplemental charter service with its
aircraft when the aircraft is not flying scheduled service. However,
no assurance can be given that the Company's marketing strategies will
be sufficiently effective to maintain desirable passenger and cargo
load factors throughout the year. Nor can the Company guaranty that
revenues from potential charter services would counter-balance the
negative impact on revenue due to North Atlantic seasonal fluctuations,
or if charter opportunities will be timely available to the Company.
On occasion JFK airport could close or St. Petersburg airport and all
alternative airports in Europe could close. In that case the Company's
flight departure would be delayed. This delay is not a significant
economic factor because the delay would be absorbed in turn around
time. North Atlantic flights follow FAA established procedures to
assure safety. Separate procedures exist for twin-engine aircraft that
are not applicable to aircraft with more than two engines. Extended
Range Twin-engine Operations (ETOPS) regulates twin engine operations
by requiring the availability of alternate en route airports along the
North Atlantic route in the event one engine were to fail. When
weather closes a critical en route airport, the twin engine aircraft
flight may not depart. The Boeing 747, which the Company is
considering, is not subject to ETOPS regulations. The Company is not
presently considering a twin aircraft. See seasonality chart in
Management Discussion and Analysis .
Limited Insurance Coverage and a Fluctuating Insurance Market
As a US airline, the Company is required to maintain comprehensive
airline liability insurance. The Company will carry $750 million in
liability coverage and additionally the Company will purchase hull
insurance, both to be effective upon delivery of the aircraft
immediately prior to commencement of flight operations. The Company
has no control over the fluctuation in the insurance market and no
assurance can be given that future increases in the overall insurance
premiums will not adversely affect the Company's profitability.
The risk of an airline disaster can be devastating to a major carrier.
The liability coverage purchased by the Company may not provide
adequate coverage in the event of a significant disaster which might
adversely affect the Company. See "Management Discussion and Analysis
- - Insurance Coverage and Expense."
Consequences in the Event of Default on Lateko Bank Line of Credit
The DOT has authority to withdraw the authority from any US airline
should it find that non-US citizens directly or indirectly control that
airline. Should the Company default on repayment to Lateko Bank,
notice must be made to the DOT. The Company has made no draws upon this
line of credit and owes no debt to Lateko Bank. See "Twelve Month
Operating Plan" and "Notes to Financial Statements," F-16, for terms
and conditions. The Lateko LOC specifically states that its aim is
to develop international trade associated with cargo and passengers'
transport by air between the United States and the Baltic Region, and
although in management's opinion, the value of the Company to Lateko
lies in its U.S. certification and the Company and Lateko would have
a continued interest in retaining U.S. control of the airline, it is
not certain what action Lateko Bank would take in the event the
Company defaults. Although Lateko Bank has international
correspondents, including Bankers Trust Company of New York City,
signed a bilateral investment treaty with the Unites States that
took effect in December 1996, Lateko Bank is located in Latvia and
subject to Latvian law. There is no assurance that the investor would
not be adversely affected by action of the DOT, the Latvian government,
or by action of the Lateko Bank in the event of default. See
"Management Discussion and Analysis - Results During Development."
Executive Compensation
During the 90-day period commencing when the offering proceeds are
released to the Company prior to revenue operations, the President and
the Vice Presidents will receive compensation reduced to an amount
equal to 50% of budgeted salary. From total net proceeds of
$5,420,000, the executive officers' compensation totals $42,000 which
represents 0.8% of the net proceeds. The proceeds allocated for
executive compensation are not available for other uses in commencing
revenue service. See "Use of Proceeds and Management - Compensation."
Potential Conflicts of Interest
The Company's directors and executive officers may serve as directors
and executive officers of other business entities. The Company does
not prohibit its officers and directors, or their affiliates, from
transacting business with the Company, but to the present there have
been no such transactions, excepting rental of office space from the
Company's president prior to moving the office to JFK. Not
withstanding full Board disclosure of any transaction between the
Company and an Officer or Director, it is possible that an official
could act to increase his/her interest at the expense of the Company.
Anita Schiff/Spielman owns dental laboratories and will be
available to the Company for Board meetings and related activities of
her directorship. Andris Rukmanis is a partner in a Latvian law firm and
will be a full time employee of the Company after IPO closing. Walter
Kaplinsky is currently inactive in Globe Enterprises, a company exporting
to Russia, and contributing his services full time to the Company.
Presently no other companies have demands upon the officers or directors
and no conflict of interest exists. Since June 1997, after converting
the $1,628,432 that was owed to her by the Company into 300,000
restricted shares, the outside legal counsel, Steffanie J. Lewis, The
International Business Law Firm, P.C., owns a total of 380,000 shares,
or approximately 7.8%, of the Company's issued and outstanding Common
Stock. Her financial interest potentially could influence her
independent opinion.
In 1990, Airline Economics, Inc. was engaged by the Company as industry
analysts for the US - USSR Route Authority proceeding before the U.S.
Department of Transportation. Airline Economics was involved in the
preparation of the Company's traffic projections for the JFK - St.
Petersburg market and testified as expert witness for the Company in
the proceeding. Airline Economics has been issued 57,500 shares of
Common Stock, or approximately 1.2%, of the Company's issued and
outstanding Common Stock. In June 1997 this shareholder converted
$110,000 that was owed to it by the Company into 20,000 restricted
Shares. Airline Economics' financial interest potentially could
influence its independent opinion. See "Management Discussion and
Analysis - Liquidity and Capital Resources."
The Company's Operating Revenue may not be Sufficient to Repay
Indebtedness
The Company has debt in the amount of $843,572 of which approximately
$500,000 is owed to outsiders and the balance to shareholders who have
an interest in the Company's continued operations. Excepting $90,000
reserve, the Company will not use net proceeds to repay indebtedness.
If the Company does not generate sufficient operating revenue to repay
indebtedness, it will postpone payment until such time as it has the
capability to pay or it may borrow on its Lateko Bank line of
credit. For terms of credit see "Management Discussion and Analysis
- - Twelve Months Operating Plan." As of December 31, 1996, the Lateko
Bank had total assets of US $26.4 million, total deposits of US $14.8
million and total capital and reserves of US $3.6 million (Thomson
Bank Directory, June-November 1997, p 2148) During the 1995 Latvian
banking crisis Lateko Bank had a reduction of 34 percent in total
assets and a 53.7 percent reduction in its total deposits as of March
31, 1995 (Polk World Bank Directory, 1995'1996, p.7, note 9.) Tight
fiscal policies and enhanced bank supervision have contributed to the
stabilization of the economy leading to the strengthening of the
financial system and acceleration of structural reforms enabling
Latvia to emerge strongly from the 1995 banking crisis. (The US
Department of Commerce, International Trade Administration, Central
and Eastern Europe Business Information Center, Commercial Update,
September/October 1997.) There is no guarantee that the Latvia
financial system will maintain its strong emergence. If another
banking crisis occurred, it is possible that Baltia's line of credit
may be jeopardized.
Lack of Control by Minority Shareholders
Upon the closing of this Offering, the officers and directors of the
Company, will own 57% of the issued and outstanding shares of Common
Stock (assuming the Warrants, and Lead-Manager's Purchase Option are
not exercised). The Certificate of Incorporation does not provide for
cumulative voting. Therefore, the major shareholders will control 100%
of the board of directors after this Offering. A minority shareholder
will have no control over the management of the Company and will be
unable to elect any directors. See "Principal Stockholders" and "
Description of Securities - Lack of Control by Minority Shareholders."
Dividends
The Company has never paid dividends on its Common Stock and presently
intends to retain earnings, if any. There can be no assurance that
dividends will or will not be paid to its shareholders. Payment of
dividends on the Company's Common Stock rests with the discretion of
the board of directors and will depend upon future earnings, if any.
See "Dividend Policy."
Trademark Infringement
The Company has seven trademarks, of which two, "Baltia" and "Voyager
Class," are registered and five are subject to registration. While the
Company intends to protect its trademarks, there can be no assurance
that the Company can enforce the trademarks against infringement. "See
Management Discussion and Analysis - Liquidity and Capital Resources."
Risks Relating to the Offering
Arbitrary Price
The public offering price of the Shares of Common Stock and Warrants
has been determined by negotiations between the Lead-Manager and the
Company. In determining the number of shares of Common Stock and
Warrants to be offered and the Offering price, the Company and the
Lead-Manager considered (among other things) the Company's history,
capital structure, results of operations and financial condition,
estimates of the business potential of the Company, prospects for the
industry in general, and the general condition of the securities
market. The price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criteria
for valuing a company. Accordingly, the Offering price should not be
considered an indication of the actual value of the Company's
securities. See "Underwriting - Determination of Public Offering
Price."
No Assurance of Market and Possible Volatility
Prior to this Offering there has been no public market for the Common
Stock or Warrant, and although the Shares and Warrants (including the
Shares underlying the Warrants) will be free of restrictions on
transferability, there can be no assurance that a public market will
develop after this Offering, or if developed, that it will be
sustained. The Company has applied for quotation of shares on Nasdaq
SmallCap Market and Boston Stock Exchange, however, if approved, there
is no guarantee that the Company will be able to maintain its listing.
There have been periods of extreme fluctuation in the stock market
that, in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of the affected securities. The
lack of current market for the Common Stock and Warrants, fluctuations
in trading interest and changes in the Company's operating results,
financial condition and prospects could have a significant impact on
the market price of the shares of Common Stock and Warrants.
Although the initial public offering price of the Securities reflects
the Company's and the Underwriter's assessment of current market
conditions, there can be no assurance that the price of the Company's
Securities will be maintained following the Offering. Accordingly,
purchasers may not be able to resell their Common Stock, or Warrants at
or above the public offering price, if at all, and a purchaser may not
be able to liquidate his investment even at a loss without considerable
delay. See "Common Stock Available for Future Sale, and Underwriting
- - Determination of Public Offering Price."
Listing Requirements
Under prevailing rules of the National Association of Securities
Dealers, Inc. ("NASD"), in order to qualify for initial quotation of
securities on The Nasdaq SmallCap Market, a company, among other
things, must have at least $4,000,000 in total assets, $2,000,000 in
total capital and surplus, $1,000,000 in market value of public float
and a minimum bid price of $3.00 per share. Even if the Company
qualifies for initial quotation of its Securities on Nasdaq, for
continued listing on Nasdaq, a company, among other things, must have
$2,000,000 in total assets, $1,000,000 in total capital and surplus,
$1,000,000 in market value of public float and a minimum bid price of
$1.00 per share. The new proposed listing maintenance standards
require net tangible assets of $2 million or $500,000 net income in two
of the last three years, or market capitalization of at least $35
million; 500,000 public float shares and $1 million public float value,
$1 bid price, two market makers and 300 shareholders. If the Company
is unable to maintain the requirements for quotation on Nasdaq,
trading, if any, in the Common Stock offered hereby would be conducted
on the Over the Counter Market. Application has been made for listing
on the Boston Stock Market. In the event the Common Stock and Warrants
are not accepted on the Boston Stock Exchange, or if accepted and the
Company fails to maintain such a listing, an investor would likely find
it difficult to dispose of the Common Stock or Warrants, or to obtain
current quotation to their value. There can be no assurance that the
Company will meet the requirements for continued listing in the Nasdaq
SmallCap Market or the Boston Stock Exchange.
Potential Effect of Penny Stock Rules on Liquidity of Shares
If the Company's securities are not listed on Nasdaq or certain other
national securities exchanges and the resale price thereof falls below
$5.00, then resales of such securities will be subject to the
requirements of the penny stock rules absent the availability of
another exemption. The Securities and Exchange Commission ("SEC") has
adopted rules that regulate broker-dealer practices in connection with
transactions in penny stocks. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the
Nasdaq system). The penny stock rules require a broker-dealer to
deliver a standardized risk disclosure document prepared by the SEC, to
provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson
in the transaction, and monthly account statements showing the market
value of each penny stock held in the customer's account, to make a
special written determination that the penny stock is a suitable
investment for the purchaser and to receive the purchaser's written
agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If
the Company's securities become subject to the penny stock rules,
investors in this Offering may find it more difficult to sell their
securities. If the Company's securities were subject to the existing
or proposed regulations on penny stocks, the market liquidity for the
Company's securities could be severely and adversely affected by
limiting the ability of broker-dealers to sell the Company's securities
and the ability of purchasers in this Offering to sell their securities
in the secondary market.
Warrant is Subject to Company's Redemption
The Company may redeem outstanding Warrants, once they become
exercisable, at a price of $.125 per Warrant on not less than 30 days
written notice, provided the closing bid quotations of the Shares have
exceeded $10 for 20 consecutive trading days ending on the third day
prior to the date on which notice is given. The Company intends to
redeem Warrants at the earliest opportunity, provided there is a
current prospectus at that time. Thereafter the Warrant is worthless.
Thus, the investor may have to exercise his/her Warrant before maximum
profit can be gained from it. Investors are advised that Warrants may
not be redeemed or exercised in the absence of a current prospectus.
The Company intends to keep the Prospectus current, but assumes no
obligation to do so. The Company's intent to keep the Prospectus
current is fully set out in the following two paragraphs. See
"Description of Securities - Warrants."
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants
The Company has qualified the sale of the Securities in a limited
number of states, NY, NJ, CO, CT, FL, GA, IL, MD, WA, and UT, and
certain exemptions under certain securities ("blue sky") laws may
permit the Warrants to be transferred to purchasers in states other
than those in which the Warrants were initially qualified. Although
the Securities will not knowingly be sold to purchasers in
jurisdictions in which they are not registered or otherwise qualified
for sale, purchasers may buy Shares or Warrants in the aftermarket or
may move to jurisdictions in which the shares of Common Stock issuable
upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. The Company may decide
not to seek, or may not be able to obtain qualification of the issuance
of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In this event, the Company would be
unable to issue shares of Common Stock to those persons desiring to
exercise their Warrants. No assurance can be given as to the ability
of the Company to effect any required registration or qualification of
the Common Stock in any jurisdiction. See "Description of Securities."
Necessity for Updating Registration Statement
So long as the Warrants are exercisable, the Company would be required
to file one or more Post-Effective Amendments to its Registration
Statement on Form SB-2 ("Registration Statement") to update the general
and financial information contained in this Prospectus. These
obligations could result in substantial expense to the Company and
could be a hindrance to any future financing. The Company will not
notify Warrant holders if Warrants may not be exercised due to the
absence of an effective Post-Effective Amendment. Although the Company
has undertaken and intends to keep its Registration Statement current,
there is no assurance that the Company will be able to keep its
Registration Statement current, and if for any reason it does not do
so, the Warrants will not be exercisable. The Company's Warrant and
Transfer agent has been instructed not to accept Warrants for exercise
without a current prospectus. See "Description of Securities -
Warrants."
Representative's Warrants
Subject to the requirements of the SEC and NASD, the Company will grant
to the Lead-Manager, as partial consideration for services rendered, a
warrant to purchase up to 100,000 Shares and 300,000 Warrants,
exercisable during the four-year period commencing one year from the
date of this Prospectus after which time all rights attached terminate.
The Representative's Warrants may not be sold, transferred, assigned
or hypothecated for a period of one year from the Prospectus date,
except to officers of the Lead-Manager and members of the underwriting
group and their respective officers or partners. An exercise of the
Representative's Warrants, which may be effected at any time, either in
whole or in part, beginning one year after the date of this Prospectus
for a period of four years thereafter and can be expected to be
exercised at a time when the Company can obtain new capital on more
favorable terms. This may adversely affect the Company's ability to
obtain equity capital, and, if the Common Stock issuable upon the
exercise of the Representative's Warrants is sold in the public
market, may adversely affect the market price of the Company's Common
Stock. The Representative's Warrants and the Shares issuable upon
exercise of such option have been included in the Registration of which
this Prospectus is a part. The Company has agreed to keep such
Registration Statement current, which could result in substantial
expense to the Company. This obligation is in addition to certain
registration rights granted to the Lead-Manager. See "Description of
Securities - Representative's Warrants , Underwriting, and
Dilution."
Underwriters as Market Maker
In connection with the Offering, the Underwriters and selling
group members (if any) and their respective affiliates may engage
in transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock and Warrants. Such transactions
may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase Common Stock or Warrants for the purpose of
stabilizing their market prices. The Underwriters may also create
a short position for the account of the Underwriters by selling
more securities in connection with the Offering than they are
committed to purchase form the Company and in such case may
purchase securities in the open market following completion of
the Offering to cover all or a portion of such short position.
The Underwriters may also cover all or a portion of such short
position, up to 150,000 additional shares of Stock and 450,000
Warrants, by exercising the Over-Allotment Option. Any of the
transactions described in this paragraph may result in the
maintenance of the securities at a level above that which might
otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
In connection with the Offering the Underwriters and selling
group members (if any) and their respective affiliates may also
engage in passive market making transactions in the Stock and
Warrants on The Nasdaq SmallCap Market immediately prior to the
commencement of sales in this Offering, in accordance with Rule
103 under Regulation M. Passive market making consists of
displaying bids on The Nasdaq Small Cap market limited by the
bid prices of independent market makers for a security and
making purchases of a security which are limited by such
prices and effected in response to order flow. Net purchases
by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average
trading volume in the securities during a specified prior
period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the
securities at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
See "Underwriting and Available Information."
Substantial Dilution to Purchasers
Assuming no value attributable to the Warrants, at the initial public
offering price of $6.125 per Share, purchasers in this offering will
incur immediate and substantial dilution of $5.36 (87%) dilution per
Share in the net book value per share of their investment. In
addition, purchasers in this offering will be contributing
approximately 53% of the total investment consideration to the Company
but will receive only 17% of the shares outstanding (assuming the
Warrants, Representative's Warrants, and Management Stock Options are
not exercised). Additional dilution will occur upon the exercise of
Warrants, Representative's Warrants, Over-allotment Option, and
Management Stock Options. Accordingly, in the aggregate, purchasers in
this offering will bear a greater risk of loss than the current
stockholders. See "Dilution."
Shares Eligible for Future Sale
Prior to the Offering there has been no public market for the Common
Stock or the Warrants. Sales of substantial amounts of shares of
Common Stock, pursuant to Rule 144 or otherwise, could adversely affect
the market price of the Common Stock, the Shares and the Warrants, and
make it more difficult for the Company to sell equity securities in the
future at a time and price which it deems appropriate.
Upon completion of the Offering, approximately 5,885,000 shares of
Common Stock will be outstanding. The 4,885,000 shares of Common Stock
held by present shareholders ("Insider Shares") have not been
registered under the Securities Act of 1933, as amended ("Securities
Act"). The Company and holders of 95% Insider Shares (4,645,000
shares) have signed agreements not to sell their shares publicly or
privately for 24 months following the Prospectus date without the
prior written consent from the Lead-Manager. Whether or not to grant
consent lies within the discretion of the Lead-Manager, who has no
present intent to grant consent for any shares currently outstanding.
Should the Lead-Manager provide written consent, the Company's
General Counsel will issue the appropriate opinion letter removing
the restriction on selling the eligible Insider Shares. Following
the 24-month Lead-Manager's lock up, substantially all Insider
Shares will be freely tradable in the public market, if one exists,
subject to Rule 144.
In general, Rule 144 allows a shareholder who has beneficially owned
restricted shares for at least one year (including persons who may not
be defined to be "affiliates" of the Company under Rule 144) to sell
within any three (3) month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock or the average weekly volume on Nasdaq during
the four calendar weeks preceding such sale, and may only sell such
shares through unsolicited broker's transactions. A shareholder who is
not deemed to have been an "affiliate" of the Company for at least 90
days and who has beneficially owned his shares for at least two years
would be entitled to sell such shares under Rule 144 without regard to
the volume limitations described above. See "Common Stock Available
for Future Sale."
Future Issuance of Stock by the Company
Except as provided herein, pursuant to agreement with the Lead-Manager,
for 24 months following the Prospectus date, the Company shall not
issue any additional equity securities without the Lead-Manager's
prior written consent. Following the exercise of the 3,000,000
Warrants, Representative's Warrants consisting of 100,000 Shares
and/or 300 000 Warrants, and the Management's Stock Options for 800,000
Shares, the Company will have outstanding 10,685,000 Shares. The
Company is also authorized by its Certificate of Incorporation to issue
15,000 Preferred shares, none of which have been issued. The remaining
shares of Common Stock, and the unissued Preferred Shares, not issued
or reserved for specific purposes may be issued without any action or
approval by the Company's minority shareholders. Although there are no
present plans, agreements or undertakings involving the issuance of
such shares, except as disclosed in this Prospectus, any such issuances
could be used as a method of discouraging, delaying or preventing a
change in control of the Company or could dilute the public ownership
of the Company. There can be no assurance that the Company will not
undertake to issue such shares if it deems appropriate to do so. See
"Dilution," "Common Stock Available for Sale," and "Description of
Securities."
Representative's Lack of Underwriting Experience
The Representative was recently organized and has only acted as a lead
underwriter in two prior public offerings although it has participated
as a selected dealer in offerings underwritten by others. This lack of
underwriting experience may (i) adversely affect the development or
continuation of a trading market for the Common Stock or Warrants, and
(ii) negatively influence the market price of the Common Stock or
Warrants following the Offering.
USE OF PROCEEDS
The proceeds from this Offering will be used to commence scheduled non-
stop flights from JFK to St. Petersburg, Russia. Particularly the
proceeds will be used to meet the costs to: (1) Obtain FAA Air Carrier
certification, includes acquiring an aircraft and hiring/training
flight crew allowances, (2) Conduct preliminary marketing, (3) Satisfy the DOT
one-time financial requirement, and (4) reserve approximately $90,000
for liabilities. The net proceeds to the Company from the sale of
1,000,000 Shares and 3,000,000 Warrants are estimated to be $5,420,000
after deducting underwriting discounts, Lead-Manager's 3% non-
accountable expenses and other offering expenses of $235,000.
Obtaining FAA Air Carrier certification is a condition of commencing
revenue flight operations under the Company's DOT fitness certificate.
The certification process includes FAA approval of the Company's
written operating procedures, approval of Company training for
compliance with the written procedures, and the Company's demonstration
to the FAA in actual flight operations. Because financing could not be
completed in 1992, the Company could not take delivery of airplanes,
and therefore could not complete the FAA certification process. In
1992 at no time was the Company deficient in any FAA certification task
undertaken. In 1996, because of the five-year lapse, the Company must
commence FAA air carrier certification anew. While the Company
believes the net proceeds from this Offering are adequate to complete
the FAA process, satisfy the DOT financial requirement, and commence
revenue service, nevertheless, it is possible that some unforeseeable
event could occur that could prevent the Company from obtaining FAA air
carrier certification.
Assuming all costs of the 90-day certification process are paid, the
DOT requires the Company to have cash or credit equal to three months
operating expenses assuming zero revenue. The Company will commence
service with one round trip per week and will increase frequencies as
traffic demands. Assuming zero revenue and one round trip per week,
the Company projects average three months operating costs to be $2.8
million. Net proceeds from the Offering allocated as working capital
and the line of credit from Lateko Bank are sufficient to satisfy the
DOT financial statutory requirement. Following commencement, the
Company may increase the frequency up to the limit of five round trips
per week.
The table below lists in the order of Company priority the expenses and
working capital reserve for which the Company may use the proceeds, and
includes all costs the Company estimates it will incur prior to
commencing revenue operations. The table assumes acquisition of B747-
100. However, the Company will select the best aircraft for lease or
purchase available at the time. The Company prefers a B747-100 and the
aircraft must meet FAA air worthiness requirements. Consideration will
be given to the prior ownership and maintenance of the aircraft, as
well as the purchase package accompanying the aircraft purchase which
should include spare engine, parts pool, heavy maintenance service,
adoption of a maintenance program, crew training, and certain ground
equipment. The Company has estimated the market value and initial
deposit required to acquire an aircraft based upon its discussions with
aircraft sellers and lessors. With $1,000,000 the Company can make a
deposit. The Company expects to make monthly lease or purchase
payments from operating revenue. There is no guaranty that an aircraft
will be available to the Company at these estimated prices at the time
funds are available for lease or purchase. It is the opinion of the
Director of Technical Services that spare parts for the B747-100 are in
relative abundance at favorable prices. The numbers in the table below
are Company estimates.
<TABLE>
<CAPTION>
Use of Proceeds
<S> <C> <C>
Aircraft Lease or Purchase Deposit <FN1>. . $1,000,000 18.5%
Spare Parts/Ground Equipment <FN2> . . .. . 1,150,000 21.2%
General and Administrative <FN3> . . . .. . 70,000 1.3%
Compensation and Benefits <FN4> . . . . . . 196,000 3.5%
Contract Services <FN5> . . . . . . . . . . 80,000 1.5%
Marketing (direct costs only) <FN6> . . . . 60,000 1.1%
Consultants <FN7> . . . . . . . . . . . . . 20,000 0.4%
Mini-Evacuation Test <FN8>. . . . . . . . . 50,000 .9%
Repayment of Liabilities <FN9>. . . . . . . 90,000 1.7%
Reserve Working Capital <FN10>. . . . . . . 2,704,000 49.9%
TOTAL (Net Offering Proceeds) $5,420,000 100%
<FN>
<FN1>
(1) Represents initial deposit. Monthly lease or purchase payments
are similar in cost ranging from $75,000 to $150,000, and will be
made from operating revenue.
<FN2>
(2) Estimated range for spare parts and ground equipment costs is
based upon the Company's Director of Technical Services experience
and discussions with suppliers.
<FN3>
(3) Inclusive of direct and indirect office facility operating
expenses and general liability insurance for 90 days. (See note
10 and paragraph below.)
<FN4>
(4) This number represents all compensation costs and includes hiring/
training flight crew allowances, reduced salaries, and reduced executive
compensation for the 90-day period commencing with the Closing and
culminating with FAA certification. Training allowances remain
constant. Salaries and executive compensation will be reduced by
50%. Executive compensation for the 90-day period equals $42,000.
Executive compensation represents 0.8% of net proceeds.
<FN5>
(5) This is an allocation of deposits for contractual services
commencing with revenue operations including deposits to caterers,
Port Authority and St. Petersburg Airport Authority, US Customs,
Aeronautical Radio, Official Airline Guide, and Jeppesen who will
provide the Company with aeronautical charts.
<FN6>
(6) Ninety-day pre-flight marketing costs include expenses of database
marketing, direct mailing, agency advertising (select print and
radio) and initial PR presentation. Does not include the cost of
salaries and the use of the Company's facilities, equipment and
communications, costs of which are absorbed elsewhere in the
budget. Nor does it include the marketing budget during revenue
operations, ex. the costs of promotion of the arts in St.
Petersburg will not be paid from the marketing allocation set
forth in the Use of Proceeds , but will be paid from operating
revenues.
<FN7>
(7) Allocated for temporary instructors and office help for a 90-day
period to accelerate the FAA air carrier certification process of
the Company.
<FN8>
(8) The FAA required mini-evacuation test's budget contains a reserve
in the event the FAA requires the Company to repeat the test.
<FN9>
(9) The Company has allocated $90,000 reserve for the repayment of
current liabilities.
<FN10>
(10) The Company intends to retain this amount to meet the DOT initial
financial requirement pursuant to the Twelve Month Operating Plan. See
Management Discussion and Analysis - Twelve Months Operating Plan.
Aircraft hull insurance and aircraft liability, including facilities
and general liability, premiums are payable on a monthly basis with the
first installment due in 30 days following commencement of revenue
operations. Thus, aircraft hull and liability insurance is not included
in the pre-revenue budget and will be paid from operating revenue and
not from net proceeds.
</FN>
</TABLE>
The foregoing represents the Company's best estimates of its allocation
of the net proceeds of this Offering based upon its present plans and
current business conditions. Except as stated herein, the Company will
pay short-term liabilities, accounts payable and other debt from the
operating revenues and not from net proceeds of the Offering. As of
June 30, 1997 total current liabilities were $846,572. Aircraft hull
and airline liability insurance will not be paid from net proceeds.
Insurance premiums are normally payable in monthly installments
beginning 30 days following commencement of revenue operations. Annual
insurance costs, including facilities and general liability insurance,
associated with the Company's operating a B747-100 would total
approximately $1,100,000 including comprehensive airline liability
coverage up to $500,000,000 any one occurrence. Monthly premiums will
not be paid from net Offering proceeds but rather from operating
revenue after revenue operations have begun. Therefore, insurance has
not been listed separately under use of net proceeds. Unforeseen
events or changed business conditions, of which management has no
present knowledge, could necessitate changes in the application of
proceeds. Pending expenditure of the proceeds from the Offering, the
Company may make short term investments in interest-bearing savings
accounts, certificates of deposit, short-term United States government
obligations, or other short term interest bearing investments.
Proceeds from the exercise of the Warrants will be added to the working
capital reserve.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997 and gives effect to the sale of 1,000,000 Shares and
3,000,000 Warrants offered hereby at $6.125 per Share and $.125 per
Warrant and the application of net proceeds therefrom. This table
should be read in conjunction with the financial statements and notes
thereto that are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
(Unaudited)
Pro Forma as
Stockholders' Equity: Actual Adjusted <FN1>
<S> <C> <C>
Preferred Stock, no par value;
15,000 shares authorized, none
issued and outstanding . . . . . . 0 0
Common Stock, $.0001 par value;
100,000,000 shares authorized,
4,885,000 shares issued and
outstanding before Offering <FN2>, and
5,885,000 shares issued and
outstanding at Offering . . . . . $488 $588
Additional paid-in capital . . . . 4,200,613 9,620,613
Contributed capital . . . . . . . 1,645,586 1,645,586
Deficit accumulated during
development . . . . . . . . . . . (6,288,016) (6,288,016)
Total stockholders' equity (deficit) (441,329) 4,978,671
<FN>
<FN1>
(1) Based upon the initial public offering price of $6.125 per Share
and $.125 per Warrant, net proceeds to the Company of $5,420,000
are calculated by deducting from the total Offering proceeds of
$6,500,000 the Underwriting Discounts and Commissions of $650,000,
the Lead-Managers non-accountable expense allowance of $195,000
and expenses of this Offering payable by the Company estimated at
$235,000.
