As filed with the Securities and Exchange Commission on August , 1998.
Registration No. 333-37409
_______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT No. 7
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. Charles Spinelli, Esq.
Counsel for Baltia Counsel for Underwriter
International Business Law Spinelli & Associates
Firm 120 Wall Street, 28th Floor
3511 N. 13th Street New York, NY 10005
Arlington, VA 22201 Tel: (212) 635-4100
Tel: (703) 522-1198 Fax: (212) 465-2699
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 being Amount Being Offering Price Aggregate Amount of
Registered Registered Per Security Offering Price Registration Fee
<FN1> <FN1> <FN4>
<S> <C> <C> <C> <C>
Common Stock $1,100,000 $5.50 $6,050,000 $1,833.33
Warrants <FN2> $1,100,000 0.10 $110,000 33.33
Common Stock $1,100,000 6.05 $6,655,000 2,016.66
underlying Warrants
Over-Allotment $165,000 5.50 $907,500 275.00
- Common Stoc
Over-Allotment $165,000 0.10 $16,500 5.00
Warrants <FN2>
Over-Allotment $165,000 6.05 $998,250 302.50
- Common Stock
underlying Warrants
<FN2>
Underwriter's Option $110,000 6.05 $665,500 201.66
- Common Stock <FN3>
Underwriter's Option $110,000 0.11 $12,100 3.67
- Warrants <FN3>
Underwriter's Option $110,000 7.15 $785,500 238.01
- Common Stock
underlying Underwriter's
Warrants <FN3>
Common Stock $575,000 6.05 $3,478,750 1,054.17
underlying Class A
Bridge Warrants<FN5>
Common Stock underlying $250,000 6.05 $1,512,500 485.33
Class B Bridge
Total Fee $7,429.99
paid by Company $10,163.63
Refund due to Company $2,733.64
<FN>
Notes:
<FN1>
(1) Estimated for purposes of calculating registration fee.
<FN2>
(2) Unless redeemed sooner by the Company, Warrants are exercisable at
$6.05 per share of Common Stock("Share") commencing six months after
the date the public offering("Offering")becomes effective ("Effective
Date")until five years after the Effective Date.
<FN3>
(3) Under the Underwriter's Option, the underwriters are entitled to
purchase from the Company up to 110,000 Shares at $6.05 per Share and
up to 110,000 Warrants at $.11 per Warrant. The exercise price of
Warrants underlying the Underwriter's Option is $7.15 per Share. The
Underwriter's price represents an amount equal to 130% of the initial
public offering price.
<FN4>
(4) The Registration Fee is calculated as 1/33rd of one percent of the
aggregate Offering price.
<FN5>
(5) In February 1998 the Company issued 250,000 warrants in connection with
a bridge loan for $250,000. These warrants are exercisable during the
four-year period commencing one year form the Effective Date.
Otherwise the terms of these warrants are identical to those offered to
the public in the Offering ("Class B Bridge Warrants"). The holder of
the Class B Bridge Warrants is being registered with the Offering as a
Selling Securityholder.
<FN6>
(6) In June 1998 the Company issued 575,000 warrants in connection with a
series of bridge loans in the aggregate amount of $575,000. The terms
of these warrants are identical to the Warrants offered to the public
in the Offering ("Class A Bridge Warrants"). The holders of the Class
A Bridge Warrants are being registered with the Offering as Selling
Securityholders.
</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 the Registration Fee table in this
Registration Statement 333-37409. The fee previously paid to register such
securities, $9,269.01, and the check in the amount of $522.20 which was
submitted by wire transfer on October 8, 1997 are carried forward and off
set against the current registration fee of $7,429.99 leaves a balance
refund due to the Company of $2,733.64.
This registration statement shall become effective in accordance with Section
8(a) of the Securities Act of 1933 on September 10, 1998 or 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 Forepart of Registration Statement
Statement and Outside Front Cover and Outside Front Cover Page of
of Prospectus Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Page of Prospectus
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Prospectus; Outside Front Cover
Price Page of Prospectus; Underwriting;
Risk Factors
6. Dilution Dilution
7. Selling Securityholders Use of Proceeds, Common Stock
Available for Future Sale
8. Plan of Distribution Underwriting; Prospectus Supplement
9. Legal Proceedings N/A
10. Directors, Executive Management
Officers, Promoters and Control
11. Security Ownership of Principal Stockholders
Certain Beneficial Owners and
Management
12. Description of Securities Description of Securities
13. Interest of Named Legal Matters; Experts
Experts and Counsel
14. Disclosure of Commission Underwriting; Item 24 and Item 28
position on Indemnification for
Securities Act Liabilities
15. Organization within Summary; Business
Last Five Years
16. Description of Business Summary; Business
17. Management's Discussion Management's Discussion and
and Analysis or Plan of Operation Analysis of Financial Condition
and Results of Operation
18. Description of Property Business - Facilities
19. Certain Relationships Certain Transactions
and Related Transactions
20. Market for Common Equity Description of Securities
and Related Stockholder Matters
21. Executive Compensation Management - Compensation
22. Financial Statements Selected Financial Data; Financial
23. Changes and N/A
Disagreements with Accountants on
Accounting and Financial Disclosure
PAGE
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST , 1998
PROSPECTUS
(c) BALTIA AIR LINES - U.S. INTERNATIONAL AIR CARRIER
The New Way to Europe(tm)
1,100,000 Shares of Common Stock and
1,100,000 Redeemable Common Stock Purchase Warrants
All of the 1,100,000 shares of common stock of $.0001 par value ("Common
Stock" or "Shares") and 1,100,000 redeemable Common Stock purchase warrants
("Warrants") offered hereby (together, the "Securities") by Baltia Air
Lines, Inc. (the "Company") are being sold through Hornblower & Weeks, Inc.
and Madison Capital Markets Corp. as the co-managers ("Co-Managers")
together referred to as ("Underwriters.") The initial public offering
("IPO") price is $5.50 per Share and $.10 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 $6.05 commencing six months after the
date the Public Offering becomes effective ("Effective Date") until five
years after the Effective Date. The Company may redeem outstanding
Warrants, once they become exercisable, at a price of $.10 per Warrant on
not less than 30 days' written notice, provided the closing bid quotations
of the Shares have exceeded $10 for 20 consecutive trading days ending on
the third day prior to the date on which notice is given. See "Description
of Securities."
This Prospectus, dated ______, 1998 ("Prospectus"), also relates to a
contemporaneously commencing secondary registration of eighteen Selling
Securityholders of 825,000 warrants ("Bridge Warrants"). Each Bridge
Warrant is immediately tradeable and entitles the holder to purchase one
Share at 6.05 per Share. The 825,000 Shares underlying the Bridge Warrants
are registered herein and may be resold.
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 IPO prices as well as Warrant
exercise and redemption prices were determined by negotiations between the
Company and the Underwriters. See "Underwriting." The Company has applied
for quotation of the Shares and Warrants on the SmallCap tier of the Nasdaq
Stock Market ("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 ___ and
"Dilution" at page ___.
-------------------------------------
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. The 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 . . . . . . $5.50 $0.51 $4.95
Per Warrant . . . . . $0.10 $0.01 $0.09
Total <FN3> . . . . . $6,160,000 $616,000 $5,544,000
<FN>
<FN1>
(1) Does not include a 3% non-accountable expense allowance which the
Company has agreed to pay to the Underwriters. The Company has also agreed
to issue to the Underwriters warrants to purchase up to 110,000 Shares and
110,000 Warrants ("Underwriters' Warrants"), 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 $184,800.
<FN3>
(3) The Company has granted the Underwriters an option, exercisable within
45 days from the date of the Prospectus, to purchase up to 165,000
additional Shares and 165,000 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 $7,084,000, $708,400 and $6,375,600
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 therefore at the offices of Hornblower & Weeks, Inc. in New York
City, on or about September ___,1998 ("Closing").
HORNBLOWER & WEEKS, INC. MADISON CAPITAL MARKETS CORP
The date of this Prospectus is August , 1998
<PAGE>
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. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PAGE
<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,
Bridge Warrants and the Underwriters' Warrant. Investors should carefully
consider the information set forth under the caption "Risk Factors."
THE COMPANY - HISTORICAL DEVELOPMENT
The Company, a U.S. airline, was 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. In 1990,
the Company competed 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 ("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. In 1992, and anticipating utilization of the authorities, 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 ("US") 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 IPO and having
examined the Company's operating plan and management, its background and
qualifications, the DOT 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
DOT and the FAA, and on market research and development of the Company's
overall marketing program. In 1996, and upon reexamination of the Company's
fitness as a US air carrier, the DOT reissued JFK-St. Petersburg route
authority to the Company. In January 1998, the Company's President met with
the FAA regarding the air carrier certification process consisting of
document approval, crew training, and flight demonstration. Prior to
commencement of service, the Company is required to complete the FAA air
carrier certification.
BUSINESS STRATEGY
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. In 1992, and as part of its marketing strategy,
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
as a result of having established these relationships. 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 intends to 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 U.S. 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 month), which the Company's
management ("Management") believes the Company can carry profitably and
which is not expected to have a material adverse effect on the Company's
flight schedule. Currently, priority mail is channeled through Moscow
because US 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, including 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, have
expressed an interest in utilizing the Company's proposed 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 expects to receive DOT authority to operate up to five
round trip flights per week.
The Company is presently in discussions with Pegasus Capital
Corporation / Pacific Aviation Holding Company ("Pegasus") for the
acquisition of two B747 aircraft. The Company has allocated $750,000 for
the initial acquisition deposit on the first aircraft. See "Use of
Proceeds." There is no assurance that these aircraft will be acquired.
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) . . . . . . 1,100,000 shares of Common Stock and
1,100,000 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 $6.05 commencing
six months from the Date of this
Prospectus and continuing until five
years from the Date of this
Prospectus. The Company may redeem
the outstanding Warrants, once they
become exercisable, at a price of
$.10 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 . . . . 2,442,500 shares.
Common Stock Outstanding
After Offering . . . . . . . 3,542,500 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 $5,124,200(2) net proceeds of this Offering, the Company intends
to reserve approximately $90,000 to pay liabilities, and approximately
$2,166,000 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, and mini-evacuation tests. To accelerate commencement of
scheduled service, the Company borrowed money ("Bridge Loans") and, prior to
the Closing, it purchased certain goods and services which otherwise would
have been purchased from proceeds of the Offering("Proceeds"). Bridge Loans
will be repaid at the Closing from Proceeds allocated for commencement of
scheduled service and accumulated interest thereon is expected to be paid
from Proceeds allocated to pay liabilities. Approximately $2,958,200 is
expected to be reserved as 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 165,000
additional Shares.
(2) Based upon the IPO price of $5.50 per Share and $.10 per Warrant,
net proceeds to the Company of $5,124,200 are calculated by
deducting from the total Proceeds of $6,160,000, the Underwriting
Discounts and Commissions of $616,000, the Underwriters's
non-accountable expense allowance of $184,800, and expenses of
this Offering payable by the Company estimated at $235,000. The
Bridge Loans are expected to be repaid at Closing from net
Proceeds. There is no impact on "Use of Proceeds", except that
some uses are expected to be transacted prior to the Closing with
money from the Bridge Loans.
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth certain selected financial data for
six months ended June 30, 1998 and 1997 (unaudited), and years ended
December 31, 1997, and 1996, 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
1998 1997 1997 1996
Statement of Operations Data:
(Development Stage)
<S> <C> <C> <C> <C>
Operating revenue . . . . . . . . . . . 0 0 0 0
Pre-operating expenses . . . . . . . . $420,769 $43,646 $143,137 $170,566
Pre-operating loss . . . . . . . . . . (420,769) (43,646) (143,137) (170,566)
Interest expense net . . . . . . . . . 408,698 0 0 68,120
Net loss . . . . . . . . . . . . . . . (829,467) (43,646) (143,137) (238,686)
Loss per share of Common Stock . . . . (.34) (.02) (.06) (.11)
<CAPTION>
June 30, 1998
Pro forma Adjusted
Actual for Offering <FN1><FN2>
Balance Sheet Data:
<S> <C> <C>
Working capital (deficit) . . . . . . . . . . . . . . . . $(1,337,184) $ 3,787,016
Total assets . . . . . . . . . . . . . . . . . . . . . . 784,932 5,909,132
Total liabilities . . . . . . . . . . . . . . . . . . . . 1,540,325 1,540,325
Redeemable common shares <FN4>. . . . . . . . . . . . . . 0 0
Stockholders' equity (deficit) <FN3>. . . . . . . . . . . (755,393) 4,368,807
Net Tangible Book Value per share . . . . . . . . . . . . (.51) 1.09
<FN>
<FN1>
(1) Does not include proceeds from the Over-Allotment Option of up to
165,000 additional Shares.
<FN2>
(2) Based upon the IPO price of $5.50 per Share and $.10 per Warrant, net
proceeds to the Company of $5,124,200 are calculated by deducting from
the total Proceeds of $6,160,000 the Underwriting Discounts and
Commissions of $616,000, the underwriter's non-accountable expense
allowance of $184,800 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 75,000 restricted Shares; (2) $1,628,000
in accounts payable were converted into 150,000 restricted Shares;(3)
$110,000 in accounts payable to a consultant were converted into 10,000
restricted Shares; and (4) $270,928 and $22,142 in accrued expenses
were forgiven by certain shareholders. The Company's Shareholders'
deficit attributes zero value for $396,090 of pre-paid media
placements. See "Management Discussion and Analysis - Results During
Development." On March 31, 1998, certain Shareholders relinquished the
amount due them totaling $160,983.
<FN4>
(4) In June 1997 certain shareholders canceled their option to sell back to
the Company 25,000 Shares at total buy-back amount of $400,000.
</FN>
</TABLE>
SUBSCRIBER'S FLIGHT COUPON
In order to introduce its non-stop JFK - St. Petersburg service to its
IPO shareholders, the Company will issue Subscriber's Flight Coupons. For
each 1,500 Shares purchased, the Subscriber receives one Flight Coupon to
purchase two round-trip tickets from JFK to St. Petersburg for $650. Each
Subscriber's Flight Coupon is not a security. See "Subscriber's 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 producing operations.
Excepting investments and loans from present securityholders, the Company
has not generated any revenues. Since inception to June 30, 1998, the
Company has accumulated a loss of $7,216,973 in preparation for the
commencement of revenue producing 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 the IPO for $6.2
million which Management believes will be sufficient to meet the 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. 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 Company's 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."
Loss of DOT Authority Without IPO Closing or Other Funding
If the proposed IPO does not close, or sufficient working capital is not
raised, there is a risk that the Company's New York - St.
Petersburg route authority may not be renewed by the DOT and may cause the
DOT to terminate the NY-St. Petersburg authority for dormancy.
Obtaining FAA Air Carrier Certification is Prerequisite to Commencing
Revenue Service
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
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 Management
believed limited the Company's access to public and private financing in
1992, and 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 six-year lapse.
While Management believes the net Proceeds 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 the use of Proceeds
as set forth under "Use of Proceeds," the Company will have reserve working
capital in the amount of $2,958,200 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 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, the Company
may have to raise additional financing , to meet the DOT Financial
Requirement thereby causing further dilution of book value per share. See
"Use of Proceeds, Business and Management Discussion and Analysis."
Need for Additional Financing
With the Proceeds from the 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 an
individual, firm or entity for future financing. The need for additional
financing carries the risk of book value per share dilution and may 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 frequently 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 the 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 members of the Company's Board of Directors are
required to meet the qualifications of the DOT in order to operate a US
airline. The loss of the services of any present member 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 or on any terms. The Company has a no
written employment agreement policy. The Company intends to acquire key-man
life insurance in place 90 days after the Closing on the President. 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 47% of the Proceeds 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. IPO
Investors may have no control over such decisions because officers,
directors and existing shareholders of the Company may still control the
board of directors following the Offering. Unforeseen events or changed
circumstances may cause Management to use Proceeds differently from
allocations set forth in the Use of Proceeds section. 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 US 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 Company's 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 proposed operation on its route from JFK to St.
Petersburg, Russia will be 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 ("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 have a material adverse effect on the Company's
operations. See "Business - US Carrier Operations Under Bilateral Rights."
Dependence Upon Aircraft Availability
The Company has an initial agreement with Cathay Pacific Airways Ltd to
lease a Boeing 747-200 aircraft. The aircraft is presently available for
delivery in 1998. Cathay Pacific Airways Ltd presently has additional sister
ships also available to Baltia. Upon successful completion of this Offering,
the lease will be completed. The Company does not currently own or lease any
other planes, and is not currently a party to a lease or contract granting it
access to any other planes. The Company intends to make monthly lease
payments from operating revenue in the amount of $225,000 per month. In the
event the Company is unable to meet such monthly payments, as in most lease or
purchase plans, its 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 of fuel costs at
JFK and an Aer Rianta fuel costs 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 also 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 and 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 intends to operate a single wide body aircraft for a period
of time before acquiring another aircraft. The dispatch reliability of the
B747-200 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 US 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 intends
to 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. In August
1998, there was a significant 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 Bilateral Agreement. Thus, excepting a Russian
airline, 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 US 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 Bilateral Agreement, a Russian airline can
also offer non-stop service between the US and Russia. It is likely that
over time Russian airlines will upgrade their services and will be more
competitive in the mainstream market. There can be no assurance that such
future competition by a Russian airline in 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 LaGuardia 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, St. Petersburg airport, or alternative airports could close. In
such a case, the Company's flight departure may be delayed. This type delay
is not expected to be 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 aircraft, 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 intends to carry $750 million in
liability coverage. Additionally, the Company intends to 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 is likely to have a
material adverse effect on the Company. See "Management Discussion and
Analysis - Insurance Coverage and Expense."
Consequences in the Event of Default on LainBanka Line of Credit
The DOT is empowered to withdraw the authority from any US airline
should it find that non-US citizens directly or indirectly control that
airline. The Company has a $6.2 million line of credit ("LOC") from
LainBanka of Riga, Latvia. Should the Company draw upon that LOC and
default on repayment to LainBanka, notice must be made to the DOT. The
Company has made no draws upon this LOC and owes no debt to LainBanka. See
"Twelve Month Operating Plan" and "Notes to Financial Statements," for terms
and conditions of this LOC. Although in management's opinion, the value of
the Company to LainBanka lies in its US certification and the Company and
LainBanka would have a continued interest in retaining US control of the
airline, it is not certain what action LainBanka would take in the event the
Company should default. LainBanka is located in Latvia and subject to
Latvian law. There is no assurance that the investor in this Offering would
not be adversely affected by action of the DOT, the Latvian government, or
by action of the LainBanka in the event of default. See "Management
Discussion and Analysis - Results During Development."
Executive Compensation 0.8 Percent of Net Proceeds
During the period commencing when the Proceeds are released to the
Company and commencement of revenue operations, the Company's President and
the Vice Presidents will receive compensation reduced to an amount equal to
50% of budgeted salary. From the total net Proceeds of $5,124,200, 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. As of the date of this Prospectus, 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 of directors
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 the 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 150,000 restricted shares, the outside legal counsel, Steffanie
J. Lewis, The International Business Law Firm, P.C., owns a total of 190,000
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 DOT 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
28,750 shares of Common Stock, or approximately 1.2%, of the Company's
issued and outstanding Common Stock which includes the June 1997 conversion
of $110,000 that was owed to it by the Company into 10,000 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 $1,540,325. Excepting $90,000
reserve, and $850,520 inclusive of interest to repay money advanced to
enable the Company to purchase goods and services identified in Use of
Proceeds prior to the IPO closing ("Bridge Loans"), the Company does not
intend to use net proceeds to repay
indebtedness. If the Company does not generate sufficient operating revenue
to repay indebtedness, it intends to postpone payment until such time as it
has the capability to pay, or it may borrow on its LainBanka LOC. For terms
of credit, see "Management Discussion and Analysis - Twelve Months Operating
Plan." 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 47% of the issued and outstanding Shares (assuming the
Warrants, and Underwriters' Purchase Option are not exercised). The
Company's Certificate of Incorporation does not provide for cumulative
voting. Therefore, the major shareholders may control 100% of the board of
directors after this Offering. A minority shareholder may 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 Company's 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 with the US Patent and Trademark Office 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 IPO price of the Shares and Warrants has been determined by
negotiations between the Underwriters and the Company. In determining the
number of Shares and Warrants to be offered and the Offering price, the
Company and the Underwriters 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 Warrants, 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 and Warrants.