<FN2>
(2) The Company has 4,885,000 shares of Common Stock issued and
outstanding.
</FN>
</TABLE>
DILUTION
As of June 30, 1997, the Company had 4,885,000 shares of Common Shares
issued. Assets at June 30, 1997 were $402,243, of which $6,153 are
tangible assets. Total liabilities at June 30, 1997 were $843,572.
Thus, net tangible book deficit was ($910,583) or ($.17) per share.
Net Tangible Book Deficit per Share represents the amount of total
tangible assets less total liabilities, divided by the number of shares
of Common Stock outstanding, which is calculated to include
stockholders' deficit of ($441,329). Without taking into account any
changes in the net tangible book deficit after June 30, 1997, other
than to give effect to the sale of 1,000,000 Shares and 3,000,000
Warrants offered herein at initial offering prices of $6.125 and $.125
for Shares and Warrants, respectively, and the application of net
proceeds of this Offering of $5,420,000, the pro forma book value of
the Company's Common Stock will be $4,978,671 or $.77 per Share.
Consequently, the purchasers of the Shares offered hereby will sustain
an immediate substantial dilution (i.e. the difference between the
purchase price of $6.125 per Share and pro forma net tangible book
value per Share) of $5.36 (87%) per Share.
<TABLE>
<CAPTION>
The following table illustrates as of June 30, 1997, the per Share
dilution.
<S> <C> <C>
Initial public offering price . . . . . . . . . . $6.13
Net tangible book deficit . . . . . . . . . . ($0.17)
Increase attributable to new investors . . . . .94
Pro forma net tangible book value after Offering 0.77
Dilution to new investors . . . . . . . . . . . . $5.36
</TABLE>
The following table summarizes, on a pro forma basis at closing of this
Offering, the book differences between the existing stockholders and
the new investors with respect to the number of shares of Common Stock,
the total consideration paid (cash, services rendered and property
contributed) and the average price per Share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
Percent Percent Average Price
Shares Shares Amount Contrib per Share
<S> <C> <C> <C> <C> <C>
Existing Shareholders 4,885,000 83% $5,846,687 47% $1.20
New Investors . . . . 1,000,000 17% 6,500,000 53% 6.125
Total . . . . . . . . 5,885,000 100% $12,346,687 100%
</TABLE>
The foregoing analysis assumes no exercise of Warrants, or the
Representative's Warrants, or Over-Allotment. In the event any such
options or warrants are exercised, the percentage ownership of the
investors in this Offering will be reduced and the dilution per Share
to Investors in this Offering will increase.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and
presently expects to retain future earnings for use in business.
Future dividend policy will be determined by the board of directors of
the Company in light of prevailing financial needs and objectives of
the Company.
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical data for the Company
as of and for the six months ended June 30, 1996 and 1995 (unaudited),
and years ended December 31, 1996 and 1995, as well as results since
inception to June 30,1997. The financial data of the Company for the
fiscal years ended December 31, 1996 and 1995, are derived from the
Company's audited financial statements. The information below should
be read in conjunction with "Management Discussion and Analysis".
<TABLE>
<CAPTION>
Six Months Ended Years Ended Aug 24,1989
June 30, December 31, (Inception) to
1997 1996 1996 1995 June 30,1997
STATEMENT OF OPERATION:
(Development Stage)
<S> <C> <C> <C> <C> <C>
Operating income . . . . . . 0 0 0 0 0
Expenses:
General and administrative $43,646 $24,174 $92,749 $98,017 $2,047,316
Professional fees . . . . 0 2,650 77,817 279,543 1,927,320
Service contributions . . 0 58,876 0 397,856 1,352,516
Training expenses . . . . 0 0 0 0 225,637
Abandoned fixed asset acq 0 0 0 0 205,162
Salaries and benefits . . 0 0 0 0 137,702
Interest expense, net . . 0 34,090 68,120 134,635 392,363
Net (loss) during development $(43,646) $(119,790) $(238.686) $(910,051) $(6,288,016)
Net (loss) per share . . . . $(.00) $(.03) $(.05) $(.20) $(1.29)
</TABLE>
June 30, 1997
Stockholders' per share deficit . . . . . . . . . . . . . . . . . . $(.09)
Common shares outstanding . . . . . . . . . . . . . . . . . . . 4,885,000
BALANCE SHEET DATA:
(Development Stage) June 30, 1997
Working capital (deficit) . . . . $(837,419)
Total assets . . . . . . . . . . 402,243
Total liabilities . . . . . . . . 843,572
Stockholders' deficit . . . . . . (441,329)
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Financial and Operating Data" and all of the financial
statements and notes thereto and included elsewhere in this Prospectus.
General
The Company was formed as a United States' airline on August 24, 1989
in the State of New York. The Company's objective is to provide
scheduled air transportation from the US to Russia. In 1991, the
Department of Transportation 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. That
authority expired in 1993. Following the Company's 1995 application,
in 1996 the DOT reissued authority to the Company to serve JFK-St.
Petersburg. The Company has two registered trademarks "BALTIA" and
"VOYAGER CLASS," and five trademarks subject to registration.
The Company's activities to date have been devoted principally to
raising capital, obtaining route authority and approval from the
Department of Transportation and the Federal Aviation Administration,
training crews, and conducting market research to develop the Company's
marketing strategy. Following the receipt of the proceeds from this
Offering the Company intends to commence scheduled non-stop service on
the JFK - St. Petersburg route.
Difficulty of Financing an Airline in 1991-1992
No revenue operations have commenced on authorities granted in 1991
because the Company had not completed financing in 1992. At the time
the Company received authority in 1991, the capital markets were slow,
the airline industry was in a down-turn, and the USSR was transforming
into separate nations, all of which the Company believed limited its
access to public or private financing for commencement of flight
service. Several of the Company's shareholders who are knowledgeable in
financial matters tried to make introductions, but their efforts were
useless. Nobody wanted to hear about an airline. Private funding did
not materialize and resources of the Company's officers and directors
were insufficient to commence revenue operations. Due to incomplete
financing, the DOT withdrew the Company's authorities in 1993. In 1995,
believing the capital markets to be favorable, the airline industry to
be in an up-turn, and Russia to have expanded its political and
economic ties with the United States, which were reflected in the
growth of passenger traffic and freight, the Company reapplied for JFK-
St. Petersburg authority. In 1996 the DOT reissued JFK-St. Petersburg
route authority to the Company based upon reexamination of the
Company's operating plan and fitness as a US air carrier. Upon
another examination of the Company's operating plan and fitness
as a US air carrier, in September 1997 the DOT renewed the
Company's JFK-St. Petersburg route authority to February
1998. If the FAA certification process is begun but not complete by
February, the Company expects to obtain another extension of
authority to complete the FAA certification and commence revenue
flights.
Market Statistics
Facts set forth below were filed with the DOT in 1995 and 1997, and
were used as part of the Company's application for fitness to serve the
JFK-St. Petersburg route, Docket OST-95-396 and 97-2763. The DOT
examined the Company's pre-operating projected expenses, the year-one
estimated traffic, fare calculations, resulting passenger and freight
revenues, and year-one operating cost estimates projected from these
facts, and found them to be comprehensive. DOT also compared the
Company's projected aircraft operating costs per block hour with the
average of the aircraft operating costs per block hour reported to the
DOT for the first quarter of 1995 by carriers operating B747-100
equipment and found the Company's projections to be reasonable (DOT
Order 96-1-24, p.6). The DOT specifically does not project that any
particular company applying these facts will or will not be profitable.
In estimating passenger traffic, the Company used the following
statistics. The 1994 DOC, United States Travel and Tourism
Administration ("USTTA"), traffic statistics show that 605,108
passengers traveled between US and Russia. Prior to 1995, no study
identified the traffic that entered or departed through St. Petersburg,
but a USTTA survey reported that 8 of 10 Americans visiting Russia,
visit St. Petersburg. Using 1994 USTTA statistics and assuming that
20% of the US-Russia traffics would arrive in or depart form St.
Petersburg, Baltia conservatively projected St. Petersburg traffic for
1996 for use in its business plan. A subsequent 1995 survey by CIC
Research (DOC contractor) reports that US-St. Petersburg traffic more
than doubled that which Baltia projects. The International Air
Transport Association ("IATA") forecast annual growth of 10.2%. Also
see "Business - Pricing."
In estimating cargo revenues, the Company used the following data. The
1993 US-Russia cargo volume was 34,540,000 lbs. The DOC, Bureau of the
Census, air cargo statistics for 1994 report that between 1992 and 1993
air cargo transported from US to Russia grew from 14,000,000 lbs to
30,800,000 lbs, a 120% increase. In the same period, air cargo
transported from Russia to the US grew, from 1,540,000 lbs to 3,740,000
lbs, a 143% increase. In 1993 IATA had forecast a 21.1% annual growth
rate for freight traffic to and from all of Eastern Europe for the
period from 1993 to 1997. The statistics demonstrate that the 1992 to
1993 growth rate in US-Russia air cargo traffic was 5.8 times greater
than the IATA forecast. The B747-100 aircraft offers wide-body
palletized and containerized cargo capacities to meet the needs of US-
Russia passenger and cargo traffic growth. The Company will offer non-
stop, B747-100 service from the JFK into the St. Petersburg market.
The Company has received two offers from JFK-based cargo forwarders.
Paramount Cargo Marketing, Inc. projected shipping 20 tons of cargo
five times a week and RAF International Sales, Inc. projected shipping
50 to 75 tons per week to St. Petersburg. Smaller additional freight
forwarders have expressed interest in using the Company's cargo
services. Following is a list of such carriers including their
previous shipment patterns. In 1993, the Transatlantic Royal Company,
Inc., Long Island City, NY, shipped on average 120,000 lbs of freight
per month to Russia. The International Grapevine, San Francisco, CA
ships each month 1,000 cases of American wine from New York into St.
Petersburg. Quantum International Forwarding, Ltd., Jamaica, NY, ships
between 400 to 4,000 lbs of consolidated air freight twice a week from
JFK to St. Petersburg. American Export Lines, JFK, NY, as of December
1994, had shipped in the previous six months 92,000 lbs of air freight
to the NIS. Contracts with cargo transporters are expected to be signed
after the IPO closes. No contracts presently exist.
Currently US mail is channeled through Moscow because non-stop US
service to St. Petersburg is not available. The US Postal Service
advised the Company's management at a meeting in May of 1994, that the
Company can be expected to carry about half of all US mail to Russia
and the Newly Independent States, which at May 1994 was about 28,000
lbs per month. With one flight per week, the Company would carry 3,500
pounds of mail per flight, approximately 7% of its cargo capacity, at
cargo rates. Mail carriage does not impact the Company's flight
schedule.
Currently Texaco quotes fuel at $0.62/gal at JFK and Aer Rianta quotes
fuel at $0.96/gal at St. Petersburg. Fuel and other industry operating
costs are subject to variation.
Twelve Months Operating Plan
For twelve months the Company will operate from one weekly round trip
flight between New York and St. Petersburg, increasing the frequency
as market demands, up to five weekly round trips carrying passengers,
cargo and mail. If sufficient capital is raised, the Company may
apply to the DOT to serve additional cities in the former Soviet
Russia, but there is no specific plan to do so at this time.
Assuming zero revenue, and thus zero traffic, service would remain at
one round trip per week.
The Company believes its cash requirements to operate one 74-100
between NY and St. Petersburg, Russia once a week for
twelve months is $11.8 million, which includes three months pre-operating
expenses at $2.7 million as detailed in Use of Proceeds, nine months
operating expenses at $8.3 million as submitted to the DOT, and the
Company's total liabilities at $.8 million as affirmed in Financial
Statements within this prospectus. (DOT Order 97-9-11, p.5. Nine
months operating expenses equal DOT average three months expenses
of$2.7 million times 3.) The pre-operating and operating expenses
include, but not exclusively, aircraft leasing costs of $2.2 million,
aircraft insurance in the amount of $1.1 million, personnel expenses
of approximately $4 million. Complete budget projections of expenses
expressed in regulated categories is available in OST 96-2032 and OST
97-2763.
To provide this service, aside from office equipment, capital
expenditures include aircraft acquisition, spare parts and ground
equipment. There will be no more capital assets acquired unless
there is market demand, in which case there will be revenue from
which to make the capital purchase. The funds to acquire the initial
capital items are listed in the Use of Proceeds table. Monthly
aircraft lease payment is expected to be paid from revenue. Even
assuming zero revenue, there are sufficient funds available from
the IPO and Lateko Bank line of credit ("LOC") to make lease payments
for one year. (Total annual expenses $11.8 million and available
resources $11.9 million as discussed below.)
The Lateko Bank LOC was issued in 1995, was renewed ever since,
and has never been drawn upon. In December 1997, upon
formal application by the Company, the LOC will be
extended to January 1, 1999. See Lateko Bank document
31.03.1997 No. 248/9. Since 1995 the Board of Directors of
Lateko has been required to authorize specific draws provided the
Company gives the Bank two weeks written notice. The LOC, in
the amount of $6.5 million has been immediately available to the
Company upon the Company's opening an account including registering
a subsidiary in Latvia, maintaining sufficient convertible
currency in the account to perform any target programs the Company may
have in Latvia. The funds should not be employed for primary funding
of capital investments.
Following the Closing, the Company expects to open an account with
Lateko Bank to hold $10,000 of the reserve from net proceeds.
This will require that the Company register a subsidiary in Latvia,
which it will do in a manner similar to registering as a foreign
corporation in another state of the US should the Company, at some
time in the future, do business in a state other than NY where it
is incorporated. The Company will not conduct any target program
in Latvia during the first twelve months following the Closing and
therefore has no requirement to maintain a specific amount in the
Lateko account. The interest rate and repayment schedule will be in
accordance with the then effective lending rates and terms at the
Lateko Bank. There is no assurance that the terms, then in effect
in Latvia, will be acceptable to the Company.
At Closing the Company receives net proceeds in the amount of $5.4
million, which together with the LOC makes available resources
totaling $11.9 million.
In addition to the IPO proceeds and LOC, the Company may issue $6
million in bonds through W.R. Lazard. The Company has no specific
present intent to issue the bonds, but has an agreement with W.R.
Lazard to effect optimum timing of the bond issue should the
Company so choose. If the Company were to issue bonds it would
incur debt equal to the amount of bonds issued plus a current
monthly liability for 10% to 15% interest on the debt. Further,
potential proceeds from the exercise of Warrants in this issue
may provide additional cash following this twelve month period.
Background. Since its inception in 1989 Baltia has focused its efforts
exclusively on developing the necessary elements for the commencement
of international air service from the US to Russia. The Company has
invested $6 million in development which enables it to commence
carrying revenue passengers and cargo in 90 days upon obtaining a
certificate for safe operational procedures from the FAA ("FAA
Certificate"). In total, the Company has expensed $6 million as
developmental costs during the periods in which they occurred. During
six years of development the Company has accumulated $.8 million in
total liabilities (includes current liabilities). Of the total
liabilities, approximately $0.5 million has been owed to outside
entities and the balance (approximately $.3 million) has been owed for
the past three years to shareholders.
FAA certification. In June 1997 the Company's president met with the
FAA regarding the air carrier certification process which is based upon
a 90-day schedule of events consisting of document approval, crew
training, and flight demonstration. As a result of the meeting, the
FAA is awaiting receipt of the Company's Pre-application of Intent Form
which the Company will submit on or before the Closing and will
commence this process. See "Use of Proceeds."
Viability discussion. The FAA air carrier certification activities are
highly regulated and controlled by the FAA. The costs associated with
these tasks are reasonably ascertained and verifiable because the
activities are tightly controlled and details of the Company's proposed
operations are publicly filed with the DOT and available for industry
criticism. The Company's proposed operations were reviewed by the DOT
Office of Aviation Analysis prior to issuing to the Company its airline
fitness certification which is conditional upon obtaining FAA air
carrier certification. Revenue flight operating costs, for the same
reasons, are also reasonably ascertained, verifiable and are publicly
filed with the DOT. The DOT required the Company to submit its
projected air carrier certification and revenue operational costs for
review and comment to Delta Airlines, United Airlines, American Trans
Air, TWA, Northwest Airlines, FAA Flight Standards District Office, FAA
Flight Standards Division, and the Air Transport Association. Neither
airlines nor the Air Transport Association criticized or commented on
the Company's projected air carrier certification and revenue
operational costs. Nor was there any criticism filed by the FAA Flight
Standards District Office or FAA Flight Standards Division. If there
had been any, FAA criticisms or comments and those of other airlines
and the Air Transport Association would have been recited in the DOT
Order that was issued at the closing of the comment period, but there
were none. That DOT Order 96-1-24 found the Company's costs to be
comprehensive and reasonable.
Results During Development
During the developmental stage, the Company has expensed its activities
in each year since inception and has an accumulated deficit and a
working capital deficit at June 30, 1997, of $6,288,016 and $837,419
respectively, which results in a per share loss of $1.29 and
stockholders' per share deficit of $.09. The Company has net operating
loss carry forward of $4,929,707 at December 31, 1996, available to
offset future taxable income. These carry forwards expire between the
years 2005-2012. As of December 31, 1996, and 1995, a net deferred tax
benefit has not been reflected for temporary differences between the
amount of assets and liabilities recorded for financial reporting and
income tax purposes due to the establishment of a 100% valuation
allowance relating to the uncertainty of recovery. Rent expense for
years ended December 31, 1996, and 1995 was $13,200 and $3,968,
respectively. In October 1995, the Company began leasing office space
on month to month basis in the East Wing at the International Arrival
Building, JFK International Airport at a rate of $1,200 per month.
Upon commencement of scheduled operations, the Company will expand
facilities at JFK and expects an additional terminal use fee of
approximately $750 per aircraft turn-around (an aircraft's arrival and
departure) to be paid from operating revenue.
During year ended December 31, 1995, the Company issued 306,150 shares
of Common Stock for $107,848. Of the 1995 shares issued, 25,000 shares
were issued as prepaid interest on $50,000 borrowed, and $63,500 was
charged to interest expense on the financial statement year ended
December 31, 1995. Of the 306,150 common shares sold in 1995, 50,000
were redeemable, but in June 1997 the shareholders owning those
redeemable shares surrendered their option to sell the shares back to
the Company. Thus, there are no redeemable shares at this date. No
additional shares were issued in 1996. In 1992 the Company issued
promissory notes to certain of its stockholders in exchange for
$1,048,000. These notes were due on demand and all interest was to be
paid upon principal payment at an annual rate of six and one half
percent from the issuance date to the date of repayment. No interest
has been paid on these notes. Accrued interest related to such notes
amounted to $321,168 on Dec. 31, 1996. As of June 30, 1997, total
notes payable to stockholders equals $223,850.
On December 21, 1995, the Company received a $6.5 million line of
credit ("LOC") from the Lateko Bank of Riga, Latvia. This facility is
to be used as back up financing for operations and will not be utilized
for primary funding of capital investments. For details, see
"Twelve Months' Operating Plan", supra.
The Company believes it unlikely that liabilities will be called
earlier than their scheduled repayment because the debt is held by
entities with vested interests in seeing the Company succeed, its
vendors and stockholders, and the Company has advised these creditors
that repayment will be made promptly from operating revenue. The
Company assumes that the approximately 50 vendors to whom the Company
has owed for three years $0.5 million in current liabilities, and who
have expressed the desire to supply the Company once it starts revenue
operations, may foresee years of income from providing the Company with
goods and services. Likewise, the present stockholders to whom current
liabilities are owed, have invested considerable time and money to
develop the Company to the point of commencing revenue operations. If
the Company is successful, they have the potential of selling their
shares for a profit and/or have the potential to share in the Company's
future profits. Persons who invested in the Company for a profit may
not call debt earlier than scheduled and in so doing jeopardize their
potential return on investment just at a time when that potentiality is
coming to fruition.
The LOC conditions may not jeopardize the repayment of liabilities if
they are called early. As of June 30, 1997, total liabilities were
$843,572, including current liabilities. Respecting the current
liabilities, there is only one condition relevant to the use of LOC
funds, i.e. that they should not be used for primary investments.
Early calls made on outstanding current liabilities would not be a
primary investment by the Company. If Company funds are not allocated
for operations, they will be used to repay liabilities. Should such
calls deplete what otherwise would have been necessary operating funds,
the Company may draw upon the LOC to maintain operations and maintain
the aim of the LOC which is to develop air commerce between the Baltic
Region and the United States.
The DOT has authority to withdraw the US airline authority from any US
airline should it find that non-US citizens directly or indirectly
control that airline. Since the Lateko Bank is a foreign entity, in
the event of default, the Company is required to notify the DOT. Since
the LOC specifically states that its goal is to develop international
trade associated with cargo and passengers' transport by air between
the United States and the Baltic Region, impliedly the value of the
Company to Lateko lies in its U.S. airline certification. If the
Company should draw against the Lateko Bank credit facility and
subsequently default on repayment, and although in management's opinion
the Company and Lateko should have a continued common interest in
retaining U.S. control of the airline, it is not certain what action
Lateko would take in the event the Company defaults.
Liquidity and Capital Resources
Upon completion of the Offering, assuming net proceeds in addition to
cash as of June 30, 1997, the Company will have cash and cash
equivalents of $5,426,153, total assets of $5,822,243 and total
liabilities of $843,572. Accordingly, the Company's debt to total
capitalization ratio will be 1:6.
The Company expects to meet its short-term liquidity requirements from
the proceeds of the Offering, as herein stated, and from cash flow
provided by operating revenue when the Company commences its service on
the JFK - St. Petersburg route. From its operating revenues the
Company intends to retire its remaining total liabilities of $753,572
(net of $90,000 reserve from IPO proceeds, see "Use of Proceeds")
within two years. Any early calling for payment of these liabilities
may not seriously impact the Company's operations because the Company
has a $6.5 million LOC operational back up, which is an amount greater
than total liabilities. If the Company fails to meet the requirements
necessary to make the $6.5 million LOC available, any early calling for
repayment of liabilities may impact the Company's operations. For
details of the requirements and the Company's compliance with them, see
"Consequences in the Event of Default on Lateko Bank Line of Credit",
supra. Of total liabilities, half a million is owed to approximately
50 outside entities many of whom will continue being suppliers to the
Company when it becomes operational, and the balance is owed to
shareholders who have a vested interest in the Company's success
("Results During Development"). Therefore, the Company does not expect
early calling or the need to draw against its LOC. The Company has
no current plans to use the LOC.
Additional potential sources of financing include: (i) Over-Allotment
of $848,250 (after deducting Underwriting discounts and the 3%
allowance), up to $19,500,000 from the exercise of Warrants, and (ii)
up to $3,482,500 from the exercise of Representative's Warrants
(including the exercise of the underlying Warrants). The Company's
international route authority may or may not have resale value within
the airline industry after one year's operation by the Company. The
Company has two registered trademarks: "BALTIA" and "VOYAGER CLASS."
Effects of Seasonality Over the North Atlantic
The Company's business is affected by seasonal factors. Airlines
serving routes over the North Atlantic are subjected to a pattern of
seasonal variation in traffic which the industry has termed the "North
Atlantic Seasonality" factor. In general, the traffic peaks during the
summer season and dips during the winter season. To mitigate this
seasonal trend, the Company intends a winter marketing program
featuring St. Petersburg's World-famous winter cultural activities of
museums and world class performances, such as the Hermitage Museum and
the Marinsky Theater. The Company has no specific plans, but has
discussed with Air Exchange, Inc. and other charter users the
possibility of chartering the Company's aircraft for use in opposite
season markets during the days when the aircraft is not on scheduled
route service. For example, JFK-Caribbean is an opposite season market
to JFK- St. Petersburg because JFK-St. Petersburg traffic peaks in
summer and the JFK-Caribbean traffic peaks in winter.
[CHART depicting seasonal passenger traffic variation throughout
year varying approximately as follows: Jan -20%, Feb -25%, Mar -12%,
Apr -5%, May +3%, Jun +10%, Jul +23%, Aug +45%, Sep +14%, Oct -.5%,
Nov -10%, Dec -21%]
The above chart depicts monthly distribution of hypothetically 93,431
passengers, adjusted to the North Atlantic monthly seasonality
variation (data from AVMARK, industry analysts). Specific seasonal
variation on the JFK-St. Petersburg route may differ from the North
Atlantic average variation and cannot be specifically determined until
the service has been operated.
Inflation
The Company belongs to a capital-intensive industry, and extended
periods of inflation could have an impact on the Company's earnings by
causing operating expenses to increase. If the Company is unable to
pass through increased costs, operating results of the Company could be
adversely affected. The Company will conduct a certain amount of its
transactions in foreign currencies, including Western currencies and
Russia and NIS currencies. The inflation rate of foreign currencies
has been more significant than inflation domestically. The Company
could be impacted if inflation slowed general economic growth
in Russia enough to reduce traffic flying with the Company.
Baltia will purchase little in Russia. Fuel purchased in St.
Petersburg from an Irish company, Aer Rianta, is paid in US dollars.
Baltia's traffic is primarily US travelers but Baltia will also sell
tickets in Russia. Currency exchange fluctuation is discussed in
the subsequent paragraph.
Currency Exchange Fluctuations
The Company expects that for the foreseeable future the majority of its
business will be transacted in US dollars, however a portion of the
transactions will be conducted in foreign currencies. In order to
limit significant impact due to possible fluctuations in currency
exchange, the Company has a policy which governs periodic price
adjustments depending on currency deviations from the US dollar.
Because a Company's marketing policy is to maintain an apparent pricing
stability for its customers who purchase the Company's services abroad
using foreign currencies, pricing adjustments are made at intervals,
not continuously. Similarly, periodic currency adjustments will be
made in the rates of those Company employees who are compensated in
non-US currency. The Company has no present intent to engage in
hedging currency transactions. Thus, a certain amount of exchange
risk is inherent. The Russian government began freeing prices in
1992 which sparked devaluation of the Ruble.
Insurance Coverage and Expense
In 1997 AON Risk Services, Inc. of Virginia informed the Company that
current insurance costs associated with the Company's operating a B747
would total $1,100,000. This estimate includes hull insurance,
comprehensive airline liability coverage up to $500,000,000 any one
occurrence, and war risks. Comprehensive liability premium is coverage
for third party personal injury and property damage, general liability
and facilities, plus per seat passenger liability coverage. The
Company will pay the aggregate annual premium in monthly installments
commencing after the Company begins revenue service. The Company has
no influence over insurance rates which are known to fluctuate.
Regardless of the insurance costs, the Company will purchase coverage.
Further, in the event of a serious accident, there is no guaranty that
claims would not exceed the insurance coverage purchased.
BUSINESS
The Company was incorporated in the State of New York on August 24,
1989, as a United States' airline, with an objective to provide full-
service commercial, passenger, cargo and mail transportation from the
US to the republics of the former Soviet Union. Since 1989 the
Company's management has extensively traveled to Russia, the Baltics
and other nations of the former Soviet Union to conduct a market study,
make operating arrangements, and to evaluate first-hand the unfolding
of the free market enterprise system. In 1990, The Company's
management predicted the separation of the former Soviet Union into
independent nations, and the subsequent emergence of commercial
opportunities for American business. In 1991, the Company's Chief
Executive Officer, Mr. Dmitrowsky, testified before the House Aviation
Subcommittee on the implementation of the new US- former USSR bilateral
agreement by US airlines. The Company's senior management team has
been approved by the Department of Transportation to operate a US flag
airline (DOT Order 96-1-24 and 96-2-51).
In 1990, the Company competed with eleven carriers, American, TWA,
Continental, Delta, American Trans Air, Pan Am, Federal Express,
United, Alaska Airlines, UPS and Evergreen, for routes between the US
and USSR. In 1991, the Department of Transportation granted the
Company authority to provide scheduled service non-stop from JFK to St.
Petersburg and non-stop from JFK to Riga, with online service to Minsk,
Kiev and Tbilisi. Alaska Airlines was granted authority to serve
trans-Pacific routes to Magadan and Khabarovsk, which it currently
serves. Delta, which currently serves Moscow, was not awarded routes
in the competition but subsequently purchased the former Pan Am routes
(Docket 47149, DOT Order 91-6-2). Preparing to commence service on its
authorized routes, in 1992 the Company trained 30 pilots, 38 flight
attendants, 17 mechanics and 8 dispatchers and completed substantial
tasks toward its FAA air carrier certification requirements, but the
Company did not commence flight operations at the time due to
incomplete financing. On August 14, 1995, the Company reapplied to the
DOT to conduct JFK-St. Petersburg scheduled air service.
In 1996 the DOT reissued the Company's authority to serve the JFK - St.
Petersburg route. The DOT authority is conditional upon the Company's
obtaining FAA air carrier certification and meeting the DOT regulatory
one-time financial requirement to have, upon commencement of flight
operations, working capital equal to an average three months operating
expenses. Prior to commencement of its JFK - St. Petersburg service,
the Company is required to complete its FAA air carrier certification
which process is based on a 90-day schedule of events in which the
Company will submit manuals and train crews to operate the B747-100.
The Company will also have to perform a mini-evacuation test and 50
hours of proving flights. With the proceeds from this Offering the
Company intends to commence scheduled non-stop flights on the New York
- - St. Petersburg route in 1998, providing full passenger, cargo and
mail service.
Description of the Market
In the Company's opinion, a first-time visitor to St. Petersburg would
find many similarities with a first-time visitor to New York, Paris or
Rome. New York is a prime destination for international air
transportation due to the size of its population, the magnitude of its
port-of-entry position within the US, and its cultural, industrial and
commercial role in the nation. Considering these same fundamental
indicators, St. Petersburg is a prominent gateway to Russia and,
indeed, to all of Northern Europe. St. Petersburg is the leading
maritime and surface cargo center, and the Company expects it to become
Russia's air cargo center. In its "Profile of St. Petersburg and the
Leningrad Oblast" the DOC describes the City as follows:
St. Petersburg, the former capital of Russia, has a population of
just under five million people, and is the second largest city in
Russia and the fourth largest city in Europe. It is a central hub
for commercial activity in the Northwest Region of Russia, and is
a major intellectual, cultural, financial, and industrial center
of the Russian Federation. The city government is openly
probusiness and has lead dynamic campaign of reform resulting in
privatization of over 70% of the local enterprises as of July
1994. St. Petersburg is home to the largest commercial sea port,
by volume, in Northwest Russia, and the city serves as a major
transportation center for the Russian Federation and the Northwest
Region. . . . A major share of the high technology sector of the
former Soviet Union is concentrated in St. Petersburg with more
than 400 scientific research institutes. The City also has among
the best educated and skilled work force in the Russian
Federation. One-tenth of all scientists in Russia work in St.
Petersburg and over one-third of all employees have university or
higher professional degrees. A city of more than 50 museums
(including the Hermitage), and approximately 40 theaters and
concert halls, (such as the Marinsky), St. Petersburg is a major
historical and cultural center that attracts up to a million
tourists annually. The combination of its many attributes renders
St. Petersburg one of the most dynamically evolving regions in
Russia.
US Dept of Commerce BISNIS 6-29-94 flash fax #3.
The DOC, Bureau of the Census, reported in 1994 that air cargo
traffic from the US to Russia grew from 14,000,000 lbs in 1992 to
30,800,000 lbs in 1993, a 120% increase. Air cargo from Russia
to the US grew from 1,540,000 lbs in 1992 to 3,740,000 lbs in
1993, a 143% increase. In 1993 IATA forecast a 21.1% annual
growth rate for freight traffic to and from Eastern Europe in the
period from 1993 to 1997. The actual statistics available in
1994 demonstrate that the growth rate between 1992 and 1993 in
the US-Russia air cargo traffic was 5.8 times greater than the
IATA forecast. The Company has received offers from two JFK-
based cargo agents. Paramount Cargo Marketing, Inc. projects
shipments of 20 tons per flight, and RAF International Sales
projects shipments of 50 to 75 tons weekly to St. Petersburg.
See "SUMMARY, Company", para. 7.
According to the DOC, USTTA, in 1993 there were 478,950 American
passengers visiting Russia; and there were 126,158 Russian-
originating passengers who visited the United States. Because no
1993 city traffic statistics were available, using US-Russia
traffic, Baltia projected US-St Petersburg traffic to be 20% of
1994 US-Russia traffic. According to CIC Research (DOC
contractor), by 1995 actual traffic to St. Petersburg had doubled
Baltia's traffic projection. The actual growth rate from 1995 to
the present is not publicly available. St. Petersburg has a
growing number of private travel agencies that serve the new
segment of affluent Russian travelers who require quality
service. IATA forecasts a 10.2% annual growth rate in passenger
traffic to and from Eastern Europe from 1993 to 1997. The
Company surveyed fares of the leading foreign airlines that are
serving the US-Russia market. Over the past several years, fares
in the US-Russia market have remained stable and have
incrementally risen (6% from 1993 to 1994, and 4% from 1994 to
1995).
The US-Russia Bilateral Agreement restricts foreign airlines,
excepting Russian airlines, from providing non-stop service
between the US and Russia, and, no Russian or US airline offers
non-stop service between JFK-St. Petersburg. Thus, the Company
will offer the only non-stop service with a wide-body aircraft
from New York to St. Petersburg. Unlike the domestic flights,
the international flights are conducted pursuant to bilateral
agreements between countries, and most countries are considered
"limited entry markets." The US-Russia market is a limited entry
market because only a restricted number of airlines from the two
nations are authorized therein to operate between the US and
Russia. Furthermore, the number of foreign airlines in the
market is limited by restrictions in bilateral agreements between
their respective countries and both the US and Russia. The
European carriers who serve this market are required to stop at
their national hubs en route.
The Company has identified several market segments in the US-
Russia Market: (i) Business Travelers, (ii) General Tourism,
(iii) Ethnic Travelers, (iv) Special Interest Groups, (v)
Professional Exchanges, and (vi) Government and Diplomatic
Travel:
Business and First Class
American business travelers generally choose reliable, high
quality, non-stop service and typically choose First, Business,
and full fare Voyager (coach) Class tickets. (Crane's, Feb. 21,
1994, Executive Travel) Business travelers originate primarily
from New York, Washington, Boston, Chicago and Atlanta. (US DOC,
USTTA)
General Tourism and Ethnic Travel
Americans traveling on leisure typically choose Excursion fares,
individually or as part of wholesale air and ground tour
packages. Americans with ethnic ties to Russia and other former
Soviet Republics, originating largely in New York, Chicago and
Los Angeles, generally book in advance and choose excursion
fares. This category also includes US-bound emigrants and family
visitors originating in Russia with tickets pre-paid in the US.
(US Census Data on Distribution of Ethnic Populations in the US)
Special Interest Groups
Special interest groups represent a relatively new and
substantial category of travelers which is generated by the US
government, sister cities, educational institutions, and cultural
exchange programs. Passengers typically originate in the US, but
many also originate in Russia using tickets pre-paid in the US.
These exchange programs choose coach and business fares. In
1993, 16,612 US-originating passengers attended conventions in
Russia, and 10,520 US-originating passengers studied in Russia.
(US DOC, BISNIS, Government Programs to Russia)
Professional Exchanges
American-Russian professional exchanges are sponsored by trade
associations, the US government, cities, hospitals, colleges,
corporations, and performing arts institutions. Example: In
December 1993, the Provost, Columbia University, NY, contacted
the Company regarding transportation needs of the Consortium
consisting of 82 US and Russian Universities. (Also, DOC,
BISNIS, Internships and Professional Exchanges)
Government and Diplomatic Travel
The Fly America Act (41CFR301.3-6) requires US government and
diplomatic travelers to fly on a US carrier where one is
available. They generally originate in Washington, DC and New
York. The State Department and the US Counsel General in St.
Petersburg last contacted the Company in 1995 about using its
flights from JFK to St. Petersburg. At this time the Company has
no specific contacts with the Counsel General or the State
Department. As reported by the DOC BISNIS on-line information
service, among the agencies sending the most employees to Russia
are: the Department of State, the DOC, the Department of
Agriculture. The DOC programs aimed at Russia transported over
16,000 passenger in 1993.
On average, according to the DOC, USTTA, eight out of ten
Americans traveling to Russia visit St. Petersburg, the second
largest city in Russia with a population of 5 million.
Marketing Objective
The Company's objective is to establish itself as a leading
quality carrier in its market niche over the North Atlantic with
operations that are profitable over time. In order to accomplish
this objective, the management intends to compete for the
passenger segments that require quality by establishing and
maintaining quality standards which will assure the Company's
lead in service among the leading European airlines that are
providing connecting flights to St. Petersburg. Although 40%
dilution of the average weighted fare is allocated for discount
promotions, the Company 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 also provide connecting flights to St.
Petersburg.
Overall Market Strategy
The Company will operate between two of the largest nations in
one of the world's fastest growing markets providing non-stop,
wide-body passenger service with First, Business, and Voyager
Class accommodations. The Company's passenger market strategy is
tailored to particular preferences of the various segments of
its customers 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.
The Company's initial marketing strategy is based on selected
travel and business publications, supplemented by direct mailings
to corporate travel planners, and individual American businesses
that are currently involved in Russia. The Company plans to
sponsor selected industry and trade events in the US and in St.
Petersburg, and to implement a controlled frequent flyer program
for frequent business travelers. Seawind Cruise Lines and Hilton
Hotels have expressed interest to conduct joint marketing
programs with the Company. The Company has no contractual
relationships with Seawind Cruise Lines, Hilton Hotels or other
referenced businesses. The Company will also advertise to the
general public throughout the US. In June 1997, the Company
issued 65,000 shares to Trent Trading for the purchase of
$396,090 in media placements (advertising space in U.S. NEWS &
WORLD REPORT, BUSINESS WEEK and NEW YORK LAW JOURNAL).
In addition to the Company's schedules and tariffs listed in the
Official Airline Guide ("OAG"), and worldwide access to
reservations on the Company's flights through a Computer
Reservations and Ticketing System ("CRS"), the Company intends to
provide customer service and reservations centers in New York and
in St. Petersburg. With respect to the CRS service, the Company
has proposals from Pars Worldspan, Sabre and Apollo reservations
and ticketing systems. The Company intends to activate the
reservations service with the selected system when the DOT issues
its order authorizing the Company to sell advance tickets.
Marketing strategy relating to capacity and overall quality
experienced by passengers are important in the Company's aircraft
choice. Four aircraft types which are capable of flying non-stop
on the JFK-St. Petersburg route, B747, DC10-30, B767, and B777,
reduce the travel time to approximately 8 hours. Of these, the
Company's management believes that the cabin size of a Boeing
B747 aircraft offers the greatest degree of comfort and capacity
for the JFK-St. Petersburg market. Its dispatch reliability lies
within the 97% range contributing to passenger confidence in the
Company's dependability (Boeing Report ID:RM 23004). The
Company's dependability is further enhanced because B747, a four-
engine aircraft, is not subject to ETOPS regulations which could
limit flights during certain weather conditions. "ETOPS" is an
acronym for Extended Range Twin Engine Operations which generally
requires that during year one a twin engine aircraft be operated
within 75 minutes from a suitable airport. If one of the
airports on the Great Circle route is snowed in, or otherwise
unusable, a twin engine aircraft would not receive dispatch
clearance for a flight to St. Petersburg. With B747 the Company
will provide non-stop wide-body cargo service from the JFK to St.
Petersburg, offering containers, pallets, and block space
arrangements in the aircraft's cargo bay. Additionally, the
Company plans to market "Baltia Express", non-stop shipment of
express packages between the US and St. Petersburg. The Company
also expects revenues from diplomatic mail and cargo.
Marketing Promotion
In addition to the above overall strategy and having its sales
specialists directly contact travelers and shippers, the Company
intends to have the following specialized marketing programs.
For the general tourism market, the Company plans to conduct
promotion through tour operators and wholesalers who specialize
in tourism to Russia, with attention to upscale tour packages.
(Example: 1994 Harvard Alumni Association's "Journey of the
Czars" cruise between Moscow and St. Petersburg) To promote the
destination and the convenience of its non-stop flights into St.
Petersburg, the Company plans to organize periodic travel agency
familiarization trips, and to sponsor selected cultural and
performing arts events to emphasize the Company's policy to
provide quality of service. As part of its marketing strategy to
associate the Company's service with culture and quality and
develop name recognition, in 1992, the Company sponsored the St.
Petersburg Festival at the Metropolitan Opera in New York, and
established promotional contacts in the St. Petersburg's
performing arts community, including the conductor, director and
management of the Kirov Opera & Ballet, as well as management of
Hotel Astoria, Grand Hotel Europa, and the Pribaltiyskaya Hotel
which the Company believes has value in obtaining future Company
publicity with the performing artists. By being able to associate
the Company's nonstop service to St. Petersburg with quality art
and performances, the inherent quality of the arts will be
associated with the name and service of the Company. Developing
name recognition is important to the Company. However there is
no assurance that the Company will succeed in associating its
service with culture and quality and may not develop the name
recognition desired. The Company's Director of Public Relations
and V.P. of Marketing maintains these relationships presently,
but no specific promotion is currently conducted. The costs of
future promotion of the arts in St. Petersburg will not be paid
from the marketing allocation set forth in the "Use of
Proceeds", but will be paid from operating revenues. Because
the Company does not want to advertise its service prematurely,
it has not conducted recent promotion.
For the ethnic passenger market, the Company plans to advertise
in selected ethnic publications, and on ethnic radio broadcasts
in the US. The Company has planed direct mailings to ethnic
organizations and travel agencies to announce the service, and
plans to offer limited introductory fares, group travel packages,
and US pre-paid ticket arrangements. In the US and in Russia the
Company plans to sponsor selected cultural and ethnic events to
promote interaction of people with like ethnic background between
the two countries.
For educational associations (example: American Teachers of
Russian, Assn.) and colleges offering Russian studies and
language programs, mailings, limited introductory fares, group
travel packages, and US pre-paid ticket arrangements for Russian
travelers are planned. In the US and in Russia the Company plans
to sponsor selected cultural and ethnic events. In December 1993
the Company initiated contact with Columbia University which
oversees a US-Russian university consortium consisting of 82 US
and Russian colleges. Coordination with Columbia University and
the other 82 US universities and colleges in the US-Russia
alliance programs will be encouraged. In July 1996 the Company
had its most recent contact with Columbia University. Currently
the Company has no contract but expects the contacts to lead to
group travel by students and faculty either through contract or
group rate fares. The Company's promotional materials may
describe this major academic and scientific exchange program
featuring Moscow and St. Petersburg universities as well as US
Universities. For special group professional passenger market,
the Company plans direct mailings to trade associations,
foundations, educational institutions, and government agencies.
Description of the Industry
Until the Airline Deregulation Act of 1978, the domestic airline
industry was economically regulated by the Civil Aeronautics
Board ("CAB"). Deregulation brought numerous new carriers into
the domestic scheduled airline business challenging the industry
fares, work rules, and wages. Over the ensuing eighteen years,
most of the new carriers either merged with major carriers or
left the business. Major carriers that could not adapt to the
changing times left the business, generally bringing to a close
the period of adjustment to jet travel under deregulation, and
the Company believes, setting the stage for a new era of
profitability in the airline industry. Generally, major US
airlines are currently either making a profit or decreasing their
annual loss. (See generally http://www.bts.gov/oia/indicators,
Bureau of Transportation Statistics, U.S. DOT)
History demonstrates that the industry is not uniform. While
most small new carriers went out of business, while some major US
airlines had been losing money in operations blaming each other
for damaging price wars, Southwest Airlines has consistently
offered prices which are substantially below the "low" prices
offered by other airlines. Since 1973, Southwest has been
consistently profitable, with an operating profit to operating
revenue ratio as high as 21%. Air Transport World now uses
Southwest's operating results as a standard to which the
operating results of other airlines are compared. Additionally,
Virgin Atlantic, North American Airlines, and Tower Air all
began operating a single aircraft and are now significant
airlines. Some large and some small airlines succeed and are
profitable while others are not. (Air Transport World Magazine,
Dec 1994. Also see UPI, 8 Apr 1996, <UsouthwestURpNC-
A@clarinet>)
Competition
While the Company recognizes that it will commence revenue
operations with the only non-stop service, nonetheless, the
Company will face one-stop and two-stop service competition from
the leading European airlines. The European airlines provide
connections to St. Petersburg through their European hubs. In
1996 Delta ceased serving St. Petersburg and has since applied
to the DOT for authority to market St. Petersburg through code
sharing with foreign carriers.
The Company's management does not take the Company's non-stop
service advantage for granted. The Company's management is
convinced that, when the Company commences revenue service, it
will have to compete by using operating efficiency and by
providing consistent quality service to passengers and cargo
shippers alike in order to establish the Company as a commercial
success in its market niche. The Company will provide non-stop,
wide-body, First, Business and Voyager class passenger service,
and a palletized and containerized service for cargo.
The following is a Company 1997 survey of one and two stop
services in the US - St. Petersburg market. The respective
airlines can change their flight schedules and frequency. (April
1997 Official Airline Guide generally confirms the stated
competition.)
Finnair
Finnair flew between Helsinki and St. Petersburg daily. Five
days a week, to connect with its flights from US to Helsinki, a
layover time of 1:15 hours was required east-bound, and 1:40
hours of layover was required west-bound. Total en route time
east-bound was 11 hours, and total en route time west-bound was
11:30 hours. The other two days required a layover of 5 hours
east-bound, and an overnight stay in Helsinki west-bound. Total
en route time east-bound was 19 hours, and west-bound 31 hours.
The JFK - Helsinki flight was on a wide-body MD11 aircraft. The
connecting flight from Helsinki to St. Petersburg was on a
narrow-body DC9 aircraft. Finnair did not have First Class
service, and did not have palletized and containerized cargo
service into St. Petersburg. From the MD11, cargo must be
unpacked and manually loaded into the narrow-body DC9.
Scandinavian Airlines System (SAS)
SAS served St. Petersburg from Stockholm and Copenhagen daily.
To connect with its flights from the US at Stockholm or
Copenhagen, east-bound layover time was 1:30 hours, and west-
bound required an overnight stay in either Copenhagen or
Stockholm. Total en route time east-bound was 10:30 hours, and
total en route time west-bound was 30 hours through Stockholm and
31:30 hours through Copenhagen. The Newark - Stockholm or Newark
- - Copenhagen flight was on a wide-body B767 aircraft. From
Stockholm or Copenhagen the connecting flight to St. Petersburg
was on a narrow-body DC9 aircraft. SAS did not have First class
service, and did not have palletized and containerized cargo
service into St. Petersburg. From the B767, cargo must be
unpacked and manually loaded into the narrow-body DC9.
Lufthansa
Lufthansa served St. Petersburg from Frankfurt daily. To connect
with its flights from the US at Frankfurt, East-bound layover
time was 1:40 hours, and an overnight stay in Frankfurt was
required on West-bound flights. Total en route time East-bound
was 13:10 hours, and total en route time West-bound was 25:20
hours. The New York to Frankfurt flight was on a wide-body A340
aircraft. From Frankfurt the connecting flight to St. Petersburg
was on a narrow-body A320 aircraft. Lufthansa had First,
Business and Couch seating, but did not have palletized and
containerized cargo service into St. Petersburg. From the A340,
cargo must be unpacked and manually loaded into the narrow-body
A320.
KLM Royal Dutch Airlines
KLM served St. Petersburg from Amsterdam daily. To connect with
its flights from the US at Amsterdam, East-bound layover time was
1 hour, and West-bound layover time was 1 hour. Total en route
time East-bound was 12:30 hours, and total en route time West-
bound was 15 hours. The New York to Amsterdam flight was on a
wide-body B747 aircraft. From Amsterdam the connecting flight to
St. Petersburg was on a narrow-body B737 aircraft. KLM did not
have First class seating, and did not have palletized and
containerized cargo service into St. Petersburg. From the B747,
cargo must be unpacked and manually loaded into the narrow-body
B737.
British Airways, Air France, Austrian Airlines, and Swissair
British Airways served St. Petersburg through London twice
weekly. The return required overnight stay in London. Air
France flew to St. Petersburg through Paris twice weekly and
required overnight stay in Paris on return. Austrian Airlines
flew to St. Petersburg through Vienna four times a week.
Swissair flew to St. Petersburg through Zurich three times a
week.
Delta Air Lines (US carrier)
Delta Air Lines provided non-stop service to Moscow. In 1996
Delta ceased providing service to St. Petersburg and has applied
to the DOT for authority to market St. Petersburg through code
sharing with foreign carriers.
Aeroflot (Russian carrier)
Aeroflot provided service to St. Petersburg through Moscow six
times a week. Aeroflot did not offer arrival and departure times
for St. Petersburg's connecting flight at Moscow. It estimated
the layover times at Moscow to be between 3 to 5 hours.
Estimated total en route time East-bound was 14 hours, and
estimated total en route time West-bound was 15 hours.
In fall 1997 Aeroflot initiated once weekly round trip
flights between St. Petersburg and JFK.
Summary of Competition
Finnair and SAS have been the leading foreign airlines in the US-
Russia market because of the geographical locations of Helsinki,
Stockholm and Copenhagen (change of gauge points - hubs). Other
foreign airlines have to fly more circuitous routes through their
hubs. A total of 36 world airlines provide some form of
connecting flights at varying levels of service from New York
City to St. Petersburg.
The Company will offer exclusive non-stop, wide-body service in
the market. The Company's JFK - St. Petersburg non-stop block
time is conservatively listed at 8 hours and 34 minutes (includes
taxi times & estimated air traffic delays). The normal JFK - St.
Petersburg flying time is approximately 7 hours and 20 minutes.
Interlining at JFK, LaGuardia and Newark Airports
The Company will inaugurate its JFK - St. Petersburg service with
one round trip flight per week. Because its nonstop flight has
shorter en route time (relative to competing airlines), when
operating, the Company will be able to schedule departures and
arrivals which, according to the Company's survey, allows each
Company flight to connect at JFK, LaGuardia, and Newark airports
with 131 in-bound flights prior to the Company's departure for
St. Petersburg and with 143 flights out-bound after the Company's
arrival from St. Petersburg. Each Company flight will meet with
TWA, United Airlines, Continental, Delta, US Air, American and US
Air Shuttle flights to and from the following cities: Seattle,
Chicago, Denver, Phoenix, New Orleans, Pittsburgh, Miami,
Washington DC, Boston, Philadelphia, Dallas, Atlanta, Los
Angeles, San Francisco, San Diego, Orlando and Houston. Flights
by airlines may be subject to change. In calculating the number
of connections, the Company counted flights which permit adequate
connecting time. The Company does not include flights arriving
and departing with less than the following minimum connecting
times: 45 minutes at JFK, 1:30 hours at LaGuardia, and 2 hours at
Newark. The Company believes that convenient connection times
will maximize its traffic pool in the continental US.
The Company's proposed schedule assuming one round trip per week
is:
Depart JFK at 17:00 . . . . . . . . . . . . . . . . . . Mon
Arrive LED at 9:34 +1 . . . . . . . . . . . . . . . . . . Tue
Depart LED at 12:00 . . . . . . . . . . . . . . . . . . . Thu
Arrive JFK at 13:31 . . . . . . . . . . . . . . . . . . . Thu
The Company will not initiate service with five round trips per
week, but is authorized by the DOT to increase frequency of
service up to five round trips per week. As the market allows,
the Company plans to increase frequency. Ultimately, the Company
expects to operate five round trips per week. The Company's
proposed schedule assuming five round trips per week is:
Depart JFK at 17:00 . . . . . . . . (Sun, Mon, Wed, Thu, Fri)
Arrive LED at 9:34 +1 . . . . . . . (Mon, Tue, Thu, Fri, Sat)
Depart LED at 12:00 . . . . . . . . (Mon, Tue, Thu, Fri, Sat)
Arrive JFK at 13:31 . . . . . . . . (Mon, Tue, Thu, Fri, Sat)
"LED" is the three-letter identifier for St. Petersburg's Pulkovo
Airport. All times are local times and "+1" means next day. The
Company may adjust the time and frequency of its flights.
The Company's Director of Marketing and Sales has held interline
discussions with his counterparts of other airlines. Unlike some
of its competitors, the Company does not currently have interline
agreements with other airlines. The Company intends to sign
interline agreements with other airlines after the Company
commences service, but there is no assurance that the such
agreement would contain discounts equal to those of its
competitors. Interline agreements allow participating carriers
to reduce the total cost of a multi-legged ticket involving two
or more airlines, each airline contributing a certain discount
for the leg on which it provides service in order to bring down
the overall price of such a ticket. Prior to the Company's
signing interline agreements with other airlines, at their local
travel agent through the CRS, passengers will be able to purchase
a multi-leg ticket where the Company is one of the air carriers
without interline discount, but it may be more expensive that a
multi-leg ticket on a competitive airline that has interline
agreements in place.
Pricing
The Company's calculation of year one results is based on: (i)
the number of passengers (93,431) multiplied by the Weighted
Average Fare After Dilution, plus (ii) the pounds of freight
(2,800,000) multiplied by the rate per pound. Thus, along with
the passenger and cargo volume transported, fares and cargo rates
have a direct impact on revenues. In general, traffic volume is
driven by the intensity of commerce between two countries,
depending on the underlying economic, social and political
factors. In general, fares are market driven, depending on
demand for and supply of the transportation in the particular
market. Fares may also be influenced by tradition and marketing
objectives of airlines. All fares and cargo rates are subject to
change over time. For discussion on passenger and cargo volume
see "Management Discussion and Analysis - Forecast Results of
Year One Operation."
In 1997, the Company surveyed the price structures of Finnair,
SAS, Lufthansa, Delta and Swissair to compare the published
market fares of one- and two-stop connection to St. Petersburg,
involving a change of gauge, with the Company's non-stop, wide-
body service from JFK to St. Petersburg. The following table
summarizes the 1996 published one-way fares (source: Official
Airline Guide,1997):
<TABLE>
<CAPTION>
Published Market Fares (one-stop, change of gauge)
First Business Economy Discount
<S> <C> <C> <C> <C>
Finnair . . . . . . . . . . N/A $2,177 $850 $570
SAS . . . . . . . . . . . . N/A 2,302 1,227 594
Lufthansa . . . . . . . . . $3,223 2,302 1,269 420
Swissair . . . . . . . . . 3,223 2,302 850 670
Average stop-over fare . . $3,223 $2,270 $1,049 $563
Company's non-stop fare . . $2,715 $1,595 $1,193 $555
</TABLE>
For marketing reasons to reflect the Company's exclusive non-stop
service, certain of the Company's published fares are planned
incrementally higher. The Company may periodically adjust its
fares. The Company focuses its marketing on the First class,
Business class and upscale tourism market, requiring non-stop,
high quality service. Business and First class travelers are
currently paying between $1,707 to $2,660 more than a discount
fare. It is reasonable to expect that travelers will prefer the
Company's non-stop service . According to the DOC statistics,
77% of all passengers visit one country.
Aeroflot periodically offers round trip discount fares below
market average. In 1994 Aeroflot advertised NY-Moscow ticket for
$450 round trip and round trip NY-St. Petersburg tickets were
offered for $650. When the Company commences revenue service, it
will use a 40% dilution factor, a dilution of the weighted
average fare used in forecasting revenues which results when
passengers purchase a discounted ticket. This percent of
dilution will allow the Company to compete periodically with
discount programs without compromising its revenue forecasts.
See fare calculation below.
The following table represents the seating configuration and
class occupancy ratio of 93,431 passengers forecast for year one:
<TABLE>
<CAPTION>
Baltia's B747 Seating Configuration and Average Occupancy
Available Passengers Percent Percent of
Seats per Flight Occupancy Passengers
<S> <C> <C> <C> <C>
First . . . . 16 6 37.5% 3.3%
Business . . 32 17 53.1% 9.5%
Economy . . . 64 37 57.8% 20.6%
Discounts . . 204 120 58.7% 66.6%
Total . . . . 316 180 56.9% 100%
</TABLE>
The JFK - St. Petersburg passenger market has had its most
significant growth in business travel since 1992. Consistent
with SAS report (Jax Fax Travel Marketing Magazine, Dec. 1993)
that there has been substantial growth specifically in business
travel, 1994 DOC statistics report that between 1992 and 1993 the
distribution of US passengers to Russia among First, Business and
Tourist and Economy Classes was 6%, 14%, and 80% respectively.
The ratio of First Class and Business Class fares to Tourist
Fares impacts the revenue earned from any given number of
passengers. The more First Class and Business Class tickets
sold, the more revenue earned from that given number of
passengers. The Company calculates its fare revenues based on a
3.3%, 9.5%, and 87.2% class distribution ratio among passengers.
However, recognizing the fact that in the market the requirement
for First and Business class service is strong, the Company will
allocated appropriate seating capacities for its First and
Business classes (16 First, 32 Business, and 268 Economy and
Discount class seats in Baltia's B747 layout). The following
table shows the Company's weighted average passenger fare
calculation.
<TABLE>
<CAPTION>
The Company's JFK - St. Petersburg Fare Calculation
Contrib. to
Published Percent of Weighted
Fare Passengers Av. Fare
<S> <C> <C> <C>
First . . . . . . . . . . . . . . . . $2,715 3.3% $90.66
Business . . . . . . . . . . . . . . 1,595 9.5% 150.91
Economy <FN1> . . . . . . . . . . . 1,193 20.6% 245.67
Discount Fares . . . . . . . . . . . 555 66.6% 369.67
Weighted Average Fare - Undiluted . . $856.91
Dilution Factor @ 40% for promotion/discount programs . $342.76
Weighted Average Fare - After Dilution $514.15 <FN2>
<FN>
<FN1>
(1) Company trademark: "Voyager Class".
<FN2>
(2) Yield @ 3,900 NM (av. distance JFK-LED in nautical miles) is
13.18 cents per mile
</FN>
</TABLE>
Personnel
The DOT Order 96-1-24 and 96-2-51 found the Company's management
fit to operate its scheduled international air service. See
"Management." At present eight staff members are actively
working on the Company's financing and aircraft acquisition; none
are currently receiving compensation from the Company. Upon
receipt of financing from this Offering, a total of 26 staff and
managers will be actively working on air carrier certification
and marketing for a period of 90 days during which they will be
paid salaries reduced by 50%. At 50% reduction, total 90-
day salaries and training allowances equal $196,000. Immediately
prior to commencement of service the Company will employ a total
of 94 employees, including: (i) 28 executive, administrative,
and sales personnel, (ii) 33 station personnel at JFK and St.
Petersburg, (iii) 2 captains, 2 first officers, 2 chief
stewards, and 18 stewards. Shortly after commencement of the JFK
- - St. Petersburg service the Company intends to bring the total
number of employees to 131. Certain employees must be FAA
qualified for specific positions. The Company's policy is to
hire and retain only the highest quality personnel. The Company
will neither pay very low nor excessively high salaries. The
Company's management has sole discretion as to the number of
employees and employment requirements and conditions.