Although the IPO 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."
Contemporaneous Secondary Offering
At closing of this Offering, the market may be adversely influenced
by the trading of 825,000 Bridge Warrants. After six months and after one
year following the Effective Date, the market may be adversely influenced by
the trading of up to 575,000 and 250,000 additional shares, respectively.
In 1998, the Company borrowed an aggregate of $825,000, in order to accelerate
the FAA Certification procedure. In connection with these loans, the Company
issued 825,000 Bridge Warrants. The Bridge Warrants and the 825,000 underlying
shares are registered contemporaneously with this Offering. All Bridge
Warrants are immediately tradeable, 575,000 Bridge Warrants are exercisable
6 months following the Effective Date, and 250,000 Bridge Warrants are
exercisable 1 year following the Effective Date. After exercise, the
underlying shares may be sold.
No Assurance Company will Maintain Exchange Listing
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 net tangible assets or $50,000,000 market
capitalization, or $750,000 net income two of last three years, as well as
the following: $1,000,000 public float, $5 million market value of public
float, $4.00 bid price, 3 market makers, 300 shareholders, and either 1
year's operating history or $50 million market capitalization. Although the
Company qualifies for initial quotation of its Securities on Nasdaq, for
continued listing on Nasdaq, a company, among other things, must have 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, as well as
the following: 500,000 public float shares, $1 million public float value,
$1 bid price, two market makers and 300 shareholders. In the event the
Company should fail to maintain Nasdaq listing and 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 be listed and maintain listing on 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 $.10 per Warrant on not less than 30 days written
notice, provided the closing bid quotations of the Shares have exceeded $10
for 20 consecutive trading days ending on the third day prior to the date on
which notice is given. 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 intends to qualify the sale of the Securities in a limited
number of states, NY, NJ, CO, CT, DE, FL, GA, IL, MD, VT, SC, TX, 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
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 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."
Underwriters' Warrants
Subject to the requirements of the SEC and NASD, the Company will grant
to the Underwriter, as partial consideration for services rendered, a
warrant to purchase up to 110,000 Shares and 110,000 Warrants, exercisable
at any time during a period of four years commencing at the beginning of the
second year after the Effective Date of the Offering after which time all
rights attached terminate. The Underwriters' Warrants may not be sold,
transferred, assigned or hypothecated for a period of one year from the
Effective Date, except to officers of the Underwriter and members of the
underwriting group and their respective officers or partners. An exercise of
the Underwriters' 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 Underwriters' Warrants is
sold in the public market, may adversely affect the market price of the
Company's Common Stock. The Underwriters' 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
Underwriters. See "Description of Securities - Underwriters' 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 165,000 additional shares of Stock and 165,000
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 IPO price of
$5.50 per Share, purchasers in this offering will incur immediate and
substantial dilution of $4.41 (80%) dilution per Share in the net book value
per share of their investment. In addition, purchasers in this Offering
will be contributing approximately 47% of the total investment consideration
to the Company but will receive only 31% of the shares outstanding
(assuming the Warrants, and Underwriters' Warrants are not exercised).
Additional dilution will occur upon the exercise of Warrants, Underwriters'
Warrants, and Over-allotment Option. 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, pursuant to
Rule 144 or otherwise, could adversely affect the market price of 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 3,542,500 shares of
Common Stock will be outstanding. The 2,442,500 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 (2,320,000 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 Underwriters.
Whether or not to grant consent lies within the discretion of the
Underwriters, who have no present intent to grant consent for any shares
currently outstanding. Should the Underwriters 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 Underwriters' 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 Underwriters,
for 24 months following the Prospectus date, the Company shall not issue any
additional equity securities without the Underwriters' prior written
consent. Following the exercise of the 1,100,000 Warrants, and
Underwriters' Warrants consisting of 110,000 Shares and/or 110,000 Warrants,
the Company will have outstanding 4,862,500 Shares. This does not include
the exercise of 825,000 Bridge Warrants issued in connection with Bridge
Loans. 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, 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."
USE OF PROCEEDS
The proceeds from this Offering will be used to commence scheduled
non-stop flights from JFK to St. Petersburg, Russia. In particular, 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 one-time
DOT Financial Requirement, and (4) Reserve approximately $90,000 for
liabilities. Prior to the Closing, and to accelerate the commencement of
revenue operations, the Company intends to use Bridge Loans to purchase
certain goods and services necessary for FAA Certification, to be repaid as
allocated from the Proceeds immediately following Closing. The net Proceeds
from the sale of 1,100,000 Shares and 1,100,000 Warrants are estimated to be
$5,124,200 after deducting underwriting discounts, Underwriters' 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. At no time in 1992 was the Company
deficient in any FAA certification task undertaken. In 1998, because of the
six-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 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. Management
believes that the net Proceeds allocated as working capital and the LOC from
LainBanka will be sufficient to satisfy the DOT Financial Requirement.
Following commencement of airline service, 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 reflects the Company's lease of one B747-200
aircraft. Consideration was given to the prior ownership and maintenance of the
aircraft. The $1,020,000 allocated for aircraft acquisition is based upon the
initial lease agreement and internal acquisition costs. The Company expects to
make monthly lease or purchase payments from operating revenue. It
is the opinion of the Director of Technical Services that spare parts for
the B747-200 are in relative abundance at favorable prices. The numbers in
the table below are Company estimates only.
<TABLE>
<CAPTION>
USE OF PROCEEDS
<S> <C> <C>
Aircraft Lease or Purchase Deposit <FN1>. .$1,020,000 19.9%
Spare Parts/Ground Equipment <FN2>. . . . . 580,000 11.3%
General and Administrative <FN3>. . . . . . 70,000 1.4%
Compensation and Benefits <FN4> . . . . . . 196,000 3.8%
Contract Services <FN5> . . . . . . . . . . 80,000 1.6%
Marketing (direct costs only) <FN6> . . . . 60,000 1.2%
Consultants <FN7> . . . . . . . . . . . . . 20,000 .4%
Mini-Evacuation Test <FN8>. . . . . . . . . 50,000 .9%
Repayment of Liabilities <FN9>. . . . . . . 90,000 1.8%
Reserve Working Capital <FN10>. . . . . . . 2,958,200 57.7%
TOTAL ("Net Proceeds") . . . . . . . . . 5,124,200 100%
Less Bridge Loan
inclusive of interest <FN11> . . . . . $850,520
Adjusted net proceeds . . . . . . . . . . .$4,273,680
<FN>
<FN1>
(1) Represents initial deposit. Monthly lease payments are
$225,000, and are expected to 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 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 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) 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 are expected to be
paid from operating revenues.
<FN7>
(7) Allocated for temporary instructors and office help 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 accounts
payable and accrued expenses.
<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.
<FN11>
(11) Investors have lent the Company $825,000 in bridge funds ("Bridge
Lenders"). (See "Notes to Financials".) The bridge funds enable the Company
to accelerate the FAA Certification procedure prior to the IPO closing by
enabling the Company to purchase certain goods and services the costs of which
are included in "Use of Proceeds." The bridge funds are being used as follows:
$375,000 partial aircraft deposit / inspection, $210,000 spare parts / ground
equipment initial deposits, $60,000 general and administrative, $25,000
compensation and benefits, $75,000 contract training/services deposits, $40,000
marketing direct, $20,000 consultants, and $25,000 payment of liabilities.
The Bridge Loans will be repaid at IPO closing together with interest.
Interest is calculated to be $25,520 based on 10% per annum for approximately 9
months. (Use of $250,000 for 6.5 months; $575,000 for 2.5 months). The Company
expects to pay interest from the Proceeds reserved to pay liabilities. In
connection with the Bridge Loans, Bridge Lenders received 825,000 Bridge
Warrants. (See "Underwriting" and "Common Stock Available for Future Use.")
</FN>
</TABLE>
The foregoing represents the Company's best estimates of its allocation
of the Net Proceeds 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 operating revenues and not
from Net Proceeds. As of June 30, 1998, total current liabilities were
$1,540,325. 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 B747-200 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 Proceeds but rather from anticipated operating revenue after
revenue operations have begun. Therefore, insurance has not been listed
separately under "Use of 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, 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, 1998 and gives effect to the sale of 1,100,000 Shares and
1,100,000 Warrants offered hereby at $5.50 per Share and $.10 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, 1998
(Unaudited)
Actual Pro Forma as
Adjusted <FN1>
Stockholders' Equity:
<S> <C> <C>
Preferred Stock, no par value; 15,000 0 0
shares authorized, none issued and
outstanding
Common Stock, $.0001 par value; $245 $355
100,000,000 shares authorized,
2,442,500 shares issued and
outstanding before Offering <FN2>, and
3,542,500 shares issued and
outstanding at Offering
Additional paid-in capital . . . 6,857,425 13,017,315
Deficit accumulated during development (7,216,973) (7,216,973)
Prepaid media costs (396,090) (396,090)
Total stockholders' equity (deficit) (755,393) 4,368,807
<FN>
<FN1>
(1) Based upon the IPO price of $5.50 per Share and $.10 per Warrant, Net
Proceeds of $5,124,200 are calculated by deducting from the Proceeds of
$6,160,000 the Underwriting Discounts and Commissions of $616,000, the
Underwriters' non-accountable expense allowance of $184,800, and
expenses of this Offering payable by the Company estimated at $235,000.
<FN2>
(2) The Company has 2,442,500 Shares issued and outstanding.
(3) Stockholders' deficit attributes zero value to $396,090 of pre-paid
media placements.
</FN>
</TABLE>
DILUTION
As of June 30, 1998, the Company had 2,442,500 Shares issued and
outstanding. Assets at June 30, 1998 were $784,932, of which $284,932 were
tangible. Total liabilities at June 30, 1998 were $1,540,325. Thus, net
tangible book deficit was ($1,255,393) or ($.51) per share. Net Tangible Book
Deficit per Share represents the amount of total tangible assets less total
liabilities, divided by the number of Shares outstanding, which is
calculated to include stockholders' deficit of ($755,393). Without taking
into account any changes in the net tangible book deficit after June 30,
1998, other than to give effect to the sale of 1,100,000 Shares and
1,100,000 Warrants offered herein at initial offering prices of $5.50 and
$.10 for Shares and Warrants, respectively, and the application of Net
Proceeds of $5,124,200, the pro forma book value of the Company's Common Stock
will be $3,868,807 or $1.09 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 $5.50 per Share and pro
forma net tangible book value per Share) of $4.41 (80%) per Share.
<TABLE>
<CAPTION>
The following table illustrates as of June 30, 1998, the per Share
dilution.
<S> <C> <C>
IPO price . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.50
Net tangible book deficit . . . . . . . . . . . . . . (0.51)
Increase attributable to new investors . . . . . . . 1.60
Pro forma net tangible book value after Offering . . . . . . . 1.09
Dilution to new investors . . . . . . . . . . . . . . . . . . $ 4.41
</TABLE>
The following table summarizes, on a pro forma basis at the Closing,
the book differences between the existing stockholders and the new investors
with respect to the number of Shares, the total consideration paid (cash,
services rendered and property contributed) and the average price per Share.
<TABLE>
<CAPTION>
Shares Purchased Total
Shares Percent Amount Percent Average
Price
Shares Contrib per
Share
<S> <C> <C> <C> <C> <C>
Existing Shareholders 2,442,500 69% $6,857,670 53% $2.81
New Investors 1,100,000 31% $6,160,000 47% $5.50
Total . . . . . . . . 3,542,500 100% $13,017,670 100%
</TABLE>
The foregoing analysis assumes no exercise of Warrants, Bridge
Warrants, Underwriters' Warrants, or the Over-Allotment Option. In the
event any such option 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, 1998 and 1997 (unaudited),
and years ended December 31, 1997 and 1996, as well as results since
inception to June 30, 1998. The financial data of the Company for the
fiscal years ended December 31, 1997 and 1996, 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
1998 1997 1997 1996 June 30, 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION:
(Development Stage)
Operating income . . . . . . 0 0 0 0 0
Expenses:
General and administrative $179,313 $42,646 $84,512 $92,749 $2,406,196
Professional fees . . . . 54,000 1,000 58,625 77,817 2,038,945
FAA Certification costs. . 187,456 187,456
Service contributions . . 0 0 0 0 1,352,516
Training expenses . . . . 0 0 0 0 225,637
Abandoned fixed asset acq 0 0 0 0 205,162
Total Expenses $(420,769) $(43,646) $(143,137) $(170,566) $(6,415,912)
Interest expense,. . . . . 408,698 0 0 68,120 801,061
Net (loss) during development (829,467) (43,646) (143,137 (238,686) (7,216,973)
Net (loss) per share . . . . $(.34) $(.02) $(.06) $(.11) ($2.95)
June 30, 1998 Stockholders' per share deficit . . . . . . . . . . . . . . . . . . . . . . $(.31)
Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,442,500
BALANCE SHEET DATA:
(Development Stage)
June 30, 1998
Working capital (deficit) . . . . . . . . . . . . . . $(1,337,184)
Total assets . . . . . . . . . . . . . . . . . . . 784,932
Total liabilities . . . . . . . . . . . . . . . . . 1,540,325
Stockholders' deficit . . . . . . . . . . . . . (755,393)
(1) Stockholders' deficit attributes zero value to $396,090 of prepaid media
placements.
</TABLE>
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 US 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 DOT granted the Company
routes to provide non-stop passenger, cargo and mail service from JFK to St.
Petersburg and from JFK to Riga, with online service to Minsk, Kiev and
Tbilisi. That authority expired in 1993. In 1996, and following the
Company's 1995 application, 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 DOT and the FAA,
training crews, and conducting market research to develop the Company's
marketing strategy. Following the receipt of the Proceeds, 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 commenced on DOT authorities granted in 1991
because the Company had not completed financing in 1992. At the time the
Company received DOT 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. Private funding did
not materialize, and resources of the Company's officers and directors were
insufficient to commence revenue operations. In addition, a scheduled
delivery of aircraft from SAS was aborted costing SAS approximately $114,000
to return the planes to service. Since the Company is no longer obtaining
aircraft from SAS, it has no legal financial obligation to refund SAS the
return to service costs, but the Company would like to make it right with
SAS sometime in the future. 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. In
September 1997, and upon another examination of the Company's operating
plan and fitness as a US air carrier, the DOT renewed the Company's JFK-St.
Petersburg route authority again in February 1998. If the FAA certification
process is begun but not complete by August, and if the money is in place
to commence airline service, the Company intends to seek an additional
extension of authority to complete the FAA certification and commence
revenue flights. However, there can be no assurance that such an extension
will be granted by the DOT. The failure of the Company to secure operating
authority will have a material adverse effect upon the Company's proposed
operations and may render the Shares and the Warrants worthless.
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 B747-200 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%. 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 B747-200 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, B747-200 air 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. In addition, smaller 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 the first 12 months following the closing of the Offering, the
Company intends to operate one weekly round trip of passengers, cargo and
mail between New York and St. Petersburg, increasing the frequency as
market demands, up to five weekly round trips. 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.
Management believes the Company's cash requirements to operate one 74-100
between NY and St. Petersburg, Russia once a week for twelve months will be
$11.5 million. This estimate is comprised of three months pre-operating
expenses at $2.2 million, nine months operating expenses at $8.3 million,
and the Company's total liabilities at $1 million. (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.
The capital assets necessary to provide for the Company's proposed
initial service will be purchased with the proceeds of the Offering. Monthly
aircraft lease payment are expected to be paid from operating revenue.
Management believes that there will be sufficient funds available from the
IPO and LainBanka line of credit ("LOC") to make lease payments for one
year.
The LainBanka LOC was issued in 1998. The LOC, in the amount of $6.2
million will be immediately available to the Company upon the Company's
opening an account including registering a subsidiary in Latvia, give the
LainBanka two weeks advance notice of its borrowing need, and pay an
interest rate between 10 to 14 percent per annum. However, there is no
assurance that the terms, then in effect in Latvia, will be acceptable to
the Company. The LOC will be a short-term loan that the Company does not
intend to use for capital investments or long-term financing. The Company
intends to register a subsidiary in Latvia. This process is similar to
registering as a foreign corporation in another state of the US and would
subject the Company to legal process in Latvia.
At Closing, the Company expects to receive Net Proceeds in the amount
of $5.1 million, which, together with the $6.2 million LOC and advertising
credits in the amount of $.4 million, will make available resources totaling
$11.7 million.
In addition to the financial resources set forth above, the Company may
obtain additional funds through the issuance of $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 the initial twelve month period following the Closing.
Background. Since its inception in 1989 the Company 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 upon obtaining a certificate for safe
operational procedures from the FAA ("FAA Air Carrier 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 $.986 million in total liabilities (includes current
liabilities).
FAA Certification. In January 1998, the Company's President met with
the FAA regarding the air carrier certification process which consists of
document approval, crew training, and flight demonstration. The Company
intends to submit the Pre-application of Intent Form in June 1998 which will
commence the certification 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 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
criticisms or comments from the FAA, the industry or the Air Transport
Association, the same 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, 1998, of $7,216,973 and $755,393 respectively,
which results in a per share loss of $2.95 and stockholders' per share
deficit of $.31. At December 31, 1997, the Company has net operating loss
carry forward of $5,072,844, available to offset future taxable income.
These carry forwards expire between the years 2006-2013. As of December 31,
1997, and 1996, 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 charged to operations for six months ended June 30, 1998 and 1997 and
years ended December 31, 1997, and 1996 totaled $14,400, $6,000, $12,000 and
$13,200 respectively. Upon commencement of scheduled operations, of which
there can be no assurance, the Company expects to 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.
In February 1998, the Company received a $6.2 LOC from the LainBanka of
Riga, Latvia. For details, see "Twelve Months' Operating Plan", supra.
As of June 30, 1998, the Company has current liabilities of $1,540,325
which it expects to pay within two years. Management believes it unlikely
that liabilities will be called earlier than their scheduled repayment
because Bridge Loans representing more than half total liabilities will
be paid at closing. The remaining debt is held by its vendors and
stockholders, entities with vested interests in seeing the Company succeed.
Additionally, 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 $0.5 million for three
years 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, these stockholders have the
potential of selling their shares for a profit and will share in the Company's
future profits.
The conditions restricting use of the LOC do preclude use of the LOC to
repay liabilities called early. As of June 30, 1998, total liabilities
were $1,540,325, all of which are current liabilities. Use of LOC funds is
conditioned on it not being used for long-term investments, thus permitting
its use should early calls be made on outstanding current liabilities.
The DOT has the power to withdraw US airline authority from any US
airline should it find that non-US citizens directly or indirectly control
that airline. Since the LainBanka is a foreign entity, in the event of
default, the Company would be required to notify the DOT. If the Company
should draw against the LOC and subsequently default on repayment, it is not
certain what action LainBanka 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, 1998, the Company will have cash and cash equivalents
of $5,327,341, total assets of $5,909,132 and total liabilities of $1,540,325.
Accordingly, the Company's debt to total capitalization ratio will be 1:4.
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, and if, 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 $744,373 (net of $808,698 advances
to be repaid at closing, i.e. Bridge Loans, and $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 $6.2 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 $6.2 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 LainBanka
Line of Credit", supra. Of the June 30, 1998 total liabilities, $500,000
in accounts payable is owed to approximately 50 non-affiliated entities many
of whom will continue being suppliers to the Company when it becomes
operational and who have a vested interest in the Company's success
("Results During Development"), and the $250,000 Note Payable (Bridge Loan)
is programed to be paid from Proceeds at Closing. (See "Use of Proceeds")
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 $803,880 (after deducting Underwriting discounts and the 3% allowance),
(ii) up to $7,653,250 from the exercise of Warrants, (iii) up to $ 1,543,400
from the exercise of Underwriters' Warrants (including the exercise of the
underlying Warrants) and (iv) up to $4,640,000 from the exercise of Bridge
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 a material adverse effect 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 intends to 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 domestic inflation. The Company
could be adversely impacted if inflation slowed general economic growth in
Russia enough to reduce traffic flying with the Company. The Company does
not intend to make material amounts of purchases in Russia. The Company
intends to purchase fuel in St. Petersburg from an Irish company, Aer
Rianta, 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
For the foreseeable future, the Company expects that 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 the 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 are expected to 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. In August 1998 there was a
significant 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
aircraft 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 intends
to 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 intends to 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 US airline, with the 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 DOT 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 DOT 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). In 1992, and preparing to commence
service on its authorized routes, the Company trained 30 pilots, 38 flight
attendants, 17 mechanics and 8 dispatchers and completed substantial tasks
toward its FAA air carrier certification requirements. However, 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, obtaining liability insurance
coverage, and meeting the regulatory one-time DOT 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 will be required to complete its FAA Air
Carrier Certification in which the Company will submit manuals and train
crews to operate the B747-200. 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 opinion of the Company's management, 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.