Facilities
The Company presently subleases facilities on a month-to-month
basis from Iceland Air, a permanent tenant in the East Wing of
the International Arrivals Building ("IAB"), JFK International
Airport, New York, at a rate of $1,200 per month. Upon receipt
of IPO proceeds the Company will have an approximate date for
commencing revenue service, and will sign a written lease with
Iceland Air for larger space as need requires with increase in
frequency (aircraft turn-around). Negotiations indicate that the
monthly rent presently charged will be replaced by a charge equal
to $750.00 per aircraft turn-around, i.e. one aircraft's landing,
servicing and departure. As the US carrier providing
international service, the Company is eligible for required gate
space and other facilities at JFK and at Pulkovo airport in St.
Petersburg. Prior to leasing space from Iceland Air, the Company
leased office space from the Company's president at his residence
at $400 per month.
FAA Air Carrier Certification
To assure that an airline, previously certified as fit by the
DOT, uses safe operating procedures, its operating procedures
and personnel must be certified by the FAA. In order to
accomplish this certification, the Company has prepared a
detailed schedule of events of approximately ninety (90) days
duration. The certification process begins with providing the
FAA with written documentation of the procedures to be used in
its operations. These written procedures, which include training
procedures, are reviewed by the FAA. After the FAA is satisfied
with the documentation, the airline trains its personnel according
to its procedures under FAA supervision. Finally the airline
employees demonstrate their mastery of the procedures to the FAA.
Upon successful completion of demonstrations, an airline receives
its FAA air carrier certification. The FAA will require that the
Company submit its manuals and other documentation, train crews
for B747, conduct a mini-evacuation demonstration, and complete
50 hours of proving-flight demonstration from JFK to St.
Petersburg (equivalent of 3 round trips). During the proving
flights the Company is not permitted to carry passengers but it
may carry freight.
Regulatory Compliance
The Company will operate as a Part 121 carrier, a heavy jet
operator. As such, following certification the Company is
required to maintain its 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 the
Company is required to submit periodic reports of its operations
to the DOT, which proprietary data is kept confidential for two
years. As a new airline, the Company is likely to be subjected
to a greater FAA scrutiny during the first year of its flight
operations than an established carrier. Failure to maintain
compliance may cause suspension or revocation of air carrier
certificate.
US Carrier Operations Under Bilateral Rights
Prior to the conclusion of the 1990 US-USSR Bilateral Agreement,
only PanAm and Aeroflot were authorized to operate between their
respective countries. All flights between the US and the former
Soviet Union were conducted between New York and Moscow, with
Washington and St. Petersburg (Leningrad) being served on a
limited level. In 1990, shortly after the United States and the
former USSR concluded a new expanded bilateral air transportation
agreement, the Department of Transportation invited US airlines
to compete for the limited route rights under the new bilateral
agreement. A total of 12 US airlines were admitted in the
competition: the Company, American, Delta, Continental, United,
TWA, PanAm, Northwest, Alaska Airlines, American Trans Air,
Federal Express, and Evergreen. In 1991, the Department of
Transportation awarded the Company rights (passengers, cargo and
mail) to fly from JFK to St. Petersburg, and to Riga non-stop;
with on-line service via Riga to Minsk, Kiev and Tbilisi. Alaska
Airlines was awarded the right to fly to Russia's Magadan and
Khabarovsk in the US Pacific, which routes Alaska Airlines
currently serves.
After the USSR broke up, the US-Russia Bilateral Agreement of
1994 was signed reinforcing and expanding the former US-USSR
Bilateral Agreement of 1990. Under the US-Russia Bilateral
Agreement the designated US airlines enjoy certain rights backed
by the US Government. Russia has granted certain rights to the
United States and reciprocal rights were granted by the United
States to Russia. Among the most important of the bilateral
rights the Company considers the following: (i) the right to fly
non-stop, (ii) the right of change gauge in Russia for beyond
service, and (iii) the ability to provide its own service within
Russia i.e. ground service of the aircraft, passenger services,
cargo service, etc. Other rights enable the Company to conduct
normal business practices between the US and Russia, including
exemption form duties on materials usable in the Company's
business, and unimpeded currency transfers. The Company holds
most beneficial the fact that no other foreign country can be a
party to the US-Russia Bilateral Agreement and thus, other
foreign airlines are excluded from direct service between the US
and Russia.
Unexpected political changes in Russia might affect the Company's
growth. Airline services under bilateral agreements typically
continue even between countries that are adversarial. A break in
diplomatic relations could be accompanied by interruption of air
service, but such extended occurrences are rare. However,
adverse political direction in Russia could impede the rapid
growth in US-Russia commerce, i.e. it might slow the future
growth in traffic for the Company.
Pending Aircraft Acquisition
The Company's preference is to operate Boeing 747 aircraft on the
JFK-St. Petersburg route. The Company is currently in discussion
with United Airlines for the acquisition of one B747 to be
delivered in 1997, with additional sister ships available in
1998. The Company will acquire aircraft that meet FAA air
worthiness requirements. The aircraft purchase package would
include a spare engine, parts pool, heavy maintenance service,
adoption of a maintenance program, crew training, and certain
ground equipment. The Company may purchase or lease depending
upon the final arrangements available to the Company at the time
of aircraft acquisition. The Company has budgeted $1 million
deposit for the aircraft. Monthly acquisition costs are similar
under both lease and purchase scenarios and will be paid from
operating revenue.
MANAGEMENT
The management of a US airline is subject to review by the
Department of Transportation. Having examined the Company's
management, its background and qualifications, the Department of
Transportation found the Company's management fit to operate the
proposed routes as a US flag carrier. (DOT Order 96-1-24, and
96-2-51). In addition to meeting requirements specific to the
DOT, certain management personnel are also qualified by the FAA
for specific positions.
Executive Officers and Directors
<TABLE>
<CAPTION>
The following table summarizes certain information with respect
to the executive officers and directors of the board <FN1>:
Name Age Position
<S> <C> <C>
Igor Dmitrowsky . . . . 43 President, Chairman and Director of the Board
Walter Kaplinsky . . . 59 Secretary and Director of the Board
Andris Rukmanis . . . . 36 V.P. Europe and Director of the Board
Anita Schiff-Spielman . 43 Director of the Board
Brian Glynn . . . . . . 52 Vice President Marketing
<FN>
<FN1>
(1) The by-laws restrict 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 the Lead-
Manager's designee for a period of three years, at the
option of the Lead-Manager. Officers and Directors
have a one year term and are elected at, and after, the
Annual Meeting in August.
</FN>
</TABLE>
Igor Dmitrowsky has served as Chairman of the Board and President
of the Company since its inception in August 24, 1989. In 1990,
he testified before the House Aviation Subcommittee on the
implementation of the United States' authorities by US airlines,
and was instrumental in 1991 in obtaining the DOT authority to
serve St. Petersburg, Riga, Minsk, Kiev and Tbilisi, with backup
authority for Moscow. In 1996 Mr. Dmitrowsky was instrumental in
the Company's obtaining authority to provide air service from JFK
to St. Petersburg. 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 interests and has financed aircraft and
automotive projects, speaks fluent Latvian and Russian, and
together with the staff of the Company, has traveled extensively
in the republics of the former Soviet Union.
Walter Kaplinsky, a US citizen, has been with the Company since
1990. In 1993, Mr. Kaplinsky became secretary and a director of
the board. Mr. Kaplinsky has worked on behalf of the Company in
American - Russian marketing, and financing. 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. Mr. Kaplinsky
is the owner of Globe Enterprises, Brooklyn, NY, a private
company that exports to Russia.
Brian Glynn, a US citizen, is V.P. of Marketing and Service. He
joined the Company in 1990. Mr. Glynn has a background in
marketing and public relations. During the 1990 DOT Route
Authority proceedings, he established the Company's relations
with business and ethnic communities, generating public support
for the Company's bid for routes to the former Soviet Union. Mr.
Glynn has also been active in the financing of the Company. From
1982 through 1989, Mr. Glynn was Vice President of American Kefir
Corporation.
Andris Rukmanis, a citizen of Latvia, is the Company's Vice
President in Europe. Mr. Rukmanis joined the Company in 1989.
Mr. Rukmanis represents the Company and makes service
arrangements for the Company in St. Petersburg. During the
Company's certification process in 1992, he worked at the
Company's JFK office to prepare the Company's overseas services.
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. In 1992 she helped organize office systems at
JFK and helped formulate the Company's employment policy,
passenger service standards, and cost accountability. Ms.
Schiff-Spielman has owned Schiff Dental Labs, New York, NY, for
the past fifteen years.
Significant Personnel
Nina Morozova, 47 years of age, a US citizen, serves as Director
of Accounting. She joined the Company in 1992. Prior to joining
the Company, from 1978 through 1991, Ms. Morozova was accounting
manager at Pan American Airways. From 1970 through 1978, Ms.
Morozova was manager economics at Scandinavian Airlines System.
Robert Hughes, 64 years of age, a US citizen, serves as Director
of Technical Services. He joined the Company in 1992. Prior to
joining the Company, Mr. Hughes operated Arel Aviation Service,
Inc., an FAA approved repair station which provided services in
aircraft component repairs, acceptance of large aircraft,
inspection of records, maintenance review, and aircraft
appraisal. Mr. Hughes was one of the co-founders of New York Air
and, from 1980 to 1982, served as vice president of operations.
From 1978 through 1989, Mr. Hughes was the director of product
support and purchasing at Seaboard World Airlines.
Jonathan Hill, 44 years of age, a US citizen, is Director of
Sales and Reservations. He joined the Company in 1992. Prior to
joining the Company, from 1988 to 1992, Mr. Hill was Marketing
Manager for Aeroflot, USA. Since 1985, Mr. Hill has also been a
lecturer teaching PARS Computer Reservations System (CRS) to
airline reservations specialists at the Travel and Tourism
Department of Kingsborough College.
Victoria Charlton, 54 years of age, a citizen of UK, is Director
of Promotion & Advertising. She joined the Company in 1992. Ms.
Charlton has a background in international promotions. In 1992,
she organized the Company's promotional sponsorship of the St.
Petersburg Festival at the Met. During various periods from 1975
through 1992, Ms. Charlton served as executive director of
Gateway Projects representing merchandising rights for Paramount
Studios, LCA (Warner), MCA (Universal Studios, and De Laurentis
Studios). Ms. Charlton has presented exhibitions from the
Hermitage Museum in St. Petersburg, and organized performances
for Russian artists and the leading companies in the US. In 1993
she organized a lecture tour for Mikhail Gorbachev in England.
Captain John Hodge, 50 years of age, a US citizen, will serve as
Director of Flight Standards, pending completion of the Company's
financing. Presently, he maintains his professional
qualifications with North American Airlines. Mr. Hodge has
twenty years experience in aviation operations, including FAA Air
Carrier Inspector, Check Airman, Operations Group Coordinator,
Regional Investigator in charge during accident investigation of
Continental Airlines Flight 1713, Regional Staff Specialist
dealing with rules and regulations, Flight Standard District
Officer, Flight Instructor, CFI-A & CFI-I, wind tunnel test
background at McDonnell Douglas, flight test background and data
analysis at McDonnell Douglas.
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 this Offering,
the rate of compensation for the Company's executive officers is:
(i) President $186,000, (ii) Vice President Marketing $82,000,
and (iii) Vice President Europe $68,000. Pursuant to written
agreement, the President's and Vice Presidents' salaries will be
reduced to an amount equal to 50% of budgeted salary during the
90-day period commencing when funds are received at Closing Upon
commencement of flight services 100% of respective budgeted
salaries will be paid. To this date, the Company has paid
officers no salaries, nor otherwise have compensated officers.
Board directors are not presently compensated and shall receive
no compensation prior to commencement of revenue service.
The following table identifies executive compensation to be paid.
The board of directors has established the compensation. No
individual personnel contracts exist. The officers have been
working on behalf of the Company in their respective offices for
six years. No executive salaries have been paid to date, nor
will be paid until funds are received at the Closing, but normal
salaries have been treated as capital contributions. See
footnote 6(G) of the Company's Financial Statement and
"Contributed capital". To preserve the IPO proceeds designated
working capital , these officers have agreed to continue in
their offices at reduced salaries for the period of three months
between the Closing and commencement of revenue operations.
Reduced salaries will not commence until proceeds are available
from this Offering. The executive officers have provided written
affirmation that each will continue in his respective position at
reduced salary for the three months following the Closing.
Name Position Salary
Igor Dmitrowsky President $186,000
Brian Glynn Vice President Marketing 82,000
Andris Rukmanis Vice President Europe 68,000
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth, as of the date of this
Prospectus, 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
sole voting and investment power with respect to all shares shown
as beneficially owned by such person. The percentage owned after
the Offering reflects the sale of 1,000,000 Shares and 3,000,000
Warrants <FN1>.
<CAPTION>
Common Shares
Beneficially Owned Percent of Total Percent of Total
After the Offering Before Offering After Offering <FN1>
Directors and Officers
<S> <C> <C> <C>
Igor Dmitrowsky . . . . . . 3,034,100 62.1% 51.6%
63-26 Saunders St., Suite 7I
Rego Park, NY 11374
Walter Kaplinsky . . . . . 146,500 3.0% 2.5%
2000 Quentin Rd.
Brooklyn, NY 11229
Brian Glynn . . . . . . . . 100,000 2.0% 1.7%
148 Claremont Rd.
Bernardsville, NJ 07924
Andris Rukmanis . . . . . . 51,000 1.0% 0.9%
Kundzinsala, 8 Linija 9.
Riga, Latvia LV-1005
Anita Schiff-Spielman . . . 4,500 0.1% 0.1%
1149 Kensington Rd.
Teaneck, NJ 07666
Counsel
Steffanie J. Lewis . . . . .
3511 North 13th St.
Arlington, VA 22201 380,000 7.8% 6%
All directors, officers
and counsel (Six people) 3,716,100 76% 61.8%
<FN>
<FN1>
(1) Does not reflect the exercise of Over-Allotment Warrants or
Representative's Warrants.
</FN>
</TABLE>
Audit Review by the Board
New NASDAQ standards require: (1) a minimum of 2 independent
directors; and, (2) an audit committee, a majority of which are
independent directors. The Company has a small Board consisting
of four Directors, two of which are independent, plus one
independent additional directorship position reserved for the
Lead-Manager designee, at the Lead-Manager's option. A Committee
of three Directors, two of which are independent, is responsible
for reviewing the results and scope of the audit and other
services provided by the Company's independent accountants and
all transactions between the Company and any of its officers,
directors or principal stockholders.
Management Stock Options
On July 25, 1997, the Company granted options exercisable for a
four-year period commencing one year from the Prospectus date to
acquire shares of Common Stock for $6.125 per Share as follows:
350,000 options to Igor Dmitrowsky, Chairman of the Board and
President of the Company; 150,000 options to Walter Kaplinsky,
Director; 150,000 options to Brian Glynn, Vice President of
Marketing; and 150,000 options to Andris Rukmanis, Director and
Vice President Europe.
<TABLE>
<CAPTION>
Name Number of Securities % of Total Options Exercise or Expiration Date
Underlying Options Granted to Employees Base Price
granted in Fiscal Year
<S> <C> <C> <C> <C>
Igor Dmitrowsky 350,000 44% $6.125 four-year period
commencing one
year
from Prospectus
date
Walter Kaplinsky 150,000 19% same same
Brian Glynn 150,000 19% same same
Andris Rukmanis 150,000 19% same same
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No officers or directors hold Company shares purchased since
March 4, 1995, i.e. within one year of the Company's filing its
initial registration of this Offering. In June 1997, Steffanie
Lewis, legal counsel, was issued 300,000 common shares at par in
exchange for the total legal fees due to her in the amount of
$1,628,432 for services performed since 1989 in connection with
various certifications, authorities and financial matters. On
June 23, 1997, Mr. Dmitrowsky, President, Mr. Walter Kaplinsky,
and Mr. Andris Rukmanis, Vice President, relinquished the amount
due them for back-pay totaling $270,928. All securities
previously purchased by officers and directors were purchased for
fair market value at the time they were purchased. Excepting
Management Stock Options and the Company's renting office space
from its president prior to moving to JFK, no other transaction
exists between officers and the Company or affiliates of either,
and there are no incentive plans or options for delayed
compensation.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, $.0001 par value per share,
and 15,000 shares of Preferred Stock, $1.00 par value. At the
Effective Date, a total of 4,885,000 shares of Common Stock are
issued and outstanding and held by over 100 shareholders. No
shares of Preferred Stock are issued and outstanding.
Common Stock
All outstanding shares of Common Stock are, and the shares
offered hereby will be, duly authorized, validly issued, fully
paid and non-assessable. Holders of Common Stock are entitled to
receive dividends, when and if declared by the board of
directors, out of funds legally available therefor and, subject
to prior rights of holders of any Preferred Stock then
outstanding, if any, to share rateably in the net assets of the
Company upon liquidation. Holders of Common Stock do not have
preemptive or other rights to subscribe for additional shares,
nor are there any redemption or sinking fund provisions
associated with the Common Stock. The Certificate of
Incorporation does not provide for cumulative voting. Shares of
Common Stock have equal voting, dividend, liquidation and other
rights, and have no preference, exchange or appraisal rights.
Lack of Control by Minority Shareholders
Holders of shares of Common Stock are entitled to one vote per
share on all matters requiring a vote of stockholders. Since the
Common Stock does not have cumulative voting rights in electing
directors, the holders of a majority of the outstanding shares of
Common Stock voting for the election of directors can elect all
of the directors, excepting one board seat reserved for the
Underwriter's nominee for three years.
Stock Transfer Agent
The Transfer Agent and Registrar for the shares of Common Stock
is Continental Stock Transfer and Trust Company, 2 Broadway, New
York, NY 10004, telephone: (212) 509-4000.
Warrants
In this Offering the Company will issue 3,000,000 Warrants. Each
Warrant entitles the holder to purchase one share of Common Stock
at $6.50 during the four-year period commencing one year from the
date of this Prospectus. The Company may redeem outstanding
Warrants, once they become exercisable at a price of $.125 per
Warrant on not less than 30 days written notice, provided the
closing bid quotations of the Shares have exceeded $10 for 20
consecutive trading days ending on the third day prior to the
date on which notice is given. Baltia intends to redeem the
Warrants at the earliest opportunity. Warrants may not be
exercised following redemption. Therefore, the investor may have
to exercise the Warrant earlier than he or she intended. If the
Warrants are called for redemption by the Company, an investor
may have to exercise the Warrants before maximum profit can be
gained. The Warrants expire five years after the Effective Date,
or sooner if the Warrants are called for redemption. The
Prospectus will become stale nine months following the
Effective Date. The Company will try to maintain, and at
such time as it may call for redemption will provide, a
current prospectus, but the Company assumes no obligation
to maintain a current prospectus otherwise. Warrants may
not be exercised or redeemed in the absence of a current
prospectus, and the Company's Warrant and Transfer agents
are forbidden to accept Warrants unaccompanied by a
current prospectus.
Warrant Exercise Procedure
Warrants may be exercised by mailing or delivering a duly
executed and completed Warrant Subscription Certificate together
with payment in full of the subscription price of $6.50 per share
of Common Stock. Except as described herein under "Late Delivery
of Warrants," Warrant Subscription Certificates must arrive on or
before the Expiration Date and any subscriptions received after
the Expiration Date will not be honored. Payment must be made in
United States dollars in cash or by bank certified or cashier's
check, or by wire transfer of good funds payable to the order of
the Warrant Agent. Once a holder has exercised a Warrant, the
exercise is irrevocable. Certificates representing the shares of
Common Stock purchased upon the exercise of Warrants will be
delivered to the purchasers as soon as practicable after receipt
of the Subscription Agreement and funds.
The Warrant Agent is Continental Stock Transfer and Trust
Company, 2 Broadway, New York, NY 10004, telephone: (212) 509-
4000.
The instructions in the Warrant Subscription Certificate should
be read carefully and followed in detail. Do not send Warrant
Subscription Certificates or payment to the Company or to the
Underwriters. Except as described herein under "Late Delivery of
Warrants," no subscriptions will be accepted until the Warrant
Agent has received delivery of a duly executed Warrant
Subscription Certificate and payment of the subscription price.
The risk of delivery of Warrant Subscription Certificates and
payments to the Warrant Agent will be borne by the holders of
Warrants and not by the Company or the Warrant Agent. If the mail
is used to exercise Warrants, it is recommended that insured,
registered mail be used. Any questions or requests for
assistance concerning the method of subscribing for shares or for
additional copies of this Prospectus should be directed to the
Warrant Agent.
All questions as to the validity, form, eligibility and
acceptance of any exercise of Warrants will be determined by the
Company at its sole discretion. The Company may waive any defect
or irregularity, permit a defect or irregularity to be corrected
within such time as it may determine, or reject any exercise of a
Warrant which it determines to have been made improperly.
Late Delivery of Warrants
If on or before the Warrant Expiration Date the Warrant Agent
receives the full subscription price for the shares of Common
Stock, together with a letter or telegraphic guaranty from a bank
or trust company which is a member of the New York Clearing House
(or is a correspondent of such a bank) or a member firm of the
New York Stock Exchange or American Stock Exchange or Nasdaq,
that the Warrant Subscription Certificate to which it relates
will be surrendered to the Warrant Agent within five business
days after the Expiration Date, the subscription will be accepted
subject to receipt of the duly executed Warrant Subscription
Certificate within the five business days.
Purchase and Sale of Warrants
The Warrants are immediately tradable. The Company has applied
for the Nasdaq listing symbol BALTW for Warrants. No assurance
can be given that a trading market for the Warrants will develop,
or if one does develop, whether it will sustain or at what price
the Warrants will trade. Prior to this Offering, there has been
no public market for the Warrants.
Representative's Warrants
At the Closing of this Offering the Company will sell to the
Representative, for a total purchase price of $10.00, Warrants
entitling the Representative to purchase up to 100,000 shares of
Common Stock at $8.575 per Share (140% of initial public offering
price) and 300,000 Warrants at $.175 per Warrant (140% of initial
public offering price). Warrants underlying the Representative's
Warrants differ from the Warrants offered to the public
hereunder to the extent that the Warrants are non-redeemable by
the Company. The exercise prices of the Option and underlying
Warrants are subject to anti-dilution adjustment under certain
conditions. The Representative's Warrants are exercisable during
the four-year period commencing one year form the date of this
Prospectus, and the Warrants are non-transferable for one year
except to the officers of the Representative, members of the
underwriting group and their respective officers or partners.
The Securities issuable upon the exercise of the Representative's
Warrants have been reserved by the Company and have been
included in the Registration Statement of which this Prospectus
is a part.
Preferred Stock
The Company has authorized 15,000 Preferred Shares which may be
issued from time to time, as authorized by the board of
directors. Preferred shares have $1 par value and no voting
rights. As of the present date thereof, no shares of Preferred
Stock are outstanding and the Company has no present plans to
issue any shares of Preferred Stock.
COMMON STOCK AVAILABLE FOR FUTURE SALE
The Company and more than 95% of its present shareholders,
representing 4,640,750 shares, have entered into a 24-month lock
up written agreement with the Lead-Manager preventing the sale of
insider held common stock for two years without written
permission from the Lead-Manager. Whether to grant permission
lies within the Lead-Manager's discretion. At Closing there will
be 5,885,000 shares of Common Stock, Over-Allotment can
contribute up to 150,000 additional Shares and 450,000 additional
Warrants (equivalent to 450,000 Shares if fully exercised).
Common Stock and Warrants purchased in the Offering will be
immediately detachable and separately tradable. Warrants are
exercisable during the four-year period commencing one year from
the date of this Prospectus. If all Warrants are exercised, up
to an additional 3,000,000 Shares of Common Stock will be freely
tradable. The Company has issued Warrants to the Representative
to purchase up to 100,000 Shares and up to 300,000 Warrants
totaling 400,000 Shares assuming full exercise of all Warrants.
Up to an additional 800,000 Shares will be added if the
Management's Stock Options are fully exercised.
Following the two-year lock up, 4,885,000 Insider Shares of
Common Stock will be freely tradable without registration or
other restrictions in accordance with Rule 144. Upon petition
from a shareholder, the Lead-Manager has discretion to waive
the lock up restriction on the sale of that petitioner's
Insider Shares during the two-year lock up. No notice of
such a waiver will be given other shareholders. If written
waiver is granted, that petitioner's Insider Shares can be
sold pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated in accordance with Rule 144)
who has beneficially owned "restricted shares" (defined generally
as shares acquired from the issuer or an affiliate in a non-
public transaction) for the last two years, as well as any person
who purchases unrestricted shares on the open market who may be
deemed "affiliate" of the Company (as defined in the Securities
Act), would be entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater
of 1% of the then outstanding number of shares of Common Stock or
the average weekly trading volume of the shares of Common Stock
during the four calendar weeks preceding such sale. After shares
of Common Stock are held for three years, a person who is not
deemed an "affiliate" of the Company is entitled to sell such
shares of Common Stock under Rule 144 without regard to volume
limitations. As defined by Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one
or more intermediaries, controls, or is controlled by, or is
under common control with, such issuer.
With the Offering the Company is registering the 300,000 shares
of Common Stock underlying the Underwriter's Purchase Option
(assuming full exercise of underlying Warrants). The Securities
underlying the Underwriter's Purchase Option may be traded on any
exchange or public market upon which the Company's Common Stock
is traded.
Prior to the Offering, there has been no public market for the
Common Stock and the effect, if any, that future market sales
will have on the market price prevailing from time to time,
cannot be predicted. Sales of a substantial number of shares, or
the perception that such sales may occur, could adversely affect
prevailing market prices for the shares of Common Stock.
UNDERWRITING
The Underwriters named below, for whom Global Equities Group,
Inc., and Suncoast Capital Corp. are acting as Representatives
("Representatives"), have agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the
Company a total of 1,000,000 shares of Common Stock and 3,000,000
Warrants at the public offering price, less the underwriting
discounts and commissions, set forth on the cover page of this
Prospectus. The number of Securities which each such Underwriter
has agreed to purchase is set forth opposite its name:
Underwriter Number of Shares Number of Warrants
Global Equities Group, Inc. . . . .
Suncoast Capital Corp. . . . . . .
________________________ . . . . .
Total . . . . . . . . . . . . . 1,000,000 3,000,000
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to approval of certain legal matters by
counsel and certain other conditions precedent, and that the
Underwriters are obligated to purchase all of the Securities
offered in this Prospectus (other than the Securities covered by
the Over-Allotment Option described below), if any are purchased.
The Lead-Manager has advised the Company that the Underwriters
propose to offer the Securities to the public at the initial
offering prices set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in
excess of $____ per share of Common Stock and $___ per Warrant.
After the initial public offering, the public offering price,
concessions, and other selling terms may be changed by the Lead-
Manager.
The Company has agreed to pay underwriting discounts and
commissions in the aggregate of 10% of the initial public
offering price of the Securities offered hereby (including the
sale of any Securities sold under the Over-Allotment Option).
The Company has also agreed to pay to the Lead-Manager an expense
allowance on a non-accountable basis equal to 3% of the gross
proceeds derived from the sale of the Securities underwritten
(including the sale of any Securities sold under the Over-
Allotment Option). Any Underwriters' expenses in excess of the
expense allowance will be borne by the Lead-Manager. To date,
the Company has advanced the Lead-Manager $20,000 with respect
to non-accountable expense allowance. The Company has also
agreed to pay all expenses in connection with qualifying the
Securities offered hereby for sale under the laws of such states
as the Lead-Manager may designate.
The Company has granted to the Underwriters an option,
exercisable during the 45-day period after the date of this
Prospectus, to purchase up to an aggregate of 150,000 additional
shares of Common Stock and 450,000 additional Warrants at the
offering price, less underwriting discounts and commissions (set
forth on the cover of this Prospectus) and the non-accountable
expense allowance, for the sole purpose of covering over-
allotments, if any.
In connection with this Offering, the Company has agreed to sell
to the Lead-Manager (or its designees), for a total purchase
price of $10.00, the Representative's Warrants to purchase up to
an aggregate 100,000 shares of Common Stock and/or 300,000
Warrants ("Representative's Warrants"). The Representative's
Warrants is exercisable at a price equal to 140% of the initial
public offering price of the Securities for a period of four
years commencing one year from the date of this prospectus. The
Securities purchasable upon exercise of the Representative's
Warrants are identical to those offered hereby, except for non-
redeemability. The Representative's Warrants cannot be
transferred, sold, assigned ro hypothecated during the one-year
period following the date of this Prospectus, except to officers
of the Lead-Manager and to selected dealers and their officers
and partners. The number of Shares and underlying Warrants
covered by the Representative's Warrants and the exercise price
are subject to adjustment upon certain events to prevent
dilution.
In connection with the Offering, the Underwriters and selling
group members (if any) and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise
affect the market price of the Common Stock and Warrants.
Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant
to which such persons may bid for or purchase Common Stock or
Warrants for the purpose of stabilizing their market prices.
The Underwriters may also create a short position for the
account of the Underwriters by selling more securities in
connection with the Offering than they are committed to
purchase form the Company and in such case may purchase
securities in the open market following completion of the
Offering to cover all or a portion of such short position.
The Underwriters may also cover all or a portion of such
short position, up to 150,000 additional shares of Stock
and 450,000 Warrants, by exercising the Over-allotment
Option. Any of the transactions described in this paragraph
may result in the maintenance of the securities at a level
above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be
discontinued at any time.
In connection with the Offering the Underwriters and
selling group members (if any) and their respective
affiliates may also engage in passive market making
transactions in the Stock and Warrants on The Nasdaq
SmallCap Market immediately prior to the commencement
of sales in this Offering, in accordance with Rule 103
under Regulation M. Passive market making consists of
displaying bids on The Nasdaq Small Cap market limited
by the bid prices of independent market makers for a
security and making purchases of a security which are
limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market
maker's average trading volume in the securities during a
specified prior period and must be discontinued when such
limit is reached. Passive market making may stabilize the
market price of the securities at a level above that which
might otherwise prevail and, if commenced, may be
discontinued at any time.