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, the Company 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 the Company'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 Bilateral Agreement restricts foreign airlines, excepting Russian
airlines, from providing non-stop service between the US and Russia.
Additionally, US airline offers non-stop service between JFK-St. Petersburg.
The most recent Bilateral Agreement limits the aggregate number of round
trips US carriers may make to Russian cities (frequencies). All frequencies
available under that Bilateral Agreement have been allocated by the DOT for
use by US carriers to serve Russian cities other than St. Petersburg. Thus,
the Company anticipates that it will offer the only US 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, 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 direct and connecting flights to
St. Petersburg.
OVERALL MARKET STRATEGY
The Company intends to operate between two of the largest nations in
what Management believes to be 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 also intends to 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 intends to 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. In 1992, and as part of its marketing strategy to associate the
Company's service with culture and quality and develop name recognition, the
Company sponsored the St. Petersburg Festival at the Metropolitan Opera in
New York. In addition, the Company 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 are expected to 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 are expected to 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 Russsian,
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 expect to 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 now may be deemed to be
significant airlines. (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 US non-stop service, nonetheless, the Company will face
non-stop competition from Aeroflot as well as 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 proposed non-stop
service advantage for granted. The Company's management is convinced that,
if and 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 intends to provide
non-stop, wide-body, First, Business and Voyager class passenger service,
and a palletized and containerized service for cargo.
The following is a brief summary of the results of a survey the Company
conducted in 1997 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 (OAG)generally confirms the
stated competition.) Note: Aeroflot commenced once weekly NY-St. Petersburg
non-stop service in the fall of 1997. This service did not exist when the
Company's survey was conducted and was not listed in the (OAG) as of
12/7/97, but was confirmed by telephone with an Aeroflot ticket office.
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 provides serviced 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 round trip flights between St. Petersburg and
JFK.
Summary of Competition
Although Aeroflot has commenced non-stop service between St. Petersburg
and New York, Finnair and SAS remain the leading foreign airlines in the
US-Russia market. Finnair and SAS have fleets of airplanes capable of trans
Atlantic flight, offer service quality acceptable to Western travelers, and
have convenient intermediate stops in 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.
Excepting Aeroflot service, the Company intends to 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 intends to 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
expects to 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 is expected
to 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
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 a re 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:
Officia l 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
$3,223 $2,270 $1,049 $563
Average stop-over fare
$2,715 $1,595 $1,193 $555
Company's non-stop fare
</TABLE>
For marketing reasons to reflect the Company's exclusive non-stop
service, excepting Aeroflot 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. If and 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 is expected to 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>
THE COMPANY'S INTENDED 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% 100.0%
</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
Published Percent of Contrib. to
Fare Passengers Weighted Av.
<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 $ 342.76
promotion/discount $ 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 prior to commencing revenue service during which time 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 intends to 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. The
Company's employees are not represented by a union, but may be so
represented in the future.
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 intends to have
an approximate date for commencing revenue service, and intends to 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 $450 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. 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 intends to 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 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 DOT 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 DOT 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 Bilateral Agreement of 1994 was signed
reinforcing and expanding the former US-USSR Bilateral Agreement of 1990.
Under the 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. No other foreign country can be a party to the
Bilateral Agreement. Accordingly, 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
Pegasus for a 3 to 5 year lease of one B747 to be delivered in 1998, with
additional ships available in 1999. The Company intends to acquire aircraft
that meet FAA air worthiness requirements. The Company may purchase or
lease aircraft depending upon the final arrangements available to the
Company at the time of aircraft acquisition. The Company has budgeted
$750,000 for an initial 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 DOT. Having
examined the Company's management, its background and qualifications, the
DOT 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 Company <FN1>:
NAME AGE POSITION
<S> <C> <C>
Igor Dmitrowsky 43 President, Chairman and Director
of the Board
Michelle Jardine 42 Chief Financial Officer/Controller
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
Thomas McDermott <FN2> 66 Director of the Board
__________________
<FN>
<FN1>
(1) The Company's 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 Underwriters' designee for a period of three
years, at the option of the Underwriters. Officers and Directors have
a one year term and are elected at, and after, the Annual Meeting in
August.
<FN2>
(2) Will take seat immediately following IPO closing.
</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.
Michelle Jardine, a US citizen, serves as Chief Financial
Officer/Controller. She joined the Company in 1998. Ms. Jardine is a
Certified Public Accountant (CPA), and has a B.S. degree in Accounting from
Montana State University. From 1992 through 1998 Ms. Jardine was an
independent computer consultant. From 1990 through 1993 she served as
Controller for The Real Estate Equity Company, Englewood, NJ, Haband Outlet
Stores, Paterson, NJ, and Masco Sports, Union, NJ. From 1987 through 1989
Ms. Jardine was independent computer consultant specializing in inventory
control. Prior to 1987, she served as Controller for Polo/Ralph Lauren,
Colorado.
Walter Kaplinsky, a US citizen, has been with the Company since 1990.
In 1993, Mr. Kaplinsky became Secretary and a member of the board of
directors. 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 member of the board of
directors and is an independent member of the Baltia Board Audit Committee.
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.
Thomas McDermott, a U.S. citizen, is the underwriter's designee to the
board of directors and will be an independent on the Baltia Board Audit
Committee. He brings undergraduate degrees in political science, physics, and
electrical engineering; masters degrees in science and engineering; and is
presently in a doctorate degree program at New York University in management
and finance. Mr. McDermott has worked 27 years in the securities industry,
five of which he worked for the New York Stock Market.
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.
Mr. Lawrence M. Hecker, a US citizen, serves as Director of Flight
Operations. Mr. Hecker has spent more than 40 years in aviation, including
airline, military, general aviation and government service. He has served as
President and CEO of a young company at the forefront of space
commercialization and as Chief Operating Officer of an air ambulance carrier,
was recalled to TWA as Senior Vice President of Flight Operations to help the
company emerge from bankruptcy and was nominated Deputy Administrator of the
Federal Aviation Administration by President Reagan where he served until
change of Administrators.
Mr. Robert S. Volpe, a US citizen, serves as Director of Technical
Operations. Prior to joining the Company Mr. Volpe was Aircraft Maintenance
Planner for Tower Air's Boeing 747 aircraft. Previously and since 1981, Mr.
Volpe has worked as Director and Inspector of airline maintenance and as
Consultant for the CIT Group/Capital Equipment Financing where he provided
technical services for more than 300 of their aircraft including Boeing 747,
737, 727 and McDonnel Douglas DC-9 and MD-80. Mr. Volpe received his
Associates Degree in Airframe and Powerplant Technology from the College of
Aeronautics, LaGuardia Airport, Queens, New York in 1981 and has maintained his
FAA Airframe and Powerplant Certificates.
Russell Lee Davis, Jr., a US citizen, serves as Director of Technical
Quality Assurance. Prior to joining the Company and continuously since 1981,
Mr. Davis has served as Director, Manager, Superintendent, Controller,
Planner, and Inspector Designee with several U.S. airlines where he developed
maintenance manual systems, maintenance programs, technical library and
planning sections, and maintenance department auditing programs primarily for
Boeing and McDonnel Douglas aircraft. Earlier Mr. Davis worked as lead
mechanic, and served in the U.S. Air Force. Mr, Davis received his Bachelor of
Science in Professional Aeronautics in 1994 from Embry-Riddle Aeronautical
University and is presently working on his MA in Airline Management at that
University.
Joe Pampalone, a US citizen, serves as Emergency Coordinator and Director of
Dispatch. Mr. Pampalone is a licensed dispatcher and has worked in flight and
dispatch operations since 1981, including four years at the LaGuardia and JFK
airports with The Pan Am Shuttle, New York Air and Alitalia Airlines. In 1981,
Mr. Pampalone received an AAS Aerospace Technology from The State University of
New York and his FAA Flight Dispatcher's Certification from Airline Operations
Training.
Mr. Hans G. Wolf, a US citizen, serves as Director of Cargo Handling.
Mr. Wolf, with technical and management skills acquired during 23 years of
service with Trans World Airlines (TWA), specializes in air cargo marketing,
sales, and service. At TWA, Mr. Wolf served as V.P.- Cargo Sales and
Marketing, Director - Cargo Pricing, and Manager - International Cargo Pricing.
After leaving TWA, Mr. Wolf served as Vice President of Air Cargo, Inc. He
received his MBA Equivalent at Diesterweg University, Germany.
Mr. Edward Miceli, a US citizen, serves as Manager of Cabin Safety. He has
worked as inflight supervisor and manager on Boeing 747, 737 and 727 equipment
since 1994.
Victoria Charlton, 54 years of age, a citizen of UK, is Chief of
Marketing. 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 Glen Johnmeyer, 40 years of age, a US citizen, serves as
the Company's Chief Pilot during completion of the Company's certification.
Presently, he maintains his professional qualifications with United Parcel
Service. Mr. Johnmeyer has more than 10,000 hours as pilot in command of jets
which includes more than 1,350 hours as pilot in command of the B-747
aircraft. Between 1968 and 1972, Mr. Johnmeyer was an Honor Graduate of the
Fixed Wing Aviator Course, Aircraft Commander, Instructor Pilot, and Standards
Pilot for the U.S. Army. Since then he has been employed as Captain, First
Officer, Instructor, and Director of Operations in U.S. commercial aviation.
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 dated July 7, 1996, the President's and Vice Presidents'
salaries will be reduced to an amount equal to 50% of budgeted salary during
the period prior to commencing revenue service. 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 prior to commencing 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>
<CAPTION>
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 1,100,000 Shares and the exercise of 1,100,000 Warrants <FN1>.
Common Shares
Beneficially Percent of Percent of
Owned After Total Before Total After
the Offering Offering Offering<FN1>
<S> <C> <C> <C>
DIRECTORS AND OFFICERS
Igor Dmitrowsky 1,517,100 62.1% 42.8%
63-26 Saunders St., Suite 7I
Rego Park, NY 11374
Walter Kaplinsky 73,250 3.0% 2.1%
2000 Quentin Rd.
Brooklyn, NY 11229
Brian Glynn 50,000 2.0% 1.4%
148 Claremont Rd.
Bernardsville, NJ 07924
Andris Rukmanis 25,500 1.0% 0.7%
Kundzinsala, 8 Linija 9.
Riga, Latvia LV-1005
Anita Schiff-Spielman 2,250 0.10% 0.1%
1149 Kensington Rd.
Teaneck, NJ 07666
COUNSEL
Steffanie J. Lewis 190,000 7.80% 5.4%
3511 North 13th St.
Arlington, VA 22201
All directors, officers, 1,858,050 76.00% 52.5%
and counsel (Six people)
<FN>
<FN1>
(1) Does not reflect the exercise of Warrants, Bridge Warrants,
Over-Allotment Warrants or Underwriters' 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 Underwriters' designee, at the Underwriters' 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.
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
150,000 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 the Company's renting office space from its president,
no other transaction exists between officers and the Company or affiliates
of either, and there are no incentive plans or options for delayed
compensation. All future material affiliated transactions and loans will
be made or entered into on terms that are no less favorable to the issuer
than those that can be obtained from unaffiliated third parties. All future
material affiliated transactions and loans, and any forgiveness of loans,
must be approved by a majority of the issuer's independent directors who do
not have an interest in the transactions and who had access, at the issuer's
expense, to issuer's or independent legal counsel.
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
2,442,500 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 therefore 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 enable one vote per share, and have equal 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 1,100,000 Warrants. Each
Warrant entitles the holder to purchase one share of Common Stock at $6.05
commencing six months after the Effective Date until the fifth anniversary
of the Effective Date of this Prospectus. The Company may redeem
outstanding Warrants, once they become exercisable at a price of $.10 per
Warrant on not less than 30 days written notice, provided the closing bid
quotations of the Shares have exceeded $10 for 20 consecutive trading days
ending on the third day prior to the date on which notice is given. Baltia
intends to redeem the Warrants at the earliest opportunity. Warrants may
not be exercised following redemption. Therefore, the IPO 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 $6.05 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 US 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.
UNDERWRITERS' WARRANTS
At the Closing of this Offering the Company will sell to the
Underwriters, for a total purchase price of $100.00, Warrants entitling the
Underwriters to purchase up to 110,000 shares of Common Stock at $6.05 per
Share (110% of initial public offering price) and 110,000 Warrants at $.11
per Warrant (110% of initial public offering price). Warrants underlying
the Underwriters' Warrants differ from the Warrants offered to the public
hereunder to the extent that the underlying Warrants are non-redeemable by
the Company, and are exercised at 130% of the price offered to the public.
The exercise prices of the Underwriters' Warrants and underlying Warrants
are subject to anti-dilution adjustment under certain conditions. The
Underwriters' 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
Underwriters, members of the underwriting group and their respective
officers or partners. The Securities issuable upon the exercise of the
Underwriters' 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
2,320,375 shares, have entered into a 24-month lock up written agreement
with the Underwriters preventing the sale of insider held common stock for
two years without written permission from the Underwriters. Whether to
grant permission lies within the Underwriters' discretion. At Closing there
will be 3,542,500 shares of Common Stock, Over-Allotment can contribute up
to 165,000 additional Shares and 165,000 additional Warrants (equivalent to
165,000 Shares if fully exercised). Common Stock and Warrants purchased in
the Offering will be immediately detachable and separately tradable.
Warrants are exercisable commencing six months after the Effective Date of
the Public Offering until five years after the Effective Date of the
Offering (unless Warrants are redeemed sooner by Company). If all Warrants
are exercised, up to an additional 1,100,000 Shares of Common Stock will be
freely tradable. The Company has issued Warrants to the Underwriters to
purchase up to 110,000 Shares and up to 110,000 Warrants totaling 220,000
Shares assuming full exercise of all Warrants.
In February 1992, the Company issued an option to purchase 52,399 shares
of Common Stock, at $66.67 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. To date, no options have been exercised.
In February 1998 the Company issued 250,000 warrants ("Class B Bridge
Warrants") in connection with a Bridge Loan for $250,000. These warrants
are exercisable during the four-year period commencing one year form the
Effective Date. Otherwise, these warrants are immediately tradeable
and identical to Warrants offered to the public in the Offering. The holder
of the Class B Bridge Warrants is being registered as a Selling
Securityholder simultaneously with the Offering.
In June 1998 the Company issued 575,000 warrants ("Class A Bridge
Warrants") in connection with a series of Bridge Loans in the aggregate
amount of $575,000. These warrants are immediately tradeable and the same
as the Warrants offered to the public in the Offering. The holders of the
Class A Bridge Warrants are being registered as a Selling Securityholder
simultaneously with the Offering. (See "Notes to Financial Statements")
Following the two-year lock up, 2,442,500 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
Underwriters have 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 110,000 shares of
Common Stock underlying the Underwriter's Warrants (assuming full exercise
of underlying Warrants). The Securities underlying the Underwriter's
Warrants 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 Hornblower & Weeks, Inc. and
Madison Capital Markets Corp are acting as co-managing underwriters, acting
severally and not jointly, have agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company a total of
1,100,000 shares of Common Stock and 1,100,000 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
Hornblower & Weeks, Inc. . . . . . . . .
Madison Capital Markets Corp . . . . . .
_______________________________________
Total . . . . . . . . . . . . . 1,100,000 1,100,000
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 Underwriters have 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
Underwriters. The Underwriters do not intend to sell securities from this
Offering to accounts for which they exercise discretionary authority.
The Company has agreed to pay underwriting discounts and commissions in
the aggregate of 10% of the IPO 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 Underwriters 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
Underwriters. To date, the Company has advanced the Underwriters $50,000
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 Underwriters
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 165,000 additional shares of Common Stock and 165,000
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
Underwriters (or designees), for a total purchase price of $100, the
Underwriters' Warrants to purchase up to an aggregate 110,000 shares of
Common Stock and/or 110,000 Warrants ("Underwriters' Warrants"). The
Underwriters' Warrants are exercisable at a price equal to 130% 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 Underwriters' Warrants are identical to
those offered hereby, except for the exercise price and non-redeemability.
The Underwriters' Warrants cannot be transferred, sold, assigned or
hypothecated during the one-year period following the date of this
Prospectus, except to officers of the Underwriters and to selected dealers and
their officers and partners. The number of Shares and underlying Warrants
covered by the Underwriters' 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 165,000 additional Shares and 165,000
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 Underwriters 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 Common
Stock and Warrants. The IPO price for the Securities and the exercise price
of the Warrants have been determined by negotiations between the Company and
the Underwriters. 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
Underwriters' prior written consent for a period of 24 months from the
Prospectus date. Whether to grant permission lies within the discretion of
the Underwriters. 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 Underwriters.
SUBSCRIBER'S FLIGHT COUPON
As a means of introducing its non-stop JFK - St. Petersburg service to
IPO shareholders, the Company will issue Subscriber's Flight Coupons. For
each 1,500 Shares purchased, the subscriber receives one Subscriber's 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 the
Company'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. Subscriber's
Flight Coupons expire December 31, 1998. The Subscriber's 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 190,000 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. Spinelli & Associates, 120 Wall Street, 28th Floor, New
York, NY 10005 has acted as legal counsel to the Underwriters in this
Offering.
EXPERTS
The financial statements of the Company appearing in this Prospectus
and Registration Statement at December 31, 1997 and for two years ending
December 1996, have been audited by J.R.Lupo, P.A. CPA, Verona, NJ, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm 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>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
BALTIA AIR LINES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Contents Page
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets - December 31, 1997 and
(Unaudited) June 30, 1998 F-3
Statement of Operations - Years ended
December 31, 1997 and 1996 and (Unaudited)
the six months ended June 30, 1998 and
1997 and August 24, 1989 (Inception) through
June 30, 1998 F-4
Statement of Cash Flows - Years ended
December 31, 1997 and 1996 and (Unaudited)
the six months ended June 30, 1998 and
1997 and August 24, 1989 (Inception) through
June 30, 1998 F-5 - F-6
Statement of Changes in Stockholders'
Deficit - Years ended December 31, 1997
and 1996 and (Unaudited) the six months
ended June 30, 1998 and the balance at
December 31, 1992 and (not covered by
Auditors' Report) the years ended
December 31, 1993, 1994 and 1995 F-7 - F-8
Notes to the Financial Statements F-9 - F-22
F-1
<PAGE>
Independent Auditors' Report
To the Shareholders of and the Board of Directors of
Baltia Air Lines, Inc.
We have audited the balance sheet of Baltia Air Lines, Inc. (A Development
Stage Company) as of December 31, 1997 and the related statements of
operations, cash flows, and changes in stockholders' deficit for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit also includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baltia Air Lines, Inc. as of
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has not generated any revenues and has incurred losses in excess of
$7,000,000 since its inception. In addition, the Company has a capital deficit
and substanial excess of current liabilities over current assets. These
factors, and the others discussed in Note 1 (C), raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
respect to these matters are referenced in Note 1 (C). The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.