Indemnification
The Underwriting Agreement provides for reciprocal
indemnification between the Company and the Underwriters against
certain liabilities in connection with the Registration
Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be provided to the officers, directors or
persons controlling the Company, the Company has been informed
that in the opinion of the SEC, such indemnification is against
public policy and is therefore unenforceable.
Board of Directors
The Company has granted to the Lead Managers the right to
designate a member of the Company's board of directors for a
period of three years or, in the alternative, to designate a
person to attend all board of directors meetings and to receive
all notices or communications to directors during such three year
period, all at the expense of the Company.
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the
Units, Common Stock and Warrants. The initial public offering
price for the Securities and the exercise price of the Warrants
have been determined by negotiations between the Company and the
Lead-Manager. Among the factors considered in the negotiations
were an analysis of the areas of activity in which the Company is
engaged, the present state of the Company's management and the
general condition of the securities market at the time of this
Offering. See Risk Factors - No Assurance of Public Market .
The public offering price of the Securities does not bear any
relationship to assets, earnings, book value or other criteria of
value applicable to the Company.
Lock-Up Agreements
Prior to the date of this Prospectus, 95% of the holders of the
Company's Common Stock have signed written agreements not to
sell, assign or transfer any of their shares of the Company's
securities without the Lead-Manager's prior written consent for
a period of 24 months from the Prospectus date. Whether to grant
permission lies within the discretion of the Lead-Manager. In
addition, the Company has agreed not to issue any shares of its
capital stock for a period of 24 months from the closing of the
Offering without the consent of the Lead-Manager.
SUBSCRIBERS' FLIGHT COUPON
As a means of introducing its non-stop JFK - St. Petersburg
service to IPO shareholders, the Company will issue Flight
Coupons. For each 1,500 Shares purchased, the subscriber
receives one Flight Coupon. By surrendering one coupon, the
subscriber is entitled to purchase for $650 two Voyager Class
round-trip tickets from JFK to St. Petersburg. By surrendering
two coupons the subscriber is entitled to purchase for $650 two
Business Class round-trip tickets. By surrendering three
coupons, the subscriber is entitled to purchase for $650 two
First Class round-trip tickets. Subscriber may purchase tickets
by presenting the coupon[s] at Baltia's JFK ticket counter or by
mailing the coupon[s] and check in the stated amount to Baltia
Air Lines, Inc., Reservation Center, East Wing Building 51, JFK
International Airport, Jamaica, NY 11430. Flight Coupons expire
December 31, 1998. The Flight Coupon is offered as a marketing
promotion only, is issued in the name of the securities purchaser,
has a set value, is not transferrable, and is not a security.
LEGAL MATTERS
Steffanie Lewis, Esq., The International Business Law Firm, PC,
Arlington, VA 22201-4907, is the Company's General Counsel since
1989, and has passed upon the validity of the securities offered
hereby. Steffanie Lewis owns 380,000 shares of the Company and
will be compensated $150,000 for legal services in connection
with the Company's IPO which is due and payable at closing, no
interest is assessed, and payment is contingent upon the IPO
closing. Mound, Cotton & Wollan, One Battery Park Plaza, New York,
NY 10004-1486 has acted as legal counsel to the Lead-Manager in
this offering.
EXPERTS
The financial statements of the Company appearing in this
Prospectus and Registration Statement at December 31, 1996 and
for the year then ended, and December 31, 1995 and the year then
ended, have been audited by J.R. Lupo, P.A. CPA, Verona, NJ,
independent Certified Public Accountants, as set forth in their
respective reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such
report given upon the authority of such firms as experts in
accounting and auditing.
Airline Economics, Inc., Arlington, VA, industry analysts, were
consultants to the Company in the preparation of the Company's
traffic and financial projections for the JFK - St. Petersburg
market (and Riga, Minsk, Kiev and Tbilisi markets) and testified
as expert witness for the Company in the DOT route proceedings.
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement under
the Securities Act with respect to the securities being offered
by this Prospectus. This Prospectus does not contain all
information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the
Company and the Securities offered hereby, reference is made to
the Registration Statement and exhibits thereto. The Company is
currently filing periodic reports under the Securities Exchange
Act of 1934 ("Exchange Act"), as amended.
All reports and other information, including all of these
documents, may be inspected and copied at the public reference
facilities of the SEC in Washington, DC, and at the SEC's
regional office at 7 World Trade Center, New York, NY 10048.
Copies may be obtained from the Public Reference Section of the
SEC, Washington, DC 20549 at prescribed rates. Copies of the
Registration Statement are available from the SEC. Statements
contained in this Prospectus concerning the provisions of
documents filed with the Registration Statement as exhibits are
necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.
The Company is an electronic filer. The SEC maintains a Web
site that contains reports, proxy and information statements
and other information regarding issuers that file electronically
with the SEC at (http://www.sec.gov).
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent certified
public accountants following the end of each fiscal year.
<PAGE>
<AUDIT-REPORT>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
<PAGE>
BALTIA AIR LINES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Contents Page
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet - December 31, 1996 and
(Unaudited) September 30, 1997 F-3
Statement of Operations - Years ended
December 31, 1996 and 1995 and the
(Unaudited) nine months ended September
30, 1997 and 1996 F-4
Statement of Cash Flows - Years ended
December 31, 1996 and 1995 and the
(Unaudited) nine months ended September
30, 1997 and 1996 F-5 - F-6
Statement of Changes in Stockholders'
Deficit - Years ended December 31, 1996
and 1995 and the (Unaudited) nine months
ended September 30, 1997 and 1996 F-7 - F-8
Notes to the Financial Statements - Years
ended December 31, 1996 and 1995 and the
(Unaudited) nine months ended September
30, 1997 F-9 - F-18
F-1
<PAGE>
Independent Auditors' Report
To the Shareholders of and the Board of Directors of
Baltia Air Lines, Inc.
We have audited the balance sheet of Baltia Air Lines, Inc. (A
Development Stage Company) as of December 31, 1996 and the related
statements of operations, cash flows, and changes in stockholders'
deficit for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
also includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Baltia
Air Lines, Inc. as of December 31, 1996 and the results of its
operations and its cash flows for the years ended December 31, 1996
and 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As shown in the
financial statements, the Company has not generated any revenues
and has incurred losses in excess of $6,000,000 since its incep-
tion. In addition, the Company has a capital deficit and sub-
stanial excess of current liabilities over current assets. These
factors, and the others discussed in Note 1 (C), raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in respect to these matters are referenced in
Note 1 (C). The financial statements do not include any
adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities
that might be necessary in the event the Company cannot continue in
existence.
J.R. Lupo, P.A. CPA
Verona, NJ
August 15, 1997
F-2
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30,
1997 December 31,
(Unaudited) 1996
Assets
Current Assets:
Cash $ 2,582 $ 340
Total Assets - Current $ 2,582 $ 340
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 539,155 $ 553,405
Accounts payable to
stockholders 65,317 176,012
Accrued expenses to
stockholders 0 270,928
Interest payable to
stockholders 0 321,168
Other liabilities to
stockholders 0 22,142
Notes payable to stock-
holders 304,340 1,223,391
Total current liabilities 908,812 2,567,046
Accounts payable to stock-
holder 0 1,628,432
Total liabilities 908,812 4,195,478
Commitments and contingencies
Redeemable common stock 0 400,000
Stockholders' deficit:
Preferred stock - no par value;
15,000 shares authorized, 0
shares issued and outstand-
ing at September 30, 1997 and
December 31, 1996, respectively 0 0
Common stock - $.0001 par
value; 100,000,000 shares
authorized, 4,885,000 and
4,350,000 shares issued and
outstanding at September 30, 1997
and December 31, 1996, respectively 488 435
Additional paid-in capital 5,846,199 1,648,797
Prepaid media costs ( 396,090) 0
Deficit accumulated during
development stage (6,356,827) (6,244,370)
Total stockholders'
deficit ( 906,230) (4,595,138)
Total liabilities and
stockholders' deficit $ 2,582 $ 340
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1997 1996 December 31, September 30, 1997
(Unaudited) 1996 1995 (Unaudited)
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Expenses
General and
Administrative 80,832 12,952 92,749 98,017 2,223,204
Professional
fees 31,625 1,160 77,817 279,543 1,957,945
Service
contributions 0 0 0 397,856 1,352,516
Training Expense 0 0 0 0 225,637
Abandoned fixed
assets 0 0 0 0 205,162
Total expenses 112,457 14,112 170,566 775,416 5,964,464
Interest expense 0 23,998 68,120 134,635 392,363
Net loss $(112,457) $(38,110) $(238,686) $(910,051) $(6,356,827)
Net loss per
common share $(0.02) (0.01) $(0.05) $(0.20) $(1.30)
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1997 1996 December 31, September 30, 1997
(Unaudited) 1996 1995 (Unaudited)
Cash flows from
operating activities:
Net loss $( 112,457) $(38,110) $(238,686) $(910,051) $(6,356,827)
Adjustment to
reconcile net
loss to net cash
provided by oper-
ations:
Depreciation 0 0 0 0 219,410
Stock issued for
interest 0 0 0 63,500 63,500
Contributed
services 0 0 0 397,856 1,352,516
Increase(Decrease)
in accounts
payable ( 14,250) (20,641) 38,217 237,963 2,343,599
Net cash
(used) for
operating
activities ( 126,707) (57,260) (132,349) (142,742) (2,377,802)
Cash flows from invest-
ing activities:
Purchase of
equipment 0 0 0 0 ( 219,410)
Net cash
(used) for
investing
activities ( 0) ( 0) ( 0) 0 ( 219,410)
Cash flows from
financing activities:
Proceeds from
shareholder
loans (net) 128,949 55,500 125,776 40,326 1,352,340
Proceeds from
issuance of
common stock 0 0 0 107,848 1,133,216
Increase
paid-in
capital 0 0 0 63,497 614,238
Purchase and
retirement
of treasury
stock 0 0 0 0 ( 500,000)
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1997 1996 December 31, September 30, 1997
(Unaudited) 1996 1995 (Unaudited)
Net cash $ $ $ $ $
provided
from
financing
activities 128,949 55,500 125,776 148,175 2,599,794
Net increase
(decrease)
in cash 2,242 3,251 ( 6,573) 5,432 2,582
Cash at begin-
ning of period 340 6,913 6,913 1,481 0
Cash at end
of period $ 2,582 $ 10,164 $ 340 $ 6,913 $ 2,582
Supplemental Cash
Flow Information
Cash paid for
interest $ 0 $ 0 $ 0 $ 0 $ 0
Cash paid for
income taxes $ 0 $ 0 $ 52 $ 677 $ 3,437
Non-Cash Items:
Acquisition of
prepaid
media costs $ 396,090 $ 0 $ 0 $ 0 $ 396,090
Conversion
of liabilities $ 3,130,437 $ 0 $ 0 $ 0 $ 3,130,437
Reclassification
of redeemable
common stock $ 0 $ 0 $ 0 $ 400,000 $ 400,000
Surrender of rights
to redeem common
stock $ 400,000 $ 0 $ 0 $ 0 $ 400,000
Contributed
services $ 270,928 $ 0 $ 0 $ 397,856 $ 1,081,588
Stock issued
for interest $ 0 $ 0 $ 0 $ 63,500 $ 63,500
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Accumulated
Stock Additional During the Prepaid Total
Par Paid-in Development Media Stockholders'
Shares Value Capital Stage Costs Deficit
August 24,
1989 (Inception)
through
December 31,
1992
(Unaudited) 1,116,400 $112 $ 978,428 $(4,190,584) $ 0 $(3,212,044)
1993;
Issuance
of Common
Stock 2,737,350 273 42,063 0 0 42,336
Net Loss 0 0 0 ( 266,889) 0 ( 266,889)
Balance at
December
31, 1993 3,853,750 $385 $ 1,020,491 $(4,457,473) $ 0 $(3,436,597)
Issuance
of Common
Stock 190,100 $ 19 $ 1,883 $ 0 $ 0 $ 1,902
Contributed
Capital 0 0 457,250 0 0 457,250
Net Loss 0 0 0 ( 638,160) 0 ( 638,160)
Balance at
December
31, 1994 4,043,850 $404 $ 1,479,624 $(5,095,633) $ 0 $(3,615,605)
Issuance
of Common
Stock 281,150 $ 28 $ 107,820 $ 0 $ 0 $ 107,848
Issuance
of Common
Stock as
non-refund-
able prepaid
interest 25,000 3 63,497 0 0 63,500
Reclassification
of redeemable
Common Stock 0 0 ( 400,000) 0 0 ( 400,000)
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Accumulated
Stock Additional During the Prepaid Total
Par Paid-in Development Media Stockholders'
Shares Value Capital Stage Costs Deficit
Contributed
Capital 0 $ 0 $ 397,856 $ 0 $ 0 $ 397,856
Net Loss 0 0 ( 910,051) 0 ( 910,051)
Balance at
December
31, 1995 4,350,000 $435 $ 1,648,797 $(6,005,684) $ 0 $(4,356,452)
Net Loss 0 $ 0 $ 0 $( 238,686) $ 0 $( 238,686)
Balance at
December
31, 1996 4,350,000 $435 $ 1,648,797 $(6,244,370) $ 0 $(4,595,138)
(Unaudited)
Net Loss 0 $ 0 $ 0 $( 112,457) $ 0 $( 112,457)
Acquisition of
prepaid
media costs 65,000 6 396,084 0 (396,090) 0
Conversion
of liabil-
ities 470,000 47 3,130,390 0 0 3,130,437
Contributed
capital 0 0 270,928 0 0 270,928
Surrender of
rights to
redeem common
Stock 0 0 400,000 0 0 400,000
Balance at
September 30,
1997 4,885,000 $488 $ 5,846,199 $(6,356,827) $ 0 $( 906,230)
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, NATURE OF OPERATIONS, GOING CONCERN CONSIDERATIONS
(A) Organization
The Company was incorporated under the laws of the state of New York on
August 24, 1989.
(B) Nature of Operations
The Company was formed to provide commercial, passenger, cargo and mail
air transportation between New York and Russia.
Since inception,the Company's primary activities have been the raising of
capital, obtaining financing and obtaining Route Authority and approval
from the U.S. Department of Transportation. The Company has not yet
commenced revenue producing activities. Accordingly, the Company is
deemed to be a Development Stage Company.
The Company currently maintains office space at J.F.K. Airport, New York.
(C) Going Concern Considerations
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
not generated any revenues and sustained substantial loses during the
development stage since its inception and has an accumulated deficit at
September 30, 1997 and December 31, 1996 of $6,356,827 (unaudited) and
$6,244,370, respectively.
The Company's ability to continue as a going concern is dependent on its
ability to raise sufficient capital and/or obtain sufficient financing, to
be used for the commencement of operations, and ultimately to achieve
profitable operations.
If the Company is unable to raise sufficient capital and/or obtain suf-
ficient financing such as described in Note 6 (D), Proposed Public Offering,
it is doubtful that it will be able to commence scheduled air line service.
Management believes that if it is able to commence operations it will be
able to generate operating revenues, which in its judgement, shall be
adequate to fund all current expenses and retire currently outstanding debt.
As of September 30, 1997 the Company has not yet commenced its scheduled
air line service.
2. ACCOUNTING POLICIES
(A) Cash and Equivalents
The Company considers cash and cash equivalents to be all short-term
investments which have an initial maturity of three months or less.
(B) Prepaid Media Costs
On June 23, 1997 the Company entered into an agreement with Kent Trading,
Inc., a media placement company whereby, the Company exchanged 65,000 common
F-9
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(B) Prepaid Media Costs (Continued)
stock shares, as negotiated with the management of the Company, for future
media placements in various international and national media publications,
with a current value of $396,090 as based on the related publications
published advertising rates. Kent Trading, Inc. may terminate the Agree-
ment if the closing of the proposed Public Offering has not occurred prior
to December 31, 1997. The Company has recorded prepaid media costs as a
reduction to equity, in a manner similar to accounting for a stock sub-
scription receivable. At such time the Company utilizes the media
placements, the Company will charge of the related costs to expense.
The Company retains the right to resell the media placements to third
parties, although it has no current plans to do so. Although as current
mrket rates for media placements are stable, if rates were to decline the
Company could realize a loss on resale. To the extent that the carrying
amount is determined not be realizable, it will be charged off to expense.
(C) Property & Equipment
The cost of property and equipment is depreciated over the estimated use-
ful lives of the related assets. Leasehold improvements are depreciated
over the lesser of the term of the related lease or the estimated lives of
the assets. Depreciation is computed on the straight line method for
financial reporting purposes and modified accelerated recovery method for
tax purposes.
(D) Start-up Activities
On July 5, 1990, the Company filed and application for a Certificate of
Authority to engage in foreign scheduled air transportation between New
York and St. Petersburg, Russia.
On March 28, 1991, the U.S. Department of Transportation granted to the
Company an exclusive Route Authority to fly between New York and Russia.
Te Order found the company to be fit, willing and able to conduct scheduled
passenger service. However, the Order stipulated that if scheduled passen-
ger service did not commence within one year from the date of the Fitness
determination, March 28, 1991, the Route Authority would be revoked.
On September 20, 1991, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through April 1, 1992.
On April 14, 1992, the U.S. Department of Transportation granted a further
extension of time to commence operations, through August 31, 1992.
On April 8, 1993, the Company again requested an extension of time to
commence operations however, the U.S. Department of Transportation denied
the request.
On August 14, 1995, the Company re-filed its application with the U.S.
Department of Transportation for the Certificate of Route Authority.
F-10
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(D) Start-up Activities (Continued)
On January 22, 1996, the U.S. Department of Transportation issued an Order
of Show Cause, whereby, they tentatively concluded that the Company is fit,
willing and able to provide scheduled air transportation between New York
and Russia and, should be issued a Certificate of Public Convenience and
Necessity authorizing such operations.
On February 26, 1996, the U.S. Department of Transportation issued a Final
Order thereby, authorizing the Company to engage in foreign scheduled air
transportation between New York and St. Petersburg, Russia.
On February 6, 1997, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through August 7, 1997.
On September 10, 1997, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through February 7,
1998.
Obtaining Federal Aviation Administration air carrier certification and
meeting Department of Transportation financial requirements are prerequi-
sites to the Company's commencement of revenue service.
Costs associated with the development and approval of the authorized route,
such as legal and consulting fees, have been written off in the period in
which the expense was incurred.
(E) Income Taxes
Deferred income taxes arise from temporary differences between the recording
of assets and/or liabilities reported for financial accounting and tax
purposes in different periods. Deferred taxes are classified as current
or non-current, depending on the classification of the assets and liabil-
ities to which they relate. Deferred taxes arising from temporary differ-
ences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse. To the extent the total of deferred
tax assets are not realized, a reserve is established.
(F) Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
(G) Fair Value of Financial Instruments
The Company considers the carrying value of its financial instruments
(cash and liabilities) to approximate their fair value.
F-11
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
The Company's legal counsel, Steffanie Lewis, of the International Business
Law Firm, P.C. owns 380,000 shares of common stock at June 30, 1997 and
80,000 shares of common stock at December 31, 1996 or approximately 7.78%
and 1.84%, respectively, of the Company's issued and outstanding common
stock.
The 300,000 shares were issued in June 1997 in exchange for legal work
performed in connection with various certifications, authorities and
financial matters. The 80,000 shares were issued in exchange for the first
six months preparation of the 1990 application to the Department of
Transportation for Air Line Fitness Certifi-cation.
For the period beginning January 1990 through December 31, 1996, the total
legal costs incurred in the amount of $1,757,262 were for legal work
performed by Steffanie Lewis for the Company in connection with various
certifications, authorities and financial matters.
Legal costs incurred and charged to professional fees for the (Unaudited)
nine months ended September 30, 1997, 1996 and years ended December 31,
1996,and 1995 total $2,800, $0, $2,100, $234,543, respectively.
At September 30, 1997 and December 31, 1996 the account payable to this
shareholder totals $0 and $1,628,432, respectively.
On June 30, 1997, Steffanie Lewis was issued 300,000 common shares, as
negotiated with the management of the Company, in exchange for the total due
to her, in the amount of $1,628,432.
Legal costs associated with the proposed Public Offering, as described in
Note 6 (D) totaling $150,000 are only payable in the event of a successful
offering and shall be charged against the Offering proceeds.
Additionally, other current accounts payable to shareholders at September
30, 1997 (unaudited) and December 31, 1996, total $65,317 and $176,012,
respectively.
On June 23, 1997, Airline Economics International, Inc., a shareholder, was
issued 20,000 common shares, as negotiated with the management of the
Company, in exchange for the total due them, in the amount of $110,695.
Other liabilities to shareholders at September 30, 1997 (Unaudited) and
December 31, 1996, total $0 and $22,142, respectively.
On June 23, 1997, Igor Dmitrowsky, President of the Company and a
shareholder, relinquished the amount due to him totaling $22,142.
Accordingly, the Company has recorded Contributed Capital in the amount of
$22,142.
4. NOTES PAYABLE - STOCKHOLDERS
In 1992 the Company issued Promissory Notes to certain shareholders in
exchange for 1,048,000. The Notes were due on demand and all interest was
payable upon principal repayment, at an annual rate of six and one half
percent (6 1/5%), from the date of issuance to the date of repayment.
On June 24, 1997 certain shareholders were issued 150,000 common shares, as
negotiated with the management of the Company, in exchange for the total
due
them, in the amount of $1,369,168, inclusive of principal of $1,048,000 and
accrued interest of $321,168.
F-12
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. NOTES PAYABLE - STOCKHOLDERS (Continued)
Interest expense related to the above incurred for the (Unaudited) six
months ended September 30, 1997 and year ended December 31, 1996, totaled $0
and $68,120, respectively.
At September 30, 1997 and December 31, 1996, interest expense related to the
above incurred since inception totals $321,168, $321,168, respectively.
In 1996 the Company borrowed net $125,776 from certain shareholders. The
net
borrowings are non-interest bearing and are due on demand.
In 1995 the Company issued a short-term Promissory Note to a certain
shareholder in exchange for $50,000. The Company issued to this
shareholder,
25,000 shares of common stock as a non-refundable prepayment of interest
from
the date of the loan through repayment of the loan.
For the year ended December 31, 1995, the Company charged $63,500 to
interest expense for the shares issued in connection with the
non-refundable
interest prepayment, based on an average price per share of $2.54.
5. INCOME TAXES
At December 31, 1996, the Company has a net operating loss carryforward of
$4,929,707, which is available to offset future taxable income. The carry-
forwards expire between the year 2005 and 2012. The Company is still liable
for certain minimum state taxes.
As of December 31, 1996, a net deferred tax benefit has not been reflected
to temporary differences between the amount of assets and liabilities
recorded for financial reporting and income tax purposes due to the
establishment of a 100% valuation allowance relating to the uncertainty of
recoverability.
6. STOCKHOLDERS' DEFICIT
(A) Stock Options
In 1992, the Company granted options to purchase 104,600 shares of common
stock, at $33.33 per share, to certain private investors. These options
expire upon the passing of thirty full calendar months after the Company
has made a public sale of securities in compliance with the Securities
Act of 1933, as amended, or the passing of twenty years from the date of
said agreements, whichever is earlier. As of June 30, 1997, no options
have been exercised.
(B) Retirement of Stock
On November 4, 1992, the Company issued 25,000 shares of stock for $500,000
to a private investor. On November 24, 1992, these shares were repurchased
for the same amount from the investor and subsequently retired.
(C) Reverse Stock Split
On August 24, 1995, the Board of Directors authorized and the majority of
the current shareholders ratified a ten for one reverse stock split of the
Company's $.0001 par value common stock. All references in the accompanying
financial statements to the number of common shares issued have been
restated to reflect the reverse stock split.
F-13
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. STOCKHOLDERS' DEFICIT (Continued)
(D) Proposed Public Offering
In 1996 the Company had engaged an underwriter to underwrite the Company's
Initial Public Offering on a best-efforts basis. The Offering did not raise
the required minimum of $6,000,000 and was withdrawn. Subsequently, the
Company received an offer from Global Equities Group, Inc. to underwrite
the Company's proposed Public Offering on a firm-commitment basis.
On June 3, 1997, the Company entered into an agreement with Global
Equities Group, Inc. to act as the Managing Underwriter in connection with a
proposed firm-commitment Public Offering of securities and plans to file an
amended registration statement with the Securities Exchange Commission,
as is described in Note 7 (A) (2).
The Company intends to offer for sale 1,000,000 shares of common stock of
$.0001 par value, at a price of $6.125 per share and 3,000,000 Redeemable
Common Stock Purchase Warrants at $.125 per Warrant.
Each Warrant entitles the holder to purchase one Share for $6.50 during the
four-year period commencing one year from the date of the proposed Public
Offering. The Company may redeem outstanding Warrants, once they become
exercisable at a price of $.125 per Warrant on not less then 30 days
written notice, provided the closing bid quotations of the Shares have
exceeded $10 for 20 consecutive trading days ending on the third day prior
to the date on which notice is given.
The Agreement with the Underwriter sets forth the following terms and
conditions in relation to the Company's currently issued and outstanding
common stock;
(1) The Company maintains that on the effective date of the proposed
Public Offering, the common stock issued and outstanding shall not exceed
4,885,000 common shares.
(2) The Company will not issue or register with the Securities and
exchange Commission any additional common stock, options, warrants or
conver-
tible securities for a period of twenty-four (24) consecutive months
after the closing date of the proposed Public Offering without the
consent of the Managing Underwriter.
(3) Holders of at minimum, ninety-five percent (95%) of the issued and
out-standing common stock, warrants and any securities convertible in to
common stock prior to the proposed Public Offering, will have a signed
two (2) year Lock-up Agreement on their respective holdings.
(E) Stock Buy-Back Requirements
As of December 31, 1996 the Company was required to buy-back 50,000 shares
$8 per share, from certain current investors, if in the event said
investor wanted to sell his/her common stock within the two (2) year Lock-up
period as referred in Note 6 (D) (3), and was denied such a waiver by the
Managing Underwriter.
F-14
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. STOCKHOLDERS' DEFICIT (Continued)
(E) Stock Buy-Back Requirements (Continued)
On June 23, 1997 all current investors with redemption options referred to
above surrendered their redemption options. Accordingly, the Company
recorded Additional Paid-in Capital in the amount of $400,000.
(F) Contributed Capital
The Company has recorded service contributions from certain key officers
who have worked for and on behalf of the Company. The service contribution
amounts have been calculated based on a normal rate of compensation, on
either a full or part time basis, as based on the number of hours worked
by each individual.
The Company maintains no obligation, present or future, to pay or repay for
any and all service contributions received. Accordingly, the Company has
not recorded a liability for, accrued for, and/or accounted for any
monetary reserves in connections with the service contributions.
On June 23, 1997, certain of the Company's management relinquished the
amount due them for back-pay totaling $270,928. Accordingly, the Company
has recorded Contributed Capital in the amount of $270,928.
(G) Stock Issuance
The following schedule summarizes common shares issued for cash;
Year Number Range of
Issued of Shares Amounts Per Share
1989 500,000 $ 0.1000 to $ 0.1000
1990 272,600 $ 0.4883 to $ 10.0000
1991 65,400 $ 1.0000 to $ 10.0000
1992 278,400 $ 1.0000 to $ 10.0000
1993 2,737,350 $ 0.0020 to $ 10.0000
1994 190,100 $ 1.0000 to $ 10.0000
1995 281,150 $ 0.1000 to $ 7.8808
1996 0 $ 0.0000 to $ 0.0000
1997 0 $ 0.0000 to $ 0.0000
The following schedule summarizes common shares issued in non-cash
exchanges (See Notes 2 (B), 3 and 4).;
Year Number Range of
Issued of Shares Amounts Per Share
1989 0 $ 0.0000 to $ 0.0000
1990 0 $ 0.0000 to $ 0.0000
1991 0 $ 0.0000 to $ 0.0000
1992 0 $ 0.0000 to $ 0.0000
1993 0 $ 0.0000 to $ 0.0000
1994 0 $ 0.0000 to $ 0.0000
1995 25,000 $ 2.5400 to $ 2.5400
1996 0 $ 0.0000 to $ 0.0000
1997 535,000 $ 5.4281 to $ 9.1278
F-15
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES
(A) Commitments
(1) Lease Obligations
In October, 1995 the Company entered into a lease with Iceland Air,
J.F. Kennedy Airport, New York, to occupy space. The lease term is on
a month to month basis.
Currently, the Company is leasing space from Iceland Air for $1,200 per
month at J.F. Kennedy Airport, New York. Rent expense charged to
operations for the (Unaudited) nine months ended September 30, 1997 and
1996 and years ended December 30, 1996 and 1995 totaled $12,000, $7,200,
$13,200 and $3,600, respectively.
In January 1993, the Company leased office space form its President at
his residence. The lease term is on a month to month basis through
December 31, 1997. Rent expense charged to operations for the
(Unaudited) nine months ended September 30, 1997 and 1996 and years
ended December 30, 1996 and 1995 totaled $5,132, $2,400, $5,392 and
$3,968, respectively.
(2) Underwriter - Proposed Public Offering
On June 3, 1997, the Company entered into an agreement with Global
Equities Group, Inc. to act as the Managing Underwriter in connection
with a proposed Public Offering of securities.
The Agreement sets forth the following terms and conditions;
(a) The Managing Underwriter shall receive a dealers concession of ten
percent (10%) of the proposed Public Offering price.
(b) The Managing Underwriter shall receive at closing of the proposed
Public Offering a non-accountable expense allowance of three
percent (3%) of the total offering.
(c) The Managing Underwriter shall receive upon signing the Agreement
an advance on the non-accountable expenses in the amount of
$20,000, which is part of item 2 (B). If the offering is canceled
for any reason, the advance will be applied to cover the Managing
Under-writer's accountable out-of-pocket expenses only.