J.R. Lupo, P.A. CPA
Verona, NJ
June 4, 1998
(August 17, 1998 as to Notes 2, 7 and 10)
F-2
<PAGE>
<TABLE>
<CAPTION>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
Assets
Current Assets:
Cash $ 203,141 $ 3,135
Property & Equipment (net) 81,791 0
Other Assets:
Deferred financing costs 450,000 0
Deferred offering costs 50,000 0
Total other assets 500,000 0
Total Assets $ 784,932 $ 3,135
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 544,654 $ 571,154
Accounts payable to
stockholders 38,318 65,318
Accrued interest 8,698 0
Notes payable 800,000 0
Notes payable to stock
holders 148,655 303,572
Total current liabilities 1,540,325 940,044
Commitments and contingencies
Stockholders' deficit:
Preferred stock no par value;
15,000 shares authorized, 0
shares issued and outstanding
at June 30, 1998 and
December 31, 1997, respectively 0 0
Common stock $.0001 par
value; 100,000,000 shares
authorized, 2,442,500 shares
issued and outstanding at
June 30, 1998 and December 31,
1997, respectively 245 245
Additional paid in capital 6,857,425 5,846,442
Prepaid media costs ( 396,090) ( 396,090)
Deficit accumulated during
development stage (7,216,973) (6,387,506)
Total stockholders'
deficit ( 755,393) ( 936,909)
Total liabilities and
stockholders' deficit $ 784,932 $ 3,135
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Six Months Ended August 24, 1989
June 30, Years Ended (Inception) to
1998 1997 December 31, June 30, 1998
(Unaudited) 1997 1996 (Unaudited)
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Expenses
General and
Administrative 179,313 42,646 84,512 92,749 2,406,196
Professional
fees 54,000 1,000 58,625 77,817 2,038,945
FAA Certification
costs 187,456 0 0 0 187,456
Service
contributions 0 0 0 0 1,352,516
Training Expense 0 0 0 0 225,637
Abandoned fixed
assets 0 0 0 0 205,162
Total expenses 420,769 43,646 143,137 170,566 6,415,912
Interest expense 408,698 0 0 68,120 801,061
Net loss $(829,467) $(43,646) $(143,137) $(238,686) $(7,216,973)
Net loss per
common share
basic and
diluted $(0.34) (0.02) $(0.06) $(0.11) $(2.95)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Six Months Ended August 24, 1989
June 30, Years Ended (Inception) to
1998 1997 December 31, June 30, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss $( 829,467) $(43,646) $(143,137) $(238,686) $(7,216,973)
Adjustment to
reconcile net
loss to net cash
provided by
operations:
Depreciation 3,177 0 0 0 222,587
Amortization of
deferred financing
costs 400,000 0 0 0 400,000
Stock issued for
interest 0 0 0 0 63,500
Contributed services 0 0 0 0 1,352,516
(Increase) in deferred
offering costs ( 50,000) 0 0 0 ( 50,000)
Increase(Decrease) in
accounts payable( 26,500) 1,000 17,749 24,407 2,349,098
Increase in
accrued interest 8,698 0 0 0 8,698
Net cash
(used) for
operating
activities ( 494,092) (42,646) (125,388) (214,279) (2,870,574)
Cash flows from invest
ing activities:
Purchase of
equipment ( 84,968) 0 0 0 ( 304,378)
Net cash (used)
for investing
activities ( 84,968) ( 0) ( 0) 0 ( 304,378)
Cash flows from
financing activities:
Proceeds from
shareholder
loans (net) ( 20,934) 48,459 128,183 207,706 1,330,639
Proceeds from
notes payable 800,000 0 0 0 800,000
Proceeds from
issuance of
common stock 0 0 0 0 1,133,214
Increase paid in
capital 0 0 0 0 614,240
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Six Months Ended August 24, 1989
June 30, Years Ended (Inception) to
1998 1997 December 31, June 30, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Purchase and
retirement
of treasury
stock $ 0 $ 0 $ 0 $ 0 $( 500,000)
Net cash
provided from
financing
activities 779,066 48,459 128,183 207,706 3,378,093
Net increase (decrease)
in cash 200,006 5,813 2,795 ( 6,573) 203,141
Cash at beginning
of period 3,135 340 340 6,913 0
Cash at end
of period $ 203,141 $ 6,153 $ 3,135 $ 340 $ 203,141
Supplemental Cash
Flow Information
Cash paid for
interest $ 0 $ 0 $ 0 $ 0 $ 0
Cash paid for
income taxes $ 388 $ 0 $ 776 $ 52 $ 3,445
Non Cash Items:
Acquisition of prepaid
media costs $ $ 396,090 $ 396,090 $ 0 $ 396,090
Deferred financing
costs $ 850,000 $ 0 $ 0 $ 0 $ 850,000
Conversion
of liabilities $ 160,983 $3,130,437 $3,130,437 $ 0 $ 3,291,420
Reclassification of
redeemable
common stock $ 0 $ 0 $ 0 $ 0 $( 400,000)
Surrender of rights
to redeem common
stock $ $ 400,000 $ 400,000 $ 0 $ 400,000
Contributed
services $ $ 270,928 $ 270,928 $ 0 $ 1,081,588
Stock issued
for interest $ 0 $ 0 $ 0 $ 0 $ 63,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
August 24,
1989
(Inception)
through
December 31,
1992
(Unaudited) 558,200 $ 56 $ 978,484 $(4,190,584)$ 0 $(3,212,044)
1993 *<FN1>;
Issuance
of Common
Stock 1,368,675 137 42,199 0 0 42,336
Net Loss 0 0 0 ( 266,889) 0 ( 266,889)
1994 *;
Issuance
of Common
Stock 95,050 10 $ 1,892 0 0 1,902
Contributed
Capital 0 0 457,250 0 0 457,250
Net Loss 0 0 0 ( 638,160) 0 ( 638,160)
1995 *;
Issuance
of Common
Stock 140,575 14 107,834 0 0 107,848
Issuance
of Common
Stock as
non refund
able prepaid
interest 12,500 1 63,499 0 0 63,500
Reclassification
of redeemable
Common Stock 0 0 ( 400,000) 0 0 ( 400,000)
<FN>
<FN1>* Not covered by accompanying Auditors' Report.
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
Contributed
Capital 0 $ 0 $ 397,856 $ 0 $ 0 $ 397,856
Net Loss 0 0 ( 910,050)$ 0 ( 910,050)
Balance at
December
31, 1995 2,175,000 $218 $ 1,649,014 $(6,005,683)$ 0 $(4,356,451)
Net Loss 0 $ 0 $ 0 $( 238,686)$ 0 $( 238,686)
Balance at
December
31, 1996 2,175,000 $218 $ 1,649,014 $(6,244,369)$ 0 $(4,595,137)
Net Loss 0 $ 0 $ 0 $( 143,137)$ 0 $( 143,137)
Acquisition of
prepaid
media costs 32,500 3 396,087 0 (396,090) 0
Conversion of
liabilities 235,000 24 3,130,413 0 0 3,130,437
Contributed
capital 0 0 270,928 0 0 270,928
Surrender of
rights to
redeem common
Stock 0 0 400,000 0 0 400,000
Balance at
December 31,
1997 2,442,500 $245 $ 5,846,442 $(6,387,506)$(396,090) $( 936,909)
(Unaudited)
Net Loss 0 $ 0 $ 0 $( 829,467)$ 0 $( 829,467)
Deferred
financing
costs 0 0 850,000 0 0 850,000
Conversion of
liabilities 0 0 160,983 0 0 160,983
Balance at June
30, 1998 2,442,500 $245 $ 6,857,425 $(7,216,973)$(396,090) $( 755,393)
</TABLE>
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 losses during the
development stage since its inception and has an accumulated deficit at
June 30, 1998 and December 31, 1997 of $7,216,973 (unaudited) and
$6,387,506, respectively.
The Company's ability to continue as a going concern is dependent on its
ability to raise sufficient capital and/or obtain sufficient financing, to
be used for the commencement of operations and the satisfaction of current
obligations and ultimately to achieve profitable operations.
If the Company is unable to raise sufficient capital and/or obtain
sufficient financing, such as described in Note 9 (D), Proposed Public
Offering, it is doubtful that it will be able to commence scheduled air
line service. Management believes that if it is able to commence
operations it will be able to generate operating revenues, which in its
judgement, shall be adequate to fund all current expenses and retire
currently outstanding debt.
As of August 17, 1998 the Company has not yet commenced its scheduled air
line service.
2. ACCOUNTING POLICIES
(A) Cash and Equivalents
The Company considers cash and cash equivalents to be all short term
investments which have an initial maturity of three months or less.
(B) Prepaid Media Costs
On June 23, 1997 the Company entered into an agreement with Kent Trading,
Inc., a media placement company whereby, the Company exchanged 32,500
common
F-9
<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 Agreement
if the closing of the proposed Public Offering does not take place. The
Company has recorded prepaid media costs as a reduction to equity, in a
manner similar to accounting for a stock subscription receivable. At such
time the Company utilizes the media placements, the Company will charge
off the related costs to expense.
The Company retains the right to resell the media placements to third
parties, although it has no current plans to do so. Although as current
market rates for media placements are stable, if rates were to decline the
Company could realize a loss on resale. To the extent that the carrying
amount is determined not to be realizable, it will be charged off to
expense.
(C) Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated
over the lesser of the term of the related lease or the estimated lives of
the assets. Depreciation is computed on the straight line method for
financial reporting purposes and modified accelerated recovery method for
tax purposes.
(D) Start up Activities
On July 5, 1990, the Company filed an application for a Certificate of
Authority to engage in foreign scheduled air transportation between New
York and St. Petersburg, Russia.
On March 28, 1991, the U.S. Department of Transportation granted to the
Company an exclusive Route Authority to fly between New York and Russia.
The Order found the company to be fit, willing and able to conduct
scheduled passenger service. However, the Order stipulated that if
scheduled passenger service did not commence within one year from the date
of the Fitness determination, March 28, 1991, the Route Authority would be
revoked.
On September 20, 1991, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through April 1, 1992.
On April 14, 1992, the U.S. Department of Transportation granted a further
extension of time to commence operations, through August 31, 1992.
On April 8, 1993, the Company again requested an extension of time to
commence operations however, the U.S. Department of Transportation denied
the request.
On August 14, 1995, the Company re filed its application with the U.S.
Department of Transportation for the Certificate of Route Authority.
On January 22, 1996, the U.S. Department of Transportation issued an Order
of Show Cause, whereby, they tentatively concluded that the Company is fit,
F-10
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(D) Start up Activities (Continued)
willing and able to provide scheduled air transportation between New York
and Russia and, should be issued a Certificate of Public Convenience and
Necessity authorizing such operations.
On February 26, 1996, the U.S. Department of Transportation issued a Final
Order thereby, authorizing the Company to engage in foreign scheduled air
transportation between New York and St. Petersburg, Russia.
On February 6, 1997, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through August 7,
1997.
On September 10, 1997, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through February 7,
1998.
On February 11, 1998, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through August 7,
1998.