(d) The Company shall sell to the Managing Underwriter an option to
purchase 100,000 common shares at a price of $8.575 per share and
300,000 Warrants at a price of $.175 per Warrant, at closing of the
proposed Public Offering. The Warrants are exercisable over a
period of four years (4) commencing one year (1) from the date of
the closing of the proposed Public Offering.
F-16
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (Continued)
(A) Commitments (Continued)
(3) Line of Credit
On December 12, 1995, the Company was granted a credit line of
$6,500,000 through January 1998, with a foreign bank. Monies are
available as follows;
(a) When the Company registers a subsidiary in the Republic of
Latvia, pursuant to local applicable regulations and, opens
an account with the bank.
(b) This credit facility cannot be utilized for primary funding of
capital investments.
(c) Terms of the borrowing's will be determined at the borrowing
date. Upon receipt of a written notice furnished by the Company.
Such notice must be received fourteen days (14) in advance of the
requested borrowing date.
(B) Contingencies
(1) Scandinavian Airline Systems
The Company will be liable to Scandinavian Airline Systems (SAS), for
expenses incurred by SAS on behalf of the Company should the Company
eventually purchase an aircraft from SAS.
In 1992, the Company forwarded a deposit to SAS for the purchase of a
Boeing 767 aircraft, which the Company has since forfeited. SAS
incurred costs totaling $114,000 beyond the initial deposits for the
preparation of the aircraft for the delivery and subsequent de-
modification back to SAS upon the Company's failure to obtain
financing. SAS has agreed to collect these amounts at the time of
any
aircraft sale to the Company should such a sale occur. Should no
sale
occur, the Company will not be liable to SAS for the $114,000
(2) Transaction Management, Inc.
On October 11, 1991, the Company was required by an arbitrator to pay
Transaction Management, Inc. (TMI) an unspecified "finders fee". The
Company refused to pay TMI and on December 1994 filed a motion to
Reconsider, citing 17 substantial errors In Fact, in the prior court's
Order.
On November 2, 1995, the court ordered that the Company's motion for
Reconsideration be denied.
In October 1996 the Federal Court of Appeals of the District of
Columbia released the Company from all TMI threat of liability and
dismissed the case.
F-17
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCIES (Continued)
(B) Contingencies (Continued)
(2) Transaction Management, Inc. (Continued)
(3) Subscribers' Flight Coupon - Proposed Public Offering
At the closing, the Company will issue Flight Coupons to the subscribers
in its proposed Public Offering. For each 1,500 shares of common stock
purchased, the subscriber receives on Flight Coupon. One Flight Coupon
plus $650 will purchase two (2) Voyager Class round-trip tickets. Two
(2) Flight Coupons plus $650 will purchase two (2) Business Class round-
trip tickets. Three (3) flight Coupons plus $650 will purchase two (2)
First Class round-trip tickets.
An estimate of the value of such a commitment by the Company cannot be
determined at this time. However, upon completion of the proposed
Public Offering, the Company will record deferred revenues and offset
its costs of rasing capital for all Subscribers' Flight Coupons issued.
(4) Compensation
The Board of Directors approves salaries for the Company's executive
officers as well as the Company's overall salary structure. For year
one following the closing of the proposed Public Offering, the rate of
compensation for the Company's executive officers is: (i) President
$186,000, (ii) Vice-President Marketing $82,000, and (iii) Vice-
President Europe $68,000. Pursuant to written agreement, during the
90-day period commencing once the offering proceeds are released to
the
Company from the escrow account, the President and the Vice-Presidents
will receive compensation reduced to an amount equal to 50% of
budgeted
salaries. Upon commencement of flight services 100% of respective
budgeted salaries will be paid. To this date, the Company has paid
officers no salaries, nor otherwise have compensated officers. Board
Directors are not presently compensated and shall receive no compen-
sation prior to commencement of revenue service.
The following table identifies executive compensation to be paid. No
executive salaries have been paid to date and reduced salaries will not
commence until proceeds are available from the proposed Public Offering
closes.
Name Position Salary
Igor Dmitrowsky President $186,000
Brian Glynn Vice-President Marketing 82,000
Andris Rukmanis Vice-President Europe 68,000
Inasmuch as the Company does not provide written individual contracts
with its personnel, for clarification purposes, the executives' agree-
ment for the temporarily reduced salaries was documented.
F-18
</AUDIT-REPORT>
PAGE
<PAGE>
No dealer, salesman, or other person has been authorized to give
any information or to make any representations in connection with
this Offering other than those contained in this Prospectus and,
if given or made, such information or representations must not be
relied upon as having been authorized by the Company, or by the
Underwriters. This Prospectus does not constitute an offer to
buy any security other than the Securities offered by this
Prospectus, or an offer to sell or a solicitation of an offer to
buy any securities by any person in any jurisdiction in which
such offer or solicitation is not authorized or is unlawful. The
delivery of this Prospectus shall not, under any circumstances,
create any implication that the information herein contained is
correct as of any time subsequent to the date of this Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Use of Proceeds
Dilution
Dividend Policy
Capitalization
Selected Financial Data
Management s Discussion and Analysis
of Financial Condition and Plan of Operations
Business
Management
Principal Stockholders
Certain Transactions
Description of Securities
Common Stock Eligible for Future Sale
Underwriting
Legal Matters
Experts
Available Information
Index to Financial Statements
Until , 1997 (25 days after the date of this
Prospectus), all dealers affecting transactions in the Common
Stock and the Warrants, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
BALTIA AIR LINES
The New Way to Europe (tm)
1,000,000 Shares of Common Stock
and
3,000,000 Redeemable Common Stock Purchase Warrants
PROSPECTUS
GLOBAL EQUITIES GROUP, INC.
SUNCOAST CAPITAL CORPORATION
, 1997
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company's Bylaws, Article IV(19)&(20), provide that except
for willful negligence or intentional criminal conduct, the
Company shall indemnify its Directors, Chairman & President,
Secretary, Officers and Counsel against third party liability,
including shareholder and/or regulatory actions. Additionally,
Sections 722-725 of the New York Business Corporation Law provide
for indemnification by the Company or the New York State. There
are no indemnification provisions contained in the Company's
Certificate of Incorporation. Items 9.1 and 9.2 of the
Underwriting Agreement provide for reciprocal indemnification for
the Underwriter and the Company within the meaning of Section 15
of the Securities Act.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses in connection with this offering are as
follows:
SEC registration fee . . . . . . . . . . . . . . $10,163
NASD filing fee . . . . . . . . . . . . . . . . 3,296
Nasdaq listing . . . . . . . . . . . . . . . . . 5,000
Transfer Agent's fees . . . . . . . . . . . . . . 1,000
Printing and engraving cost* . . . . . . . . . 4,320
Legal fees and expenses* . . . . . . . . . . . . 150,000
Accounting fees and expenses* . . . . . . . . . 45,000
Blue Sky fees and expenses* . . . . . . . . . . 10,000
Miscellaneous expenses* . . . . . . . . . . . . . 6,221
Total . . . . . . . . . . . . . . $235,000
______________
* Indicates expenses that have been estimated for the purpose of
filing.
Item 26. Recent Sales of Unregistered Securities
During the past four years, commencing 1/1/93, the Company sold
3,768,600 unregistered shares of common stock as stated below for
cash, using no underwriter, commissions, or underwriter
discounts. Legends were placed in the margin of all certificates
sold setting forth the restriction on transferability and sale.
Accredited investors purchased 595,625 shares for $3,311,860
under exemption 4(6) of the Securities Act of 1933. In July 1997,
the Company granted options to purchase 800,000 shares of common
stock, at $6.125 per share, to certain of its management. These
options are exercisable for a four-year period commencing one year
from the closing of the Company's public offering. No options are
eligible for exercise or have been exercised. In June 1997
the Company converted $2,786,432 in liabilities owed to existing
accredited shareholders into 470,000 shares; and exchanged 65,000
shares for $400,000 in pre-paid media placements with an
accredited investor. In August 1993 the Company sold 3,125 shares
to an accredited investor for $25,000. From August through
December 1995, the Company sold 57,500 shares to eight accredited
investors for $100,428. The Company relied upon written
notarized statements of net worth from accredited investors in
determining eligibility for such exemption.
Small private investors purchased 3,172,975 shares for $82,661
under exemption 4(2) of the Securities Act of 1933. From August
1994 through August 1995, five foreign residents and nationals
purchased 47,000 shares for $470 through one of the Company's
directors. The offers were made on a one-to-one personal basis
to five persons. In three periods, form April through August
1993, from July through August 1994, and from January 1995
through March 1996, the Company's officers, directors and
significant employees purchased 3,112,725 shares for $77,051 and
six of their close friends purchased 13,250 shares for $5,140.
The following is a list of persons to whom the Company sold
securities in each of the transactions listed:
Exemption 4(6)
Airline Economics, Inc. Robert Long
Leonard Becker Michael Pisani
Walter Comer Michael & Mary Ries
Darrel Fox Edward Taxin
Kent Trading, Inc. David Yellis
Robert Krieble
Exemption 4(2)
Igor Dmitrowsky Robert Hughes
Aina Dmitrowsky Steffanie (Parker) Lewis
Emanuil Gelfand Jennifer (Parker) Budde
Brian Glynn Kathleen McGuire
Rita Gurvich Nina Morozova
Walter Kaplinsky Andris Rukmanis
Ellery Kaplinsky Anita Schiff/Spielman
Olga Kaplinsky Andris Shaurins
Regina Kaplinsky Samuel Yellis
Exemption 4(6) private foreign investors
Olga Klasons Alla Romanov
Ilona Priedite Talivaldis Stinkurs
Harijs Rassa
Item 27. Exhibits
Exhibit No. Description of Exhibit
1.1 Underwriting Agreement - updated *
1.2 Selected Dealer Agreement (Included in Exhibit 1)
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Representative's Warrant (Included in Exhibit 1)
4.2 Warrant Agreement (Included in Exhibit 1)
4.3.1 Form of Common Stock
4.3.2 Warrant certificates
4.4 Insider lockup agreement with Representative (Included
in Exhibit 1)
5.1 Opinion re: legality - updated*
10.1 DOT Order 96-1-24 and Final Order 96-2-51
10.1.1 DOT Order 97-9-11
10.1.2 DOT Order 91-6-2, page 1 - new*
10.2 Registered Trademarks "Baltia" and "Voyager Class"
10.3 W.R. Lazard
10.4 LATEKO - updated*
10.4.1 Clearance by Secretary re: LATEKO
10.5 United Airlines' B747-100
10.8 Financial Consulting Agreement (originally contained
in Exhibit 1 - deleted and removed) - updated*
10.10 Executive agreements for three months salary reduction
23.1 Consent of J.R. Lupo, P.A. CPA, auditors - updated*
23.2 Consent of Steffanie Lewis, Counsel (included in
Exhibit 5) - updated*
23.3 Consent of Airline Economics, industry analysts
- updated*
28.1 Evaluation of registrant's forecast by Airline Economics
Int'l, Inc.
28.2 Evaluation of JFK-LED route by Airline Economics Int'l,
Inc.
28.3 Dept. of Commerce profile on St. Petersburg
28.4 Baltia's Fares JFK-LED
28.5 Passenger Traffic calculation (includes Dept. of
Commerce statistics)
28.6 IATA forecast growth rates 1993-97 (Commercial Aviation
Report)
28.7 SAS report on its 93/94 North American traffic
28.8 Bureau of the Census air cargo statistics
28.9 Letters from cargo forwarders
28.10 B747-100 dispatch reliability study by Boeing
28.11 Letters on fuel availability at JFK and LED
28.12 Route Map
Except those specifically marked with an asterisk, all exhibits
are current as previously filed in SB-2 (File No. 333-2006-NY)
and pre-effective amendments No. 1, 2, 4 and 5 thereto,
or with the current SB-2 registration, File No. 333-37409.
Item 28. Undertakings
(a) The undersigned registrant hereby undertakes to provide to
the Underwriter at the closing specified in the Underwriting
Agreement, certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(b) Rule 415 Offering. The undersigned registrant will:
(1) File, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) For determining liability under the Securities Act,
treat each such post-effective amendment as a new
registration statement of the securities offered, and the
offering of such securities at the time shall be deemed to be
the initial bona fide offering;
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
(c) Indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers or controlling persons of the registrant pursuant to the
provisions referred to in Item 24 of this registration statement
or otherwise, the registrant has been advised that in the opinion
of the Securities Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person or the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) Rule 430A. The undersigned registrant will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it
effective.
(2) For any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in
the registration statement, and that the offering of the
securities at that time as the initial bona fide offering of
those securities.
(e) Request of Acceleration of Effective Date. The Company may
elect to request acceleration of the registration statement under
Rule 461 of the 1933 Act.
<PAGE>
As filed with the Securities and Exchange Commission
on October 8, 1997
Registration No. 333-37409
___________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
Baltia Air Lines, Inc.
Exhibits
<PAGE>
Baltia Air Lines, Inc.
Exhibit Index
Exhibit No. Description of Exhibit
1.1 Underwriting Agreement - updated *
1.2 Selected Dealer Agreement (Included in Exhibit 1)
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Representative's Warrant (Included in Exhibit 1)
4.2 Warrant Agreement (Included in Exhibit 1)
4.3.1 Form of Common Stock
4.3.2 Warrant certificates
4.4 Insider lockup agreement with Representative (Included
in Exhibit 1)
5.1 Opinion re: legality - updated*
10.1 DOT Order 96-1-24 and Final Order 96-2-51
10.1.1 DOT Order 97-9-11
10.1.2 DOT Order 91-6-2, page 1 - new*
10.2 Registered Trademarks "Baltia" and "Voyager Class"
10.3 W.R. Lazard
10.4 LATEKO - updated*
10.4.1 Clearance by Secretary re: LATEKO
10.5 United Airlines' B747-100
10.8 Financial Consulting Agreement (originally contained
in Exhibit 1 - deleted and removed) - updated*
10.10 Executive agreements for three months salary reduction
23.1 Consent of J.R. Lupo, P.A. CPA, auditors - updated*
23.2 Consent of Steffanie Lewis, Counsel (included in
Exhibit 5) - updated*
23.3 Consent of Airline Economics, industry analysts
- updated*
28.1 Evaluation of registrant's forecast by Airline Economics
Int'l, Inc.
28.2 Evaluation of JFK-LED route by Airline Economics Int'l,
Inc.
28.3 Dept. of Commerce profile on St. Petersburg
28.4 Baltia's Fares JFK-LED
28.5 Passenger Traffic calculation (includes Dept. of
Commerce statistics)
28.6 IATA forecast growth rates 1993-97 (Commercial Aviation
Report)
28.7 SAS report on its 93/94 North American traffic
28.8 Bureau of the Census air cargo statistics
28.9 Letters from cargo forwarders
28.10 B747-100 dispatch reliability study by Boeing
28.11 Letters on fuel availability at JFK and LED
28.12 Route Map
Except those specifically marked with an asterisk, all exhibits
are current as previously filed in SB-2 (File No. 333-2006-NY)
and pre-effective amendments No. 1, 2, 4 and 5 thereto,
or with the current SB-2 registration, File No. 333-37409.
BALTIA AIR LINES, INC.
UNDERWRITING AGREEMENT
New York, New York
Dated: , 1997
GLOBAL EQUITIES GROUP, INC.
5 Hanover Square, 22nd Floor
New York, New York 10004
and
Suncoast Capital Corp.
_______________________________
_______________________________
Gentlemen:
The undersigned, Baltia Air Lines, Inc., a corporation
incorporated under the laws of the State of New York (the
"Company"), proposes to issue and sell to Global Equities Group,
Inc. ("Global") and Suncoast Capital Corp. ("Suncoast"), the
"Underwriters" named on Schedule A hereto, pursuant to this
Underwriting Agreement ("Agreement"), an aggregate of 1,000,000
shares of the Company's Common Stock (the "Common Stock") and
3,000,000 Redeemable Common Stock Purchase Warrants (the "Public
Warrants"). The Public Warrants are exercisable to purchase one
share of Common Stock, at any time commencing one year from the
date on which the Registration Statement (as defined in Section
l(a) hereof) shall have become or been declared effective (the
"Effective Date"), and ending on the fifth anniversary of the
Effective Date. The Public Warrant exercise price, subject to
adjustment as described in the agreement providing for the
Warrants (the "Warrant Agreement"), shall be $6.50 per share of
Common Stock.
Commencing one year after the Effective Date, the Warrants
are subject to redemption by the Company at $.125 per Warrant,
provided that (a) prior notice of not less than 30 days' written
notice is given to the holders of the Warrants (the
<PAGE>
"Warrantholders"), and (b) the last sale price of the Common
Stock for a period of 20 consecutive trading days ending no more
than three days prior to the date of any redemption notice,
equals or exceeds U.S.$ 10.00 pr share, subject to adjustment.
In addition, the Company proposes to grant to the
Underwriters the Over-Allotment Option (as defined in Section
2(c) hereof) to purchase all or any part of an aggregate of
150,000 additional shares of Common Stock and 450,000 Warrants,
and to issue to you the Underwriters' Warrants (as defined in
Section 12 hereof) to purchase certain further additional shares
of Common Stock and Public Warrants.
The aggregate of 1,000,000 shares of Common Stock to be sold
by the Company, together with the aggregate of 150,000
additional shares of Common Stock that are the subject of the
Over-Allotment Option, are herein collectively called the
"Shares." The Shares, the Warrants to be sold by the Company,
the additional Warrants subject to the Over-Allotment Option and
the Warrants issuable upon exercise of the Underwriters'
Warrants, the shares of Common Stock issuable upon exercise of
the Warrants and the shares of Common Stock issuable upon
exercise of the Underwriters' Warrants, are herein collectively
called the "Securities." The term "Underwriters' Counsel" shall
mean the firm of Mound, Cotton & Wollan, counsel to the
Underwriters, and the term "Company Counsel" shall mean Steffanie
J. Lewis, Esq., counsel to the Company. Unless the context
otherwise requires, all references herein to a "Section" shall
mean the appropriate Section of this Agreement.
You have advised the Company that you desire to purchase the
Securities as herein provided. The Company confirms the
agreements made by it with respect to the purchase of the
Securities by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, the
Underwriters that:
(a) Registration Statement; Prospectus; A registration
statement (File No. 33-2006) on Form S-B2 relating to the public
offering of the Securities (the "Offering"), including a
preliminary form of prospectus, copies of which have heretofore
been delivered to you, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933
(the "Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder
(the "Rules and Regulations"), and has been filed with the
Commission under the Act. As used herein, the term "Preliminary
Prospectus" shall mean each prospectus filed pursuant to Rule 430
or Rule 424(a) of the Rules and Regulations. The Preliminary
Prospectus bore the legend required by Item 501 of Regulation S-B
under the Act and the Rules and Regulations. Such registration
statement (including all financial statements, schedules and
<PAGE>
exhibits) as amended at the time it becomes effective and the
final prospectus included therein are herein respectively called
the "Registration Statement" and the "Prospectus," except that
(i) if the prospectus filed by the Company pursuant to Rule
424(b) or Rule 430A of the Rules and Regulations shall differ
from such final prospectus as then amended, then the term
"Prospectus" shall instead mean the prospectus first filed
pursuant to said Rule 424(b) or Rule 430A, and (ii) if such
registration statement is amended or such prospectus is amended
or supplemented after the effective date of such registration
statement and prior to the Option Closing Date (as defined in
Section 2(c) hereof), then (unless the context necessarily
requires otherwise) the term "Registration Statement" shall
include such registration statement as so amended, and the term
"Prospectus" shall include such prospectus as so amended or
supplemented, as the case may be.
(b) Contents of Registration Statement. On the
Effective Date, and at all times subsequent thereto for so long
as the delivery of a prospectus is required in connection with
the offering or sale of any of the Securities, (i) the
Registration Statement and the Prospectus shall in all material
respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the
Prospectus shall include any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary or make statements therein in light of the
circumstances in which they were made, not misleading; provided,
however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by
or on behalf of the Underwriters' specifically for use in the
preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," the
information on the cover page of the Prospectus regarding the
underwriting arrangements and the identity of the Underwriters'
Counsel under the caption "LEGAL MATTERS," which information the
Underwriters hereby represent and warrant to the Company is true
and correct in all material respects and does not omit to state
any material fact required to be stated therein or necessary to
make statements therein, in light of the circumstances in which
they were made, not misleading, constitute the only information
furnished in writing by or on behalf of the Underwriters for
inclusion in the Registration Statement and Prospectus, as the
case may be.
Except for the registration rights granted under the
Underwriters' Warrants, or as disclosed in the Prospectus, no
holders of any securities of the Company or of any options,
warrants or convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of
the Company, have the right to include any securities issued by
<PAGE>
the Company in the Registration Statement or any registration
statement to be filed by the Company.
(c) Organization, Standing, Etc. The Company and its
subsidiary ("Subsidiary") are duly incorporated and validly
existing as corporations in good standing under the laws of their
jurisdiction of incorporation, with full power and corporate
authority to own their properties and conduct their business as
described in the Prospectus, and are duly qualified or licensed
to do business as foreign corporations and are in good standing
in each other jurisdiction in which the nature of their business
or the character or location of their properties requires such
qualification, except where failure so to qualify will not have a
material adverse effect on the business, properties or financial
condition of the Company or its Subsidiary.
(d) Capitalization. The authorized, issued and
outstanding capital stock of the Company as of the date of the
Prospectus is as set forth in the Prospectus under the caption
"CAPITALIZATION". The shares of Common Stock issued and
outstanding on the Effective Date have been duly authorized,
validly issued and are fully paid and non-assessable. No
options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the
Company or the Subsidiary have been granted or entered into by
the Company, except as expressly described or contemplated in the
Prospectus. The Securities conform to all statements relating
thereto contained in the Registration Statement or the
Prospectus.
(e) Securities. The Securities conform, or will
conform when issued, in all material respects to all statements
with respect thereto contained in the Registration Statement and
the Prospectus. The Securities have been duly authorized and,
when issued and delivered against payment therefor pursuant to
this Agreement, the Warrant Agreement or the Underwriters'
Warrants, as the case may be, will be duly authorized, validly
issued, fully paid and non-assessable and free of preemptive
rights of any security holder of the Company. Neither the filing
of the Registration Statement nor the offering or sale of any of
the Securities as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied,
for or relating to the registration of any securities of the
Company, except as described in the Registration Statement.
(f) Authority, Etc. This Agreement, the Warrant
Agreement and the Underwriters' Warrants have been duly and
validly authorized, executed and delivered by the Company and,
assuming due execution of this Agreement and such other
agreements by the other party or parties hereto and thereto,
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their
respective terms. The Company has full right, power and lawful
<PAGE>
authority to authorize, issue and sell the Securities and the
Underwriters' Warrants on the terms and conditions set forth
herein. All consents, approvals, authorizations and orders of
any court or governmental authority which are required in
connection with the authorization, execution and delivery of such
agreements, the authorization, issue and sale of the Securities
and the Underwriters' Warrants, and the consummation of the
transactions contemplated hereby have been obtained.
(g) No Conflict. Except as described in the
Prospectus, the Company and its Subsidiary are not in violation,
breach or default of or under, and consummation of the
transactions hereby contemplated and fulfillment of the terms of
this Agreement will not conflict with or result in a breach of,
any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or
encumbrance pursuant to the terms of, any contract, indenture,
mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company or its Subsidiary is
a party or by which the Company or its Subsidiary may be bound or
to which any of the property or assets of the Company or its
Subsidiary are subject, nor will such action result in any
violation of the provisions of the Articles of Incorporation or
the By-laws of the Company or the charter of its Subsidiary, or
any statute or any order, rule or regulation applicable to the
Company or its Subsidiary, or of any court or of any regulatory
authority or other governmental body having jurisdiction over the
Company or its Subsidiary.
(h) Assets. Subject to the qualifications stated in
the Prospectus: (i) the Company and its Subsidiary, as the case
may be, have good and marketable title to all properties and
assets described in the Prospectus as owned by it, including,
without limitation, intellectual property, free and clear of all
liens, charges, encumbrances or restrictions, except such as do
not materially affect the value of such properties or assets and
do not interfere with the use made or proposed to be made of such
assets or properties by the Company or its Subsidiary or are not
materially significant or important in relation to the business
of the Company or its Subsidiary; (ii) all of the material leases
and subleases under which the Company or its Subsidiary are the
lessor or sublessor of properties or assets or under which the
Company or its Subsidiary hold properties or assets as lessee or
sublessee, as described in the Prospectus, are in full force and
effect and, except as described in the Prospectus, the Company
and its Subsidiary are not in default in any material respect
with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by any party
adverse to the rights of the Company or its Subsidiary as lessor,
sublessor, lessee or sublessee under any such lease or sublease,
or affecting or questioning the right of the Company or its
Subsidiary to continued possession of the leased or subleased
premises or assets under any such lease or sublease, except as
described or referred to in the Prospectus; and (iii) the Company
<PAGE>
and its Subsidiary own or lease all such assets and properties,
described in the Prospectus, as are necessary to their operations
as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the
Prospectus.
The outstanding debt, the property and the
business of the Company conforms in all material respects to the
descriptions thereof contained in the Registration Statement and
Prospectus.
(i) Independent Accountants. J.R. Lupo, P.A. CPA, who
have given their report on certain financial statements filed or
to be filed with the Commission as a part of the Registration
Statement, and which are included in the Prospectus, are with
respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) Financial Statements. The consolidated financial
statements, together with related notes, set forth in the
Registration Statement and the Prospectus present fairly the
consolidated financial position, results of operations, changes
in stockholders' equity and cash flows of the Company on the
basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Such
financial statements and related notes have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved,
except to the extent disclosed therein. The Summary Financial
Data and Selected Financial Data included in the Registration
Statement and the Prospectus present fairly the information shown
therein and have been prepared on a basis consistent with that of
the financial statements included in the Registration Statement
and the Prospectus.
(k) No Material Change. Except as otherwise set forth
or contemplated in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not: (i) incurred
any liability or obligation, direct or contingent, or entered
into any transaction, which is material to its business; (ii)
effected or experienced any change in its capital stock or
incurred any long-term debt; (iii) issued any options, warrants
or other rights to acquire its capital stock; (iv) declared, paid
or made any dividend or distribution of any kind on its capital
stock; or (v) effected or experienced any adverse change, or
development involving a prospective adverse change, in its
financial position, net worth, results of operations, business or
business prospects, assets or properties or key personnel.
(l) Litigation. Except as set forth in the
Prospectus, there is not now pending nor, to the knowledge of the
Company, threatened, any action, suit or proceeding (including
any related to environmental matters or discrimination on the
<PAGE>
basis of age, sex, religion or race), whether or not in the
ordinary course of business, to which the Company or its
Subsidiary is a party or its business or property is subject,
before or by any court or governmental authority, which, if
determined adversely to the Company or its Subsidiary, would have
a material adverse effect on the financial position, net worth,
or results of operations, business or business prospects, assets
or property of the Company or its Subsidiary; and no labor
disputes involving the employees of the Company or its Subsidiary
exist which would affect materially adversely the business,
property, financial position or results of operations of the
Company or its Subsidiary.
(m) Employee and Independent Contractor Matters. The
Company and its Subsidiary have generally enjoyed satisfactory
employer/employee relationships with their respective employees
and are in compliance in all material respects with all
government, state and local laws and regulations, including but
not limited to, applicable tax laws and regulations, respecting
the employment of their respective employees and employment
practices, terms and conditions of employment and wages and hours
relating thereto. To the knowledge of the Company, there are no
pending or threatened investigations involving the Company or its
Subsidiary by the U.S. Department of Labor or corresponding
foreign agency, or any other governmental agency responsible for
the enforcement of such government, state or local laws and
regulations. To the knowledge of the Company, there are no
unfair labor practice charges or complaints against the Company
or its Subsidiary pending before the National Labor Relations
Board or corresponding foreign agency or any strikes, picketing,
boycotts, disputes, slowdowns or stoppages pending or threatened
against or involving the Company or its Subsidiary, or any
predecessor entity, and none has occurred. No representation
question exists respecting the employees of the Company or its
Subsidiary. No collective bargaining agreements or modifications
thereof are currently in effect or being negotiated by the
Company or its Subsidiary and their respective employees. No
grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company or
its Subsidiary.
The Company does not: (i) maintain nor has it maintained,
sponsored or contributed to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit
plan" or a "multi-employer plan" as such terms are defined in
Sections 3(2), 3(l) and 3(37), respectively of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
except for the Stock Option Plan described in the Prospectus;
(ii) presently maintain or contribute nor at any time in the
past, has it maintained or contributed to a defined benefit plan,
as defined in Section 3(35) of ERISA; or (iii) has ever
completely or partially withdrawn from a " multi-employer plan."
<PAGE>
The Company and its Subsidiary have generally enjoyed
satisfactory relationships with their respective independent
contractors and are in compliance in all material respects with
all government, state and local laws and regulations, including
but not limited to applicable tax laws and regulations,
respecting the engagement of their respective independent
contractors.
(n) No Unlawful Prospectuses. The Company has not
distributed any prospectus or other offering material in
connection with the Offering contemplated herein, other than any
Preliminary Prospectus, the Prospectus or other material
permitted by the Act and the Rules and Regulations.
(o) Taxes. Except as disclosed in the Prospectus, the
Company and its Subsidiary have filed all necessary government,
state, local and foreign income and franchise tax returns and
have paid all taxes shown as due thereon on or before the date
such taxes are due to be paid; and there is no tax deficiency
which has been or, to the knowledge of the Company, might be
asserted against the Company or its Subsidiary.
(p) Licenses, Etc. The Company and its Subsidiary have in
effect all necessary licenses, permits and other governmental
authorizations currently required for the conduct of their
business as currently contemplated or the ownership of their
property, as described in the Prospectus, and is in all material
respects in compliance therewith. To the knowledge of the
Company, none of the activities or business of the Company or its
Subsidiary is in violation of, or would cause the Company or its
Subsidiary to violate, any law, rule, regulation or order of the
United States, state, county or locality, the violation of which
would have a material adverse effect upon the financial position,
net worth, results of operations, business or business prospects,
assets or property of the Company or its Subsidiary.
(q) No Prohibited Payments. The Company has not, nor, to
the knowledge of the Company has any of its employees or officers
or directors, agents or any other person acting on behalf of the
Company or its Subsidiary, directly or indirectly, contributed or
agreed to contribute any money, gift or benefit (other than legal
price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a
customer, supplier, or official or governmental agency or
instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or
other person who was, is, or may be in a position to help or
hinder the business of the Company or its Subsidiary (or assist
it in connection with any actual or proposed transaction) which
(i) could reasonably be expected to subject the Company or its
Subsidiary to any material damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not
given in the past, could reasonably be expected to have had a
materially adverse effect on the assets, business or operations
<PAGE>
of the Company or its Subsidiary as reflected in any of the
financial statements contained in the Prospectus, or (iii) if not
continued in the future, could reasonably be expected to
materially adversely affect the assets, business, operations or
prospects of the Company or its Subsidiary.
(r) Transfer Taxes. On the Closing Dates (as defined in
Section 2(d) hereof), all transfer and other taxes (including
franchise, capital stock and other taxes, other than income
taxes, imposed by any jurisdiction), if any, which are required
to be paid in connection with the sale and transfer of the
Securities to the Underwriters hereunder shall have been fully
paid or provided for by the Company, and all laws imposing such
taxes shall have been fully complied with.
(s) Exhibits. All contracts and other documents of the
Company described in the Registration statement or the Prospectus
or to be filed as exhibits to the Registration Statement, have
been described in the Registration Statement or the Prospectus or
filed with the Commission, as required under the Rules and
Regulations.
(t) Shareholder Agreements, Registration Rights. Except
as described in the Prospectus, no security holder of the Company
has any rights with respect to the purchase, sale or registration
of any Securities, and all registration rights with respect to
the Offering have been waived.
(u) No Stabilization or Manipulation. Neither the Company
nor, to the Company's knowledge, any of its officers or directors
or any of its employees or stockholders, have taken and will not
take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be
expected to constitute, under the Exchange Act or otherwise, the
stabilization or manipulation of the price of the Common Stock or
Warrants to facilitate the sale or resale of the Securities.
(v) No Finders. Except as described in the Prospectus,
to the knowledge of the Company or the Subsidiary, there are no
claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other
arrangements, agreements, understandings, counterparts, payments
or issuances of securities with respect to the Company that may
affect the Underwriters' compensation, as determined by the
National Association of Securities Dealers, Inc. ("NASD").
(w) Lock-up Agreements. The Company has obtained from each
director, officer and principal stockholder (someone owning 5% or
more of the Company's Common Stock) of the Company (the "Existing
Shareholders"), a Lock-Up Agreement (as defined in Section 3(o)
hereof) in the form previously delivered.
<PAGE>
2. PURCHASE, DELIVERY AND SALE OF UNITS
(a) Purchase Price for Securities. The Securities shall
be sold to and purchased by the Underwriters at the purchase
price of $5.5125 per Share of Common Stock and $0.1125 per
Warrant (that being the public offering price of $6.125 per share
of Common Stock and $0.125 per Public Warrant for an aggregate
public offering price of $6,500,000, less an underwriting
discount of 10 percent) (the "Purchase Price").
(b) Firm Units.
(i) Subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties
and agreements herein contained the Company agrees to issue and
sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly, agree to buy from the
Company at the Purchase Price, the number of Securities set forth
opposite each Underwriters' name in Schedule A hereto (the "Firm
Securities").
(ii) Delivery of the Firm Securities against
payment therefor shall take place at the offices of Global
Equities Group, Inc., 5 Hanover Square, 22nd Floor, New York, New
York 10004 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York
Time, on , 1997, or at such later the and date,
not later than three business days after the Effective Date, as
the parties may mutually agree (such time and date of payment
and delivery for the Firm Securities being herein called the
"First Closing Date"). Time shall be of the essence and delivery
of the Firm Securities at the time and place specified in this
Section 2(b)(ii) is a further condition to the obligations of the
Underwriters hereunder.
(c) Option Securities.
(i) In addition, subject to the terms and
conditions of this Agreement, and on the basis of the
representations, warranties and agreements herein contained, the
Company hereby grants to the Underwriters an option (the
"Over-Allotment Option"), to purchase from the Company all or any
part of an aggregate of an additional 150,000 Shares and 450,000
Warrants at the Purchase Price (the "Option Securities").
(ii) The Over-Allotment Option may be exercised by
the Underwriters, in whole or in part, within forty-five calendar
days after the Effective Date, upon which notice by the
Underwriters to the Company advising it of the number of Option
Securities as to which the Over-Allotment Option is being
exercised, the names and denominating in which the certificates
for the Shares and the Warrants comprising such Option Securities
are to be registered, and the time and date when such
certificates are to be delivered. Such time and date shall be
determined by you but shall not be less than two nor more than
ten business days after exercise of the Over-Allotment Option,
nor in any event prior to the First Closing Date (such time and
date being herein called the "Option Closing Date"). Delivery of
the Option Securities against payment therefor shall take place
at the Global's offices. Time shall be of the essence and
delivery at the time and place specified in this Section 2(e)(ii)
is a further condition to the obligations of the Underwriters
hereunder.
(iii) The Over-Allotment may be exercised only to
cover over-allotments in the sale by the Underwriters of Firm
Securities.
(d) Delivery of Certificates; Payment.
(i) The Company shall make the certificates for the
Shares and the Warrants to be purchased hereunder available to
you for checking at least two full business day prior to the
First Closing Date or the Option Closing Date (each, a "Closing
Date"), as the case may be. The certificates shall be in such
names and denominations as you may request at least two business
days prior to the relevant Closing Date. Time shall be of the
essence and the availability of the certificates at the time and
place specified in this Section 2(d)(i) is a further condition to
the obligations of the Underwriters hereunder.
(ii) On the First Closing Date the Company shall
deliver to you for the several accounts of the Underwriters
definitive engraved certificates in negotiable form representing
all of the Shares and the Warrants to be sold by the Company,
against payment of the Purchase Price therefor by you for the
several account of the Underwriters, by certified or bank
cashier's checks payable in New York Clearing House funds to the
order of the Company.
(iii) In addition, if and to the extent that you
exercise the Over-Allotment Option, then on the Option Closing
Date the Company shall deliver to you or your designees
definitive engraved certificates in negotiable from representing
the Shares and the Warrants comprising the Option Securities to
be sold by the Company, against payment of the Purchase Price
therefor by you or your designees, by certified or bank cashier's
checks payable in next day funds to the order of the Company.
(iv) It is understood that the Underwriters proposes to
offer the Securities to be purchased hereunder to the public,
upon the terms and conditions set forth in the Registration
Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Underwriters that:
(a) Registration.
(i) The Company shall use its reasonable best
efforts to cause the Registration Statement to become effective
and, upon notification from the Commission that the Registration
Statement has become effective, shall so advise you and shall not
at any time, whether before or after the Effective Date, file any
amendment to the Registration Statement or any amendment or
supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy, or to which you or
Underwriters' Counsel shall have objected in writing, or which is
not in compliance with the Act and the Rules and Regulations.
(ii) Promptly after you or the Company shall
have been advised thereof, you shall advise the Company or the
Company shall advise you, as the case may be, and confirm such
advice in writing, of (A) the receipt of any comments of the
Commission, (B) the effectiveness of any post-effective amendment
to the Registration Statement, (C) the filing of any supplement
to the Prospectus or any amended Prospectus, (D) any request made
by the Commission for amendment of the Registration Statement or
amendment or supplementing of the Prospectus, or for additional
information with respect thereto, or (E) the issuance by the
Commission or any state or regulatory body of any stop order or
other order denying or suspending the effectiveness of the
Registration Statement, or preventing or suspending the use of
any Preliminary Prospectus, or suspending the qualification of
the Securities for offering in any jurisdiction, or otherwise
preventing or impairing the Offering, or the institution or
threat of any proceeding for any of such purposes. The Company
and you shall not acquiesce in such order or proceeding, and
shall instead actively defend such order or proceeding, unless
the Company and you agree in writing to such acquiescence.
(iii) The Company has caused to be delivered to
you copies of each Preliminary Prospectus, and the Company has
consented and hereby consents to the use of such copies for the
purposes permitted by the Act. The Company authorizes the
Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Securities for such period as in
the opinion of Underwriters' Counsel the use thereof is required
to comply with the applicable provisions of the Act and the Rules
and Regulations. In case of the happening, at any time within
such period as a prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer,
of any event of which the Company has knowledge and which
materially affects the Company or the Securities, or which in the
opinion of Company Counsel or of Underwriters' Counsel should be
set forth in an amendment to the Registration Statement or an
amendment or supplement to the Prospectus in order to make the
statement made therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to
be delivered to a purchaser of the Securities, or in case it
shall be necessary to amend or supplement the Prospectus to
comply with the Act or the Rules and Regulations, the Company
shall notify you promptly and forthwith prepare and furnish to
the Underwriters copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities
as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, shall not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of each such
amendment to the Registration Statement, amended Prospectus or
supplement to be attached to the Prospectus shall be without
expense to the Underwriters.
(iv) The Company shall use its reasonable best
efforts to deliver to you at or before the First Closing Date two
signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all
amendments thereto.
The Company shall use its reasonable best efforts to deliver
to or upon your order, from time to time until the Effective Date
as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company shall use its reasonable best
efforts to deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(v) The Company shall comply with the Act, the
Rules and Regulations, and the Securities Exchange Act of 1934
(the "Exchange Act"), and the rules and regulations promulgated
thereunder in connection with the offering and issuance of the
Securities in all material respects.
(b) Blue Sky. The Company shall, at its own expense,
use its best efforts to assist the Underwriter in qualifying or
registering the Securities for sale (or obtaining an exemption
from registration) under the securities or "blue sky" laws of
such jurisdictions as you may designate, and shall furnish such
information to Underwriters' Counsel as may be required for that
purpose, and shall comply with such laws; provided, however, that
the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general
consent to service of process in any jurisdiction in any action
other than one arising out of the offering or sale of the
Securities. The Company shall bear all of the expense of such
qualifications and registrations, including without limitation
the legal fees and disbursements of Underwriters' Counsel, which
fees, exclusive of disbursements, shall equal $35,000, $15,000 of
which is due and payable upon commencement of filing. After each
Closing Date the Company shall, at its own expense, from time to
time prepare and file such statements and reports as may be
required to continue each such qualification (or maintain such
exemption from registration) in effect for so long a period as
required by law, regulation or administrative policy in
connection with the offering of the Securities.
(c) Exchange Act Registration. The Company shall at
its own expense, prepare and file with the Commission a
registration statement (on Form 8-A or Form 10) under section 12
of the Exchange Act, and shall use its best efforts to cause such
registration statement to be declared effective by the Commission
on an accelerated basis on the Effective Date and maintained in
effect for at least five years from the Effective Date.
(d) Prospectus Copies. The Company shall deliver to
you on or before the First Closing Date a copy of the
Registration Statement including all financial statements,
schedules and exhibits filed therewith, and of all amendments
thereto. The Company shall deliver to or on the order of the
Underwriters, from time to time until the Effective Date, as
many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company shall deliver to the Underwriters
on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to
time reasonably request.
(e) Amendments and Supplements. The Company shall,
promptly upon your request, prepare and file with the Commission
any amendments to the Registration Statement, and any amendments
or supplements to the Preliminary Prospectus or the Prospectus,
and take any other action which in the reasonable opinion of
Underwriters' Counsel and Company Counsel may be reasonably
necessary or advisable in connection with the distribution of the
Securities, and shall use its best efforts to cause the same to
become effective as promptly as possible.
(f) Certain Market Practices. The Company has not
taken, and shall not take, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or
result in, or which has constituted, the stabilization or
manipulation of the price of the Securities to facilitate the
sale or resale thereof.
(g) Certain Representations. Neither the Company nor
any representative of the Company has made or shall make any
written or oral representation in connection with the Offering
and sale of the Securities or the Underwriters' Warrants which is
not contained in the Prospectus, which is otherwise inconsistent
with or in contravention of anything contained in the Prospectus,
or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations
promulgated under the Exchange Act.
(h) Continuing Registration of Warrants and Underlying
Common Stock. For so long as any Warrant is outstanding, the
Company shall, at its own expense: (i) use its reasonable best
efforts to cause post-effective amendments to the Registration
Statement, or new registration statements relating to the
Warrants and the Common Stock underlying the Warrants to become
effective in compliance with the Act and without any lapse of
time between the effectiveness of the Registration Statement and
of any such post-effective amendment or new registration
statement; provided, however, that the Company shall have no
obligation to maintain the effectiveness of such Registration
Statement or file a new Registration Statement, or to keep
available a prospectus at any time at which such registration or
prospectus is not then required; (ii) cause a copy of each
Prospectus, as then amended, to be delivered to each holder of
record of a Warrant; (iii) furnish to the Underwriters and
dealers as many copies of each such Prospectus as the
Underwriters or dealers may reasonably request; and (iv) maintain
the "blue sky" qualification or registration of the Warrants and
the Common Stock underlying the Warrants, or have a currently
available exemption therefrom, in each jurisdiction in which the
Securities were so qualified or registered for purposes of the
Offering.
(i) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Securities substantially for the
purposes set forth in the Prospectus under the caption "USE OF
PROCEEDS," and shall file such reports with the Commission with
respect to the sale of the Securities and the application of the
proceeds therefrom as may be required pursuant to Rule 463 of the
Rules and Regulations.
(j) Twelve Months' Earnings Statement. The Company
shall make generally available to its security holders and
deliver to you as soon as it is practicable so to do, but in no
event later than ninety days after the end of twelve months after
the close of its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve
consecutive months beginning after the Effective Date, which
shall satisfy the requirements of section 1 (a) of the Act.
(k) NASDAQ Exchange Listings, Etc. The Company shall
immediately make available to the Underwriter all necessary
documents and expenses required by the Underwriter in connection
with the Underwriter's making of all filings required to seek
approval for the quotation of the Securities on the NASDAQ
SmallCap Market ("NASDAQ"). The Company shall use its best
efforts to effect and maintain such approval for at least five
years from the Effective Date, unless the Securities become
listed on the NASDAQ National Market System.
(l) Board of Directors. For a period of three (3)
years from the Effective Date, the Company shall nominate and use
its best efforts to engage a designee of Global as a nonvoting
advisor to the Company's Board of Directors (the "Advisor") or,
in lieu thereof at the discretion of Global, to designate an
individual for election as a director, in which case the Company
shall use its best efforts to have such individual elected as a
director. The designee may be a director, officer, partner,
employee or affiliate of an Underwriter, and Global shall
designate such person in writing to the Board. In the event
Global shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve,
the Company shall notify Global of each meeting of the Board. An
individual, if any, designated by Global shall receive all
notices and other correspondence and communications sent by the
Company to members of the Board. Such Advisor shall be entitled
to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food,
lodging, and transportation. In addition, such Advisor shall be
entitled to the same compensation as the Company gives to other
non-employee directors for acting in such capacity. The Company
further agrees that, during said three (3) year period, it shall
schedule no less than four (4) formal and "in person" meetings of
its Board of Directors in each such year at which meetings such
Advisor shall be permitted to attend as set forth herein; said
meetings shall be held quarterly each year and thirty (30) days
advance notice of such meetings shall be given to the Advisor.
Further, during such three (3) year period, the Company shall
give notice to Global with respect to any proposed acquisitions,
mergers, reorganizations or other transactions.
The Company agrees to indemnify and hold harmless the
Underwriters and the Advisor, subject to applicable law against
any and all claims, actions, damages, costs and expenses, and
judgments arising solely out of the attendance and participation
of the Advisor at any such meeting described herein. In the
event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, it
agrees, if possible, to include the Advisor as an insured under
such policy.
(m) Periodic Reports. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the
Exchange Act, the Company shall, at its own expense, hold an
annual meeting of stockholders for the election of directors
within 180 days after the end of each of the Company's fiscal
years and, within 150 days after the end of each of the Company's
fiscal years, and furnish to its stockholders an annual report
(including financial statements audited by certified public
accountants) in reasonable detail. In addition, during the
period ending five years from the date hereof, the Company shall,
at its own expense, furnish to you: (i) within 90 days of the end
of each fiscal year, a balance sheet of the Company as at the end
of such fiscal year, together with statements of income,
stockholders' equity and cash flows of the Company as at the end
of such fiscal year, all in reasonable detail and accompanied by
a copy of the certificate or report thereon of certified public
accountants; (ii) as soon as they are available, a copy of all
reports (financial or otherwise) distributed to security holders;
(iii) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or
filed with the Commission; and (iv) such other non-confidential
information as you may from time to time reasonably request. The
financial statements reflected to herein shall be on a
consolidated basis to the extent the accounts of the Company are
consolidated in reports furnished to its stockholders generally.
(n) Agreements with Stockholders, Directors and
Officers. The Company shall cause each of the Company's existing
principal stockholders (those owning more than 5% of the
Company's outstanding Common Stock), directors and officers to
enter into written agreements with Global (the "Lock-up
Agreements") prior to the Effective Date, that, for a period of
twelve (12) months from the Effective Date, they will not,
without the consent of Global, (i) publicly sell any securities
of the Company owned directly or indirectly by them or owned
beneficially by them (as defined in the Exchange Act), or (ii)
otherwise sell, or transfer such securities unless the transferee
agrees in writing to be bound by an identical lock-up.
(o) Available Shares. The Company shall reserve and
at all times keep available the maximum number of its authorized
but unissued shares of Common Stock which are issuable upon
exercise of the Warrants, the Underwriters' Warrant, and the
Warrants issuable upon exercise of the Underwriters' Warrant, in
each case taking into account the antidilution provisions
thereof. The Company shall reserve and at all times keep
available the maximum number of its authorized but unissued
shares of Common Stock which are issuable upon conversion of (i)
the Common Stock issuable upon exercise of the Warrants; (ii) the
Common Stock issuable upon exercise of the Underwriters'
Warrants; and (iii) the Common Stock issuable upon exercise of
the Warrants issuable upon exercise of the Underwriters'
Warrants.
(p) Management. On each Closing Date, the officers of
the Company shall be as set forth in the Prospectus.
(q) Stock Transfer Sheets. The Company shall instruct
its Transfer Agent (as defined in Section 4(i) hereto) to deliver
to you copies of all advice sheets showing the daily transfer of
the outstanding shares of Common Stock and Warrants sold by the
Company in the public offering and shall, at its own expense,
furnish you weekly for one year following the First Closing Date
with Depository Trust Company stock transfer sheets.
(r) Bound Volumes. Within a reasonable time after the
First Closing Date, the Company shall deliver to you, at the
Company's expense, three bound volumes in form and content
acceptable to the Underwriters, containing the Registration
Statement and all exhibits filed therewith and all amendments
thereto, and all other agreements, correspondence, filings,
certificates and other documents filed and/or delivered in
connection with the Offering.
(s) Warrant Solicitation Fee. The Company agrees to
pay Global or a fee equal to the maximum percentage permitted by
the NASD of the aggregate exercise price of the Warrants if: (i)
the market price of the Common Stock is greater than the exercise
price of the Warrants on the date of exercise; (ii) the exercise
of the Warrants are solicited by a member of the NASD and the
customer states in writing that the transaction was solicited and
designates in writing the broker-dealer to receive compensation
for the exercise; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure of compensation
arrangements was made both at the time of the Offering and at the
time of the exercise of the Warrant; and (v) the solicitation of
the Warrant is not in violation of Regulation M promulgated under
the Exchange Act. The Company agrees not to solicit the exercise
of any Warrants other than through Global or
_____________________ and will not authorize any other dealer to
engage in such solicitation without the prior written consent of
the Underwriters which will not be unreasonably withheld. The
Warrant solicitation fee will not be paid in a non-solicited
transaction. No Warrant solicitation by the Underwriters will
occur prior to one year from the Effective Date.
(t) Anti-Dilution. For a period of two years from the
Effective Date, the Company shall not issue any shares of Common
Stock or any warrants, options or other rights to purchase Common
Stock (other than securities issued under the Company's stock
option plan or in connection with acquisitions which are
non-dilutive to the public shareholders without the prior written
consent of the Underwriter.]
(u) Intentionally left blank.
(v) Due Diligence. The Company agrees to engage and pay
for; on the Underwriter's behalf (i) an investigative search of
the Underwriter's choice (whose charges shall not exceed $5,000)
to conduct an investigation of the principals of the Company
mutually selected by the Underwriter and the Company; and (ii) a
consultant to be mutually selected by the Underwriter and the
Company who is expert in the industry in which the Company does
business to analyze the Company's prospects and respond to the
Underwriter's questions and concerns.
(w) Public Relations Firm. The Company, by signing this
letter, agrees that it will engage a financial public relations
<PAGE>
firm, satisfactory to the Underwriter, if requested by the
Underwriter, no later than the date of the initial filing of the
Registration Statement contemplated hereby.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters to purchase and pay for the
Securities which you have agreed to purchase hereunder are
subject to the accuracy (as of the date hereof and as of each
Closing Date) of and compliance with the representations and
warranties of the Company contained herein, the performance by
the Company of all of their respective obligations hereunder and
the following further conditions:
(a) Effective Registration Statement, No Stop Order.
The Registration Statement shall have become effective and you
shall have received notice thereof not later than 6:00 p.m., New
York time, on the date of this Agreement, or at such later time
or on such later date as to which you may agree in writing. In
addition, on each Closing Date (i) no stop order denying or
suspending the effectiveness of the Registration Statement shall
be in effect, and no proceedings for that or any similar purpose
shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and (ii) all requests on the part
of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriters'
Counsel.
(b) Opinion of Company Counsel. On the First Closing
Date, you shall have received the opinion, dated as of the First
Closing Date, of Steffanie J. Lewis, Esq., Counsel for the
Company, in form and substance satisfactory to the Underwriters'
Counsel, to the effect that:
(i) The Company and its Subsidiary are duly
qualified to do business as domestic or foreign corporations and
are in good standing in all jurisdictions in the United States,
if any, in which the ownership or leasing of their properties or
the conduct of their business requires such qualification, except
where the failure so to qualify would not have a material adverse
effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or its
Subsidiary;
(ii) The Registration Statement has become
effective under the Act and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than
the financial statements, social data and supporting schedules
<PAGE>
included therein, as to which such counsel need express no
opinion) as of the Effective Date, complied as to form in all
material respects with the requirements of the Act and the
Regulations;
(iv) The terms and provisions of the capital stock
of the Company, and all warrants and options issued by the
Company and currently outstanding conform in all material
respects to the description thereof contained in the Registration
Statement and Prospectus;
(v) The information in the Prospectus under the
caption "Description of Securities," to the extent that it
constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is correct;
(vi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and
of statutes and contracts are accurate in all material respects
and fairly present in all material respects the information
required to be presented by the Act and the Regulations;
(vii) To the best knowledge of such counsel, there
are no agreements, contracts, licenses, leases or documents of a
character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit
to the Registration Statement that are not described or referred
to therein and filed as required;
(viii) The performance of this Agreement, the
Warrant Agreement and the Underwriters' Warrants and the
consummation of the transactions contemplated thereby will not
result in the breach or violation of any of the terms and
provisions of the Company's Articles of Incorporation or By-laws,
or to the best of such counsel's knowledge, result in the breach
or violation of any of the terms and provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement, bond,debenture, note agreement or other evidence of
indebtedness, or any lease, license, contract or other agreement
or instrument known to such counsel to which the Company or its
Subsidiary are parties or by which any of their properties are
bound, or to the best of such counsel's knowledge (other than
performance of the Company's indemnification and contribution
obligations under such agreements, concerning which no opinion
need be expressed), any applicable statute, rule or regulation
or, to its knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company
or its Subsidiary or over any of their properties or operations;
(ix) No authorization, approval or consent of any
governmental authority or agency of the United States of America
is necessary in connection with the consummation of the
transactions contemplated by this Agreement, the Warrant
Agreement and the Underwriters' Warrants, except such as have
<PAGE>
been obtained under the Act or such as may be required under
state securities or Blue Sky laws in connection with the purchase
and the distribution of the Securities by the Underwriters;
(x) To the best knowledge of such counsel, there
are no legal or governmental proceedings pending or threatened
against the Company or its Subsidiary of a character which are
required to be disclosed in the Registration Statement or the
Prospectus by the Act or the Regulations, other than those
described therein;
(xi) To the best knowledge of such counsel,
neither the Company nor its Subsidiary are presently in breach
of, or in default under, any bond, debenture, note or other
evidence of indebtedness or any contract, indenture, mortgage,
deed of trust, loan agreement, lease, license or other agreement
or instrument to which the Company or its Subsidiary are a party
or by which any of their properties are bound which is material
to the financial condition, earnings, operations, business or
business prospects of the Company or its Subsidiary;
(xii) To the best knowledge of such counsel, there
are no formal investigations presently being conducted by any
United States securities exchange, or the securities exchange of
any foreign country, the National Association of Securities
Dealers, Inc., the United States Securities and Exchange
Commission or the securities commission of any state of the
United States or any foreign country, involving the conduct of
the Company;
(xiii) To the best knowledge of such counsel, except
as set forth in the Registration Statement and Prospectus, no
holders of Shares or other securities of the Company have
registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having
rights to registration of such Shares, or other securities,
because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated hereby,
waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file
the Registration Statement, or have included securities in the
Registration Statement pursuant to the exercise of such rights;
and
(xiv) The Consent to Jurisdiction clause of Section
16 of the Agreement is valid and binding upon the Company.
(xv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein; the
issued and outstanding shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid
and nonassessable and have not been issued in violation of any
<PAGE>
preemptive right, co-sale right, right of first refusal or other
similar right;
(xvi) The Shares and Warrants will be, upon
issuance and delivery against payment therefor in accordance with
the terms of this Agreement, duly authorized and validly issued
and fully paid and nonassessable, and will not have been issued
in violation of any preemptive right, registration right, co-sale
right, right of first refusal or other similar right;
(xvii) The Company has corporate power and authority
to enter into this Agreement, the Warrant Agreement and the
Underwriters' Warrants and to issue, sell and deliver the Shares
and Warrants to the Underwriters;
(xviii) The Agreement, the Warrant Agreement and the
Underwriters' Warrants have been duly authorized by all necessary
corporate action on the part of the Company and have been duly
executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, are the valid and
binding agreements of the Company, except insofar as the
indemnification and contribution provisions of such agreements
may be limited by public policy concerns, and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or laws affecting creditors' rights
generally or by general equitable principles;
(xix) The Warrants and the Underwriters' Warrants
have been duly and validly authorized and constitute valid and
binding obligations of the Company in accordance with their
terms; the Shares underlying the Warrants (including the
Underwriters' Warrants) have been duly and validly authorized for
issuance upon exercise of the Warrants, and when so issued will
be validly issued, fully paid and non-assessable; and no
stockholder has any preemptive rights with respect to the
Warrants or the underlying Shares;
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other
representatives of the Company, the Underwriters, Underwriters'
Counsel and the independent public accountants of the Company, at
which conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed, and although
they have not independently checked or verified the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the
attention of such counsel that caused them to believe that, on
the Effective Date the Registration Statement (except as to
financial statements, financial data and supporting schedules
contained therein, as to which such counsel need express no
opinion) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at
the Closing Dates, the Prospectus (except as aforesaid) contained
<PAGE>
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of fact upon representations or certificates of
officers of the Company, and of governmental officials, in which
case their opinion is explicitly to state they are so relying
thereon and that they have no knowledge of any material
misstatement or inaccuracy in such opinions, representations or
certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you and to
Underwriters' counsel.
(c) Corporate Proceedings. All corporate proceedings
and other legal matters relating to this Agreement, the
Registration Statement, the Prospectus and other related matters
shall be reasonably satisfactory to or approved by Underwriters'
Counsel.
(d) Comfort Letter. Prior to the Effective Date, and
again on and as of the First Closing Date, you shall have
received a letter from J.R. Lupo, P.A. CPA, certified public
accountants for the Company, satisfactory in form and substance
to the Underwriters' Counsel.
(e) Bring Down. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this
Agreement shall be true and correct with the same effect as if
made on and as of such Closing Date, and the Company shall have
performed all of its obligations hereunder and satisfied all the
conditions to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus shall contain all
statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor
the Prospectus shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated or
which they were made, not misleading; (iii) there shall have
been, since the respective dates as of which information is
given, no material adverse change in the business, property,
operations, condition (financial or otherwise), earnings, capital
stock, long-term or short-term debt or general affairs of the
Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and
Prospectus indicate might occur after the Effective Date, and the
Company shall not have incurred any material liabilities nor
entered into any material agreement other than as referred to in
the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding shall be
pending or threatened against the Company before or by any
commission, board or administrative agency in the United States
<PAGE>
or elsewhere, wherein an unfavorable decision, ruling or finding
would materially adversely affect the business, property,
operations, condition (financial or otherwise), earnings or
general affairs of the Company. In addition, you shall have
received, at the First Closing Date, a certificate signed by the
principal executive officer and by the principal financial
officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this Section 4(h).
(f) Transfer and Warrant Agent. On or before the
Effective Date, the Company shall have appointed a mutually
acceptable transfer agent, as its transfer agent and warrant
agent ("Transfer Agent") to transfer all of the shares of Common
Stock and Warrants issued in the Offering, as well as to transfer
other shares of the Common Stock outstanding from time to time.
(g) NASD Approval Of Underwriters' Compensation. By
the Effective Date, the Underwriters shall have received
clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters, as described in the
Registration Statement.
(h) Certain Further Matters. On each Closing Date,
Underwriters' Counsel shall have been furnished with all such
other documents and certificates as they may reasonably request
for the purpose of enabling them to render their legal opinion to
the Underwriters and in order to evidence the accuracy and
completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the
fulfillment of any of the conditions, herein contained.
(i) All proceedings taken in connection with the
authorization, issuance or sale of the Securities, as herein
contemplated shall be reasonably satisfactory in form and
substance to the Underwriters and to Underwriters' Counsel;
(ii) On each Closing Date there shall have been
duly tendered to you for your account the appropriate number of
Securities;
(iii) No order suspending the sale of the
Securities in any jurisdiction designated by you pursuant to
Section 3(b) hereof shall have been issued on either Closing
Date, and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Underwriters or the
Company, shall be contemplated;
(iv) Prior to each Closing Date there shall not
have been received or provided by the Company's independent
public accountants or attorneys, qualifications to the effect of
either difficulties in furnishing certifications as to material
items including, without limitation, information contained within
the footnotes to the financial statements, or as affecting
matters incident to the issuance and sale of the Securities or as
<PAGE>
to corporate proceedings or other matters;
(v) On or prior to the First Closing Date, the
Underwriters' Warrants and the Warrant Agreement shall have been
executed and delivered by the Company, and the Lock-Up Agreements
shall have been executed and delivered by all of the Company's
officers, directors and principal stockholders, to the
Underwriters.
(i) Additional Conditions. Upon exercise of the
Over-Allotment Option, the Underwriters' obligations to purchase
and pay for the Option Securities shall be subject (as of the
date hereof and as of the Option Closing Date) to the following
conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order denying or
suspending the effectiveness thereof shall have been issued, and
no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to your knowledge or the
knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the
Commission for additional information shall have been complied
with to the satisfaction of Underwriters' Counsel.
(ii) On the Option Closing Date there shall have
been delivered to you a signed opinion of Company Counsel, dated
as of the Option Closing Date, in form and substance satisfactory
to Underwriters' Counsel, which opinion shall be substantially
the same in scope and substance as the opinion furnished to you
on the First Closing Date pursuant to Section 4(b), (c), (d) and
(e), respectively, except that such opinion, where appropriate,
shall cover the Option Securities rather than the Finn
Securities. If the First Closing Date is the same as the Option
Closing Date, such opinions may be combined.
(iii) All proceedings taken at or prior to the
Option Closing Date in connection with the sale and issuance of
the Option Securities shall be satisfactory in form and substance
to you, and you and Underwriters' Counsel shall have been
furnished with all such documents, certificates and opinions as
you may reasonably request in connection with this transaction in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained
herein.
(iv) On the Option Closing Date there shall have
been delivered you a letter in form and substance satisfactory to
the Underwriters from J.R. Lupo, P.A. CPA, dated the Option
Closing Date addressed to you, confirming the information in
their letter referred to in Section 4(g) as of the date thereof
and stating that, without any additional investigation required,
nothing has come to their attention during the period from the
<PAGE>
ending date of their review referred to in such letter to a date
not more than five banking days prior to the Option Closing Date
which would require any change in such letter if it were required
to be dated the Option Closing Date.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel shall
be deemed a representation and warranty by the Company to the
Underwriters as to the statements made therein. If any of the
conditions herein provided for in this Section shall not have
been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriters under this
Agreement may be cancelled at, or at any time prior to, each
Closing Date by your notifying the Company of such cancellation
in writing or by telecopy at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of any
Underwriter to the Company, except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to sell and deliver the Securities are
subject to the following conditions:
(a) Effective Registration Statement. The
Registration Statement shall have become effective not later than
6:00 p.m. New York time, on the date of this Agreement, or at
such later time or on such later date as the Company and you may
agree in writing.
(b) No Stop Order. On the applicable Closing Date, no
stop order denying or suspending the effectiveness of the
Registration Statement shall have been issued under the Act or
any proceedings therefor initiated or threatened by the
Commission.
(c) Payment for Securities. On the applicable Closing
Date, you shall have made payment, for the several accounts of
the Underwriters, of the aggregate Purchase Price for the
Securities then being purchased by certified or bank cashier's
checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided
by this Section 5 have been fulfilled on the First Closing Date
but are not fulfilled after the First Closing Date and prior to
the Option Closing Date, then only the obligation of the Company
to sell and deliver the Option Securities upon exercise of the
Over-Allotment Option shall be affected.
6. REPRESENTATION OF UNDERWRITERS. The Underwriter's
counsel shall make all required filings with the NASD with
respect to the proposed public offering of the Shares. In this
regard, the Company shall supply to the Underwriter's counsel,
one complete copy of the Registration Statement, give separate
copies each of the Preliminary Prospectus and the Underwriting
Documents for filing with the NASD and the various Blue Sky
<PAGE>
commissions, accompanied with a certified or cashier's check in
the appropriate amount payable to the NASD and the respective
state Blue Sky commissions. Additionally, the Company shall
supply the Underwriter's counsel, no later than one week before
the expected filing date of the Registration Statement, a written
representation as to (a) the existence or nonexistence of any
NASD affiliation or association of any officer, director, or
shareholder of unregistered securities of the Company (b) whether
or not any unregistered securities of the Company have been
acquired by the NASD affiliated person during the 12-month period
prior to filing the Registration Statement, and (c) whether or
not key-man insurance has been provided for any officer of the
Company by an NASD affiliate. The text of the Prospectus, the
Registration Statement, and all other documents filed with the
Commission pursuant to the requirements of the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act") shall conform to the
requirements of the Securities Act in all material respects and
shall be in form and content satisfactory to counsel for matters
which relate to the public offering and other related
transactions shall be satisfactory in all material respects to
the Underwriter's counsel.
7. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this
Agreement, the term "Liabilities" shall mean any and all losses,
claims, damages and liabilities, and actions and proceedings in
respect thereof (including without limitation all reasonable
costs of defense and investigation and all attorneys' fees)
including without limitation those asserted by any party to this
Agreement against any other party to this Agreement. The Company
hereby indemnifies and holds harmless the Underwriters and each
person, if any, who controls the Underwriters within the meaning
of the Act, from and against all Liabilities, joint or several,
to which the Underwriters or such controlling person may become
subject, under the Act or otherwise, insofar as such Liabilities
arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of any material fact, in light of the
circumstances in which it was made, contained in (A) the
Registration Statement or any amendment thereto, or the
Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or (B) any "blue sky" application or other
document executed by the Company specifically for that purpose,
or based upon written information furnished by the Company, filed
in any state or other jurisdiction in order to qualify any or all
of the Securities under the securities laws thereof (any such
application, document or information being herein called a "Blue
Sky Application"); or (ii) the omission or alleged omission to
state in the Registration Statement or any amendment thereto, or
the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which it was
made, not misleading; provided, however, that the Company shall
<PAGE>
not be liable in any such case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon
an untrue statement or alleged untrue statement or omission or
alleged omission (x) made in reliance upon and in conformity with
written information furnished to the Company through you by or on
behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment
thereto, or the Prospectus or any such Preliminary Prospectus, or
any such amendment or supplement thereto, or any such Blue Sky
Application or (y) corrected by the final Prospectus and the
failure of the Underwriters to deliver the final Prospectus. The
foregoing indemnity shall be in addition to any other liability
which the Company may otherwise have.
(b) Indemnification by Underwriters. The
Underwriters, severally and not jointly, hereby indemnify and
hold harmless the Company, each of its directors, each nominee
(if any) for director named in the Prospectus, each of its
officers who have signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of
the Act, from and against all Liabilities to which the Company or
any such director, nominee, officer or controlling person may
become subject under the Act or otherwise, insofar as such
Liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto,
or the Prospectus or any Preliminary Prospectus, or any amendment
or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that any such Liabilities arise out of or are based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any
amendment thereto, or the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the
Company through you, by or on behalf of such Underwriters,
specifically for use in the preparation thereof. In no event
shall any Underwriter be liable under this Section 7(b) for any
amount in excess of the compensation received by such
Underwriters, in the form of underwriting discounts or otherwise,
pursuant to this Agreement or any other agreement contemplated
hereby. The foregoing indemnity shall be in addition to any
other liability which any Underwriter may otherwise have.
(c) Procedure. Promptly after receipt by an
indemnified party under this Section 6 of notice of the
commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify in writing the indemnifying
party of the commencement thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under
<PAGE>
this Section 7 unless the rights of the indemnifying party have
been prejudiced by such omission or delay. In case any such
action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject
to the provisions hereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 6 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party;
provided, however, that the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to
any such action (including any impleaded parties) include both
such indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may
be legal defenses available to it which are different from or in
addition to those available to the indemnifying party or that the
indemnified and
indemnifying party have conflicting interests which would make it
inappropriate for the same counsel to represent both of them (in
which case the indemnifying party shall into have the right to
assume the defense of such action on behalf of the indemnified
party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate form of attorneys). No settlement of any action against
an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
8. CONTRIBUTION. In order to provide for just and
equitable contribution under the Act in any case in which (a) any
indemnified party makes claims for indemnification pursuant to
Section 7 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such
case, notwithstanding the fact that the express provisions of
Section 7 provide for indemnification in such case, or (b)
contribution under the Act may be required on the part of any
<PAGE>
indemnified party, then such indemnified party and each
indemnifying party (if more than one) shall contribute to the
aggregate Liabilities to which it may be subject, in either such
case (after contribution from others) in such proportions that
the Underwriters are responsible in the aggregate for the portion
of such Liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the
Prospectus bears to the Public Offering price per Unit appearing
thereon, and the Company shall be responsible for the remaining
portion; provided, however, that if such allocation is not
permitted by applicable law, then the relative fault of the
Company, and the Underwriters in connection with the statements
or omissions which resulted in such Liabilities and other
relevant equitable considerations shall also be considered. The
relative fault shall be determined by reference to, among other
things, whether in the case of an untrue statement of material
fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the
Underwriters, and the parties' relative intent, knowledge, access
to information and opportunity to collect or prevent such untrue
statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if the respective
obligations of the Company, and the Underwriters to contribute
pursuant to this Section 8 were to be determined by pro rata or
per capita allocation of the aggregate Liabilities or by any
other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of
this Section 8. Moreover, the contribution of any Underwriter
shall not be in excess of the cash compensation received by the
Underwriter, in the form of underwriting discounts or otherwise,
pursuant to this agreement or any other agreement contemplated
hereby. No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. As used in this Section 8,
the term "Company" shall include any officer, director or person
who controls the Company within the meaning of section 15 of the
Act. If the full amount of the contribution specified in this
Section 7 is not permitted by law, then each indemnified party
and each person who controls an indemnified party shall be
entitled to contribution from each indemnifying party to the full
extent permitted by law. The foregoing contribution agreement
shall in no way affect the contribution liabilities of any
persons having liability under section 11 of the Act other than
the Company and the Underwriters. No contribution shall be
requested with regard to the settlement of any matter from any
party who did not consent to the settlement; provided, however,
that such consent shall not be unreasonably withheld in light of
all factors of importance to such party.
9. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this
Agreement becomes effective or the sale of the Securities to the
<PAGE>
Underwriters is consummated, the Company shall pay all costs and
expense incident to the issuance, offering, sale and delivery of
the Shares and the Warrants and the performance of its
obligations under this Agreement, including without limitation:
(i) all fees and expenses of the Company's legal counsel and
accountants; (ii) all costs and expenses incident to the
preparation, printing, filing and distribution of the
Registration Statement (including the financial statements
contained therein and all exhibits and amendments thereto), each
Preliminary Prospectus and the Prospectus, each as amended or
supplemented, this Agreement and the other underwriting
documents, as well as the other agreements and documents referred
to herein and the Blue Sky Memorandum; each in such quantities as
you shall deem necessary; (iii) all fees of NASD required in
connection with the filing required by NASD to be made by the
Underwriters with respect to the Offering; (iv) all expenses,
including fees (but not in excess of the amount set forth in
Section 3(b) and disbursements of Underwriters' Counsel in
connection with the qualification of the Securities under the
"blue sky" laws which you shall designate; (v) a fee of $15,000
to be paid to Underwriters' Counsel for the preparation of a
secondary trading memorandum; (vi) all costs and expenses of
printing the respective certificates representing the Shares and
the Warrants; (vii) the expense of placing one or more
"tombstone" advertisements or promotional materials as directed
by you (provided, however, that the aggregate amount thereof
shall not exceed $10,000) and of offering memorabilia; (viii) all
costs and expenses of the Company and its employees (but not of
the Underwriters or its employees) associated with due diligence
meetings and presentations (including the payment for road show
conference centers); (ix) any and all taxes (including without
limitation any transfer, franchise, capital stock or other tax
imposed by any jurisdiction) on sales of the Securities to the
Underwriters hereunder; and (x) all costs and expenses incident
to the furnishing of any amended Prospectus or any supplement to
be attached to the Prospectus as required by Sections 3(a) and
3(d), except as otherwise provided by said Sections.
(b) Underwriters' Expense Allowance. In addition to
the expenses described in Section 8(a), the Company shall on the
First Closing Date pay to the Underwriters' the balance of a non-
accountable expense allowance, which shall include fees of
Underwriters' Counsel, exclusive of the fees referred to in
Section 3(b), of which a non refundable advance of $50,000 has
been previously paid (that being an amount equal to three percent
(3%) of the gross proceeds received upon sale of the Firm
Securities). In the event that the Over-Allotment Option is
exercised, then the Company shall, on the Option Closing Date,
pay to the Underwriters based on the number of Option Securities
to be sold by the Company, an additional amount equal to three
percent (3 %) of the gross proceeds received upon sale of any of
the Option Securities, in the amount of $________ if the
Over-Allotment Option is exercised in full.
(c) No Finders. No person is entitled either directly
<PAGE>
or indirectly to compensation from the Company, the Underwriters
or any other person for services as a finder in connection with
the Offering, and the Company hereby indemnifies and hold
harmless the Underwriters, and the Underwriters hereby
indemnities and hold harmless the Company from and against all
Liabilities, joint or several, to which the indemnified party may
become subject insofar as such Liabilities arise out of or are
based upon the claim of any person (other than an employee of the
party claiming indemnity) or entity that he or it is entitled to
a finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the
indemnifying party.
10. EFFECTIVE DATE. The Agreement shall become effective
upon its execution, except that you may, at your option, delay
its effectiveness until 10:00 a.m., New York time, on the first
full business day following the Effective Date, or at such
earlier time after the Effective Date as you in your discretion
shall first commence the initial public offering by the
Underwriters of any of the Securities. The time of the initial
public offering shall mean the time of release by you of the
first newspaper advertisement which is subsequently published
with respect to the Securities, or the time when the Securities
are first generally offered by you to dealers by letter or
telegram, whichever shall first occur. This Agreement may be
terminated by you at any time before it becomes effective as
provided above, except that the provisions of Sections 6, 8, 9,
13, 14 and 15 shall remain in effect notwithstanding such
termination.
11. TERMINATION.
(a) Grounds for Termination.
(i) This Agreement, except for Sections 3, 6, 7,
8, 13, 14, 15 and 16, may be terminated at any time prior to the
First Closing Date, and the Over-Allotment Option, if exercised,
may be cancelled at any time prior to the Option Closing Date, by
you if in your sole reasonable judgment it is impracticable to
offer for sale or to enforce contracts made by you for the resale
of the Securities agreed to be purchased hereunder, by reason of:
(A) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree;
(B) trading in securities on the New York
Stock Exchange or the American Stock Exchange having been
suspended or limited;
(C) material governmental restrictions
having been imposed on trading in securities generally which are
not in force and effect on the date hereof;
<PAGE>
(D) a banking moratorium having been
declared by federal or New York State authorities;
(E) an outbreak or significant escalation of
major international hostilities or other national or
international calamity having occurred which affects this
Offering;
(F) the passage by the Congress of the
United States or by any state legislative body of similar impact,
of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive,
which is reasonably believed likely by you to have a material
adverse impact on the business, financial condition or financial
statements of the Company;
(G) any material adverse change in the
financial or securities markets beyond normal fluctuations in the
United States having occurred since the date of this Agreement;
or
(H) any material adverse change having
occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the
earnings, business, prospects or condition (financial or
otherwise) of the Company, whether or not arising in the ordinary
course of business.
(ii) The Underwriters shall have the right, in
their sole reasonable discretion, to terminate this Agreement,
including without limitation, the obligation to purchase the Firm
Securities and the obligation to purchase the Option Securities
after the exercise of the Over-Allotment Option, by notice given
to the Company prior to delivery and payment for all the Firm
Securities or the Option Securities, as the case may be, if any
of the conditions enumerated in Section 4 are not either
fulfilled or waived by the Underwriters on or before any Closing
Date.
(iii) Anything herein to the contrary
notwithstanding, if this Agreement shall not be carried out
within the time specified herein, or any extensions thereof
granted by the Underwriters, by reason of any failure on the part
of the Company to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied
then, in addition to the obligations assumed by the Company
pursuant to Section 9(a) hereof, the Underwriters shall provide
the Company with, and the Company shall pay, a statement of the
Underwriters' accountable expenses.
(b) Notification. If you elect to prevent this
Agreement from becoming effective or to terminate this Agreement
as provided by this Section 11 or by Section 10, the Company
shall be promptly notified by you, by telephone or telegram,
<PAGE>
confirmed by letter.
12. UNDERWRITERS' WARRANTS. On the First Closing Date, the
Company shall issue and sell to you, for a total purchase price
of $10.00, and upon the terms and conditions set forth in the
form of Underwriters' Warrants filed as an exhibit to the
Registration Statement, an option entitling you to purchase
100,000 Shares and 300,000 Warrants at an exercise price equal to
140% of the initial public offering price per unit exercisable
for a period of four years commencing one year from the Effective
Date (the "Underwriters' Warrants"). The Underwriters' Warrants
grant to the holders thereof certain "piggyback" registration
rights for a period of five years, and demand registration rights
for a period of four years, commencing one year from the
Effective Date with respect to the registration under the
Securities Act of the securities issuable upon exercise thereof.
In the event of conflict in the terms of this Agreement and the
Underwriters' Warrants, the terms and conditions of the
Underwriters' Warrants shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements,
representations, warranties, covenants and other statements of
the Company and the Underwriters set forth in Sections 3, 6, 7, 8
and 9 of this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any other
party, and shall survive delivery of and payment for the
Securities and the termination of this Agreement. The Company
hereby indemnifies and holds harmless the Underwriters from and
against all Liabilities, joint or several, to which the
Underwriters may become subject insofar as such Liabilities arise
out of or are based upon the breach or failure of any of the
provisions of Sections 3, 6, 8 and 9.
14. NOTICES. All communications hereunder shall be in
writing and, except as otherwise expressly provided herein, if
sent to you, shall be mailed, delivered or telegraphed and
confirmed to you at Global Equities Group, Inc., 5 Hanover
Square, 22nd Floor, New York, New York 10004, with a copy sent
to:
Michael Koblenz, Esq.,
Mound, Cotton & Wollan
One Battery Park Plaza
New York, New York 10004;
or if sent to the Company, shall be mailed, delivered, or
telegraphed and confirmed to it at Baltia Airlines, 63-25
Saunders Street, Suite 7I, Rego Park, New York, ____________,
with a copy sent to:
Steffanie J. Lewis, Esq.
3511 N. 13th Street
Arlington, VA 22201
15. PARTIES IN INTEREST. This Agreement is made solely for
the benefit of the Underwriters, the Company, and, to the extent
expressed, any person controlling the Company or the
Underwriters, as the case may be, and the directors of the
Company, nominees for directors of the Company (if any) named in
the Prospectus, officers of the Company who have signed the
Registration Statement, and their respective executors,
administrators, successors and assigns; and no other person shall
acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include any
purchaser, as such, from an Underwriter of the Securities.
16. CONSENT TO JURISDICTION. Each of the parties hereto
irrevocably agrees that any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions
contemplated hereby may be instituted in any New York court,
irrevocably waives, to the fullest extent it may effectively do
so, any objection which it may now or hereafter have to the
laying of venue of any such proceeding and irrevocably submits to
the exclusive jurisdiction of such courts in any such suit,
action or proceeding. The Company has appointed Mound, Cotton &
Wollan, New York, New York, as its authorized agent (the
"Authorized Agent") upon whom process may be served in any such
action arising out of or based on this Agreement or the
transactions contemplated hereby which may be instituted in any
New York court by the Underwriters or by any such person who
controls an Underwriter, expressly consents to the jurisdiction
of any such court in respect to any such action, and waives any
other requirements of or objections to personal jurisdiction with
respect thereto. Such appointment shall be irrevocable. The
Company represents and warrants that the Authorized Agent has
agreed to act as said agent for service of process, and the
Company agrees to take any and all action, including the filing
to any and all documents and instruments, that may be necessary
to continue such appointment in full force and effect as
aforesaid. Service of process upon the Authorized Agent and
written notice of such service to the Company shall be deemed, in
every respect, effective service of process upon the Company.
17. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State
of New York, without giving effect to conflict of laws. The
parties agree to submit themselves to the jurisdiction of the
courts of the State of New York or of the United States of
America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and
maintain a legal proceeding against the other party arising from
any dispute in this Agreement. In the event either party
initiates a legal proceeding in a jurisdiction other than in the
courts of the State of New York or of the United States of
America for the Southern District of New York, the other party
may assert as a complete defense and as a basis for dismissal of
such legal proceeding that the legal proceeding was not initiated
and maintained in the courts of the State of New York or of the
United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
18. ENTIRE AGREEMENT. This Agreement and the Underwriters'
Warrants contain the entire agreement between the parties hereto
in connection with the subject matter hereof and thereof.
19. COUNTERPARTS. This Agreement may be executed in two or
more counterpart copies, each of which shall be deemed and an
original but all of which together shall constitute one and the
same instrument.
If the foregoing is in accordance with your
understanding of our agreement, kindly sign and return this
Agreement, whereupon it will become a binding agreement between
the Company and the Underwriters in accordance with its terms.
Very truly yours,
BALTIA AIR LINES, INC.
By:_______________________________
Name:
Title:
Accepted as of the date
first above written:
New York, New York
GLOBAL EQUITIES GROUP, INC.
By:________________________
Name:
Title:
SUNCOAST CAPITAL CORP.
By:________________________
Name:
Title:
<PAGE>
SCHEDULE A
Number of Number of
Shares of Warrants to be
Underwriter Common Stock to Purchased
be Purchased
Global Equities Group
Inc.
Suncoast Capital Corp.
Total: 1,000,000 3,000,00
The International Business Law Firm P.C.
Arlington Office:
Telephone: (703) 522-1198
3511 North Thirteenth Street Fax: (703) 522-1197
Arlington, Virginia 22201-4907 U.S.A.
LEGAL OPINION
The International Business Law Firm, P.C. ("law firm"), has acted
on behalf of Baltia Air Lines, Inc., a New York corporation with
principal executive offices at East Wing Building #51, JFK
International Airport, Jamaica, NY 11430, ("Corporation" or
"Company") with respect to preparing and filing the Corporation's
application for Certificate of Public Convenience and Necessity
with the U.S. Department of Transportation, and the Company's
Registration Statement for its Initial Public Offering ("IPO"),
Registration File No. 333-2006, which did not close due to a
problem with the underwriter, and the Company's Registration
Statement due to be filed on October 8, 1997.
The principal documents in said transactions include New York
State Corporate certificate of good-standing, articles and bylaws
of the Corporation, US Department of Transportation Order 96-1-
24, US Department of Transportation Docket 97-2763, Financial
Audits for 1993, 1994, 1995, and 1996, the Company's post
effective 7th Amendment to 333-2006 and the Company's
Registration Statement, Prospectus and exhibits therein.
In giving the opinion expressed below, we have reviewed
said documents as well as U.S. Securities and Exchange Commission
documents SEC 1898 (9-91), SEC 2345 (10-93), SEC 1887 (11-91),
and have relied upon documents from the US Departments of
Transportation and of Commerce, documents from the State of New
York, statements by Airline Economics, Inc. of Arlington, VA,
audits by J.R. Lupo, P.A. CPA of Verona, NJ., and affidavits as
well as letters drawn in the course of business.
This opinion is based upon the assumption that the Company
files its second SB-2 Registration Statement on or about October
8, 1997 and contracts with Escrow and Transfer Agents, with
documents reviewed. It is assumed that Blue Sky filing will
be completed in all applicable jurisdictions.
It is the law firm's belief that the Company is properly
organized, that presently issued Capital Stock and the Capital
Stock being issued in connection with the Company's public
offering has been issued and is being issued legally, and that
the Company is fully complying as to the aforementioned Capital
stock with the Federal Securities Act of 1933, as amended. The
Company is restricted by agreement with the underwriter from
issuing further stock for a period of two years without prior
written permission from the underwriter. Excluding Capital Stock
being offered in present IPO, the Company has a reserve of
94,115,000 common stock. The Company has 15,000 preferred stock
authorized, none of which has been issued.
Based upon and subject to the foregoing, we are of the opinion
that all documents have been filed and all proceedings taken by
the Corporation that are required by the Securities and Exchange
Commission of the United States in order to qualify the
Securities to be offered and sold to the public in the United
States. No other documents are required to be filed, proceedings
taken or approvals, consents or authorizations of regulatory
authorities obtained in order to comply with U.S. Securities and
Exchange Commission requirements to permit the issue, sale, and
delivery of the Securities by the Corporation in the United
States. When sold, registered shares will be legally issued,
fully paid and non-assessable.
This opinion is rendered for use by Continental Transfer
and Trust Company , and to be relied upon by shareholders of
Baltia Air Lines, Inc., in connection with the transfer of
the Company's stock and may not be relied upon by any other
person or for any other purpose without our prior written
consent.
The International Business Law Firm
(Signature)
By: Steffanie J. Lewis November 13, 1997
Attorney
Order 91-6-2
UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY
WASHINGTON, D.C.
Issued by the Department of Transportation
on the 23rd day of May, 1991
U.S.-U.S.S.R. NORTH ATLANTIC Docket 47149
COMBINATION SERVICE CASE
ORDER AND OPINION ON REVIEW
We award: a) primary authority to Trans World Airlines, Inc. (TWA) to
provide scheduled combination service between New York and Moscow
beginning in 1991/92, with two additional weekly round trips in 1992/93;
b)primary authority to Baltia Air Lines, Inc. (BALTIA) to provide scheduled
combination service between New York and Leningrad beginning in 1991/92;
c) primary authority to Baltia to provide scheduled combination service
between New York and Riga (with additional service to Kiev, Minsk, and
Tbilisi) beginning in 1991/92; and d) primary authority to American
Airlines,
Inc. (American) to provide scheduled combination service between Chicago
and Moscow beginning in 1992/93; we also award e) Pan American World
Airways , Inc. (Pan Am) authority to provide previously authorized service
to
Moscow/Leningrad with additional frequencies in 1992/93. We award backup
authority: f) to TWA to provide scheduled combination service in the New
York-Leningrad market; g) to American Trans Air (ATA) to provide
scheduled combination service between Philadelphia and Riga (with
additional service to Kiev); and h) backup authority to Baltia to serve in
the
New York-Moscow market. This combination of awards provides
the maximum public benefits available under our bilateral rights and best
fulfills
the public interest. <FN1>
[FN]_______________________
<FN1>
1. Except to the extent here modified, we adopt the findings, conclusions,
and recommendations of the Administrative Law Judge in his Recommended
Decision, which is attached and made part of this decision.
</FN>
LATEKO BANKA
LATVIAN ECONOMIC COMMERCIAL BANK
31.03.1997 No. 248/9
To: Igor Dmitrowsky, President
Baltia Air Lines, Inc.
63-25 Saunders St., Suite 7I
Rego Park, NY 11374
Dear Mr. Dmitrowsky,
In reply to inquiry submitted by the US air company Baltia Air
Lines, Inc. in The State of New York (The BALTIA) we hereby confirm
that, upon a formal request of the BALTIA, the LATEKO BANK would
extend the duration of the credit line granted in accordance with the
letters #496 dated December 21, 1995 and #1849 dated August 27, 1996
until January 1, 1999.
Best regards,
/s/
Z. Sthrauhmanis,
President
21 Birznieka-Upsha str.,LV=-1011,Riga,Latvia,phone:221375,
fax:+371-2-210654,telex: 181379 LATEK LV
ACC. No. 700161711 THE BANK OF LATVIA, BANK CODE 310101711
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 15, 1997, accompanying the
financial statements of Baltia Air Lines, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of
the aforementioned report in the Registration Statement and the
Prospectus, and to the use of our name as it appears under the
caption "Experts".
J.R. Lupo, P.A. CPA
Verona, NJ
DECEMBER 16, 1997
AIRLINE ECONOMICS INTERNATIONAL, INC.
Lee R. Howard Telephone
(706)579-1466
President
6088 Indian Pipe Drive
487 Big Canoe
Big Canoe, Georgia 30143 USA
November
12, 1997
Igor Dmitrowsky
President
Baltia Air Lines, Inc.
63-25 Saunders Street, Suite 7I
Rego Park, NY 11374
Dear Mr. Dmitrowsky:
We, Airline Economics, Inc. and Airline Economics
International,
Inc., give you permission to publish in your
forthcoming
prospectus all letters, analyses, data, statements, and
other
material furnished you regarding Baltia's
JFK-St.Petersburg
operation.
Sincerely,
(Signature)
Lee R.
Howard