On August 7, 1998, the Company filed an extension request, thereby tolling
the Statute for the commencement of operations with the U.S. Department of
Transportation. The U.S. Department of Transportation has advised that
they will act on the request upon closing of the Public Offering.
Obtaining Federal Aviation Administration air carrier certification and
meeting Department of Transportation financial requirements are
prerequisites to the Company's commencement of revenue service.
Costs associated with the development and approval of the authorized
route, such as legal and consulting fees, have been written off in the
period in which the expense was incurred.
(E) Income Taxes
Deferred income taxes arise from temporary differences between the
recording of assets and/or liabilities reported for financial accounting
and tax purposes in different periods. Deferred taxes are classified as
current or non current, depending on the classification of the assets and
liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non current depending on the periods in which the temporary
differences are expected to reverse. To the extent the total of deferred
tax assets are not realized, a reserve is established.
(F) Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
F-11
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(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) Deferred Offering Costs
Deferred offering costs in connection with the proposed initial public
offering shall be offset against the proceeds from the offering. In the
event the offering does not occur, deferred offering costs shall be charged
to expense. (See Note 10)
3. PROPERTY and EQUIPMENT
Property and equipment at June 30, 1998 (Unaudited) consisted of the
following;
Office equipment $ 42,730
Furniture & Fixtures 5,797
Automobiles 36,441
Total 84,968
Less, accumulated depreciation ( 3,177)
Total Property and Equipment $ 81,791
Depreciation expense charged to operations for the (Unaudited) six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997 and 1996
was $3,177, $0, $0 and $0, respectively.
The useful lives of property and equipment for purposes of computing
depreciation are;
Office equipment & Furniture 5 - 7 years
Automobiles 5 years
4. DEFERRED FINANCING COSTS
(A) Bridge Loan
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan (see
Note 7) and in consideration issued two hundred fifty thousand (250,000)
Warrants, to be designated as "Class B Bridge Warrants". The Company has
estimated the fair value of the Warrants to be $250,000 as based on the
Black Scholes model of option pricing. The Company shall amortize deferred
financing costs based on the Interest Method, over a period of five (5)
months beginning March 1, 1998 and ending July 31, 1998, the estimated
period the loan will be outstanding.
For the six months ended June 30, 1998 (Unaudited) the Company charged
$200,000 to interest expense.
(B) Additional Bridge Loan
In June and July 1998, the Company borrowed $550,000,and $25,000,
respectively, in "additional" Bridge Loans (see Note 7) and in
consideration issued five hundred fifty thousand (550,000) and twenty five
thousand (25,000) Warrants, respectively, to be designated as "Class A
Bridge
F-12
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. DEFERRED FINANCING COSTS (Continued)
(B) Additional Bridge Loan (Continued)
Warrants". The Company estimates the fair value of the Warrants to be
$600,000 as based on the Black Scholes model of option pricing. The
Company shall amortize
deferred financing costs based on the Interest Method, over a period of
three (3)
months beginning June 1998 and ending August 1998, the estimated period the
loan
will be outstanding.
For the six months ended June 30, 1998 (Unaudited) the Company charged
$200,000 to interest expense.
5. RELATED PARTY TRANSACTIONS
The Company's legal counsel, Steffanie Lewis, of the International
Business Law Firm, P.C. owns 190,000 shares of common stock at December 31,
1997 or approximately 7.78% of the Company's issued and outstanding common
stock. Ms. Lewis was issued 150,000 common shares in June 1997 in exchange
for legal work per formed in connection with various certifications,
authorities and financial matters. She was previously issued 40,000 of
common shares in exchange for the first six months preparation of the 1990
application to the Department of Transportation for Air Line Fitness
Certification.
For the period beginning January 1990 through December 31, 1997 the total
legal costs incurred in the amount of $1,760,062 were for legal work
performed by Steffanie Lewis for the Company in connection with various
certifications, authorities and financial matters.
Total legal costs, including those for Steffanie Lewis incurred and
charged to professional fees for the (Unaudited) six months ended June 30,
1998 and 1997 and the years ended December 31, 1997 and 1996 total $31,500,
$0, $4,875, $2,100, respectively.
At June 30, 1998 and December 31, 1997 the account payable to this
shareholder totals $0 and $0, respectively.
On June 30, 1997, Steffanie Lewis was issued 150,000 common shares, as
negotiated with the management of the Company, in exchange for the total
due to her, in the amount of $1,628,432.
Legal costs associated with the proposed Public Offering, as described in
Note 9 (D) totaling $150,000 have not been accrued and are only payable in
the event of a successful offering and shall be charged against the
Offering proceeds.
Additionally, other current accounts payable to shareholders at June 30,
1998, (unaudited) and December 31, 1997, total $38,318 and $65,318,
respectively.
On June 23, 1997, Airline Economics International, Inc., a shareholder,
was issued 10,000 common shares, as negotiated with the management of the
Company, in exchange for the total due them, in the amount of $110,695.
See Note 6 relating to Other Liabilities to shareholders.
On June 23, 1997, Igor Dmitrowsky, President of the Company and a
shareholder, relinquished the amount due to him totaling $22,142.
Accordingly, the Company
F-13
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (Continued)
has recorded Contributed Capital in the amount of $22,142.
On March 30, 1998, various shareholders including Igor Dmitrowsky,
President of the Company relinquished the amounts due to them totaling
$160,983. Accordingly, the Company recorded Contributed Capital in the
amount of $160,983.
6. NOTES PAYABLE STOCKHOLDERS
In 1992 the Company issued Promissory Notes to certain shareholders in
exchange for $1,048,000. The Notes were due on demand and all interest was
payable upon principal repayment, at an annual rate of six and one half
percent (6 1/2%), from the date of issuance to the date of repayment.
On June 24, 1997 certain shareholders were issued 75,000 common shares, as
negotiated with the management of the Company, in exchange for the total
due them, in the amount of $1,369,168, inclusive of principal of $1,048,000
and accrued interest of $321,168.
Interest expense related to the above incurred for the (Unaudited) six
months ended June 30, 1998 and 1997 and the years ended December 31, 1997
and 1996, totaled $0, $0, $0 and $68,120, respectively.
At June 30, 1998 (Unaudited) and December 31, 1997, interest expense
related to the above incurred since inception totals $321,168 and $321,168,
respectively.
In 1997 and 1996 the Company borrowed net $128,183 and $207,706,
respectively, from certain shareholders. The net borrowings are non -
interest bearing and are due on demand.
In 1995 the Company issued a short term Promissory Note to a certain
shareholder in exchange for $50,000. The Company issued to this
shareholder, 12,500 shares of common stock as a non refundable prepayment
of interest from the date of the loan through repayment of the loan.
For the year ended December 31, 1995, the Company charged $63,500 to
interest expense for the shares issued in connection with the non -
refundable interest prepayment, based on an average price per share of
$5.08.
7. NOTES PAYABLE
(A) Bridge Loan
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan, from
Hobbs Melville & Co., Inc. The Note is due and payable in full on the date
of and at the time of, the closing of the proposed public offering of
securities, at an annual rate of interest of ten (10) percent per annum.
For and in consideration of the Bridge Loan, the Company has issued to
Hobbs Melville & Co., Inc. two hundred fifty thousand (250,000) Warrants,
to be designated as "Class B Bridge Warrants", each entitling them to
purchase one share of Common Stock for $6.05 during the four (4) year
period commencing one year from the date of the closing of the proposed
public offering. The Company may redeem outstanding Warrants, once they
become exercisable, at a price of $.10 per warrant on a less than thirty
(30) day
F-14
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. NOTE PAYABLE (Continued)
(A) Bridge Loan (Continued)
prior notice, provided the closing bid quotations of the common shares
shall have exceeded $10 for ten (10) consecutive trading days ending on the
third day prior to the date on which notice is given. (See Note 4)
In the event the Company fails to secure, maintain full force and effect,
any required license, permission, franchise, consent, approval, contract,
lease agreement, or other material requirement to operate its proposed
airline passenger service and/or fails to close the proposed public
offering on or before June 30, 1998, the Note shall become immediately due
and payable.
In August 1998, Hobbs Melville & Co., Inc. waived the due date of June 30,
1998 and agreed to extend the term of the Note for repayment until closing
of the proposed public offering.
(B) Additional Bridge Loan
In June and July 1998, the Company borrowed five hundred fifty thousand
dollars ($550,000) and twenty five thousand dollars ($25,000), respectively
in "additional" Bridge Loans, from various private investors. The Notes
shall be due on the earlier of ninety (90) days from the date of the Note
or the first break of escrow on the Company's proposed public offering of
securities, at an annual rate of interest of ten (10) percent per annum.
For and in consideration of the "additional" Bridge Loans, the Company has
issued to the private investors five hundred fifty thousand (550,000) and
twenty five thousand (25,000) Warrants, respectively, designated as "Class
A Bridge Warrants", each entitling them to purchase one share of Common
Stock for $6.05 during a five (5) year period commencing six (6) months
from the date of the closing of the proposed public offering. The Company
may redeem outstanding warrants, once they become exercisable, at a price
of $.10 per warrant on a less than thirty (30) day prior notice, provided
the closing bid quotations of the common shares shall have exceed $10 for
ten (10) consecutive trading days ending on the third day prior to the
date on which notice is given. (See Note 4)
In the event the Company fails to timely make any payments on the
"additional" Bridge Loan, defaults, ceases to carry on business on a
regular basis, enters into an agreement to sell substantially all of its
assets, merges or consolidates with or is acquired by any other business,
makes an assignment for the benefit of creditors, makes any election to
wind up, or dissolves, the "additional" Bridge Loan shall become
immediately due and payable.
In the event the Company fails to make any amount payable under the
"additional" Bridge Loan before the Due Date, then such amount will bear
interest from and after the Due Date until paid at an annual rate of
interest equal to or greater of fifteen (15) percent, the advance rate to
member banks as established by the Federal Reserve Bank of New York plus
five (5) percent or the maximum rate permitted by law. In addition the
Company shall pay a late payment processing fee in an amount each month
equal to six (6) percent of the amount due. In addition, the Company will
also pay the lender each month that the note is in default a penalty of
five thousand (5,000) shares of the Company's common stock.
F-15
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
At December 31, 1997, the Company has a net operating loss carryforward of
$5,072,844, which is available to offset future taxable income. The carry
forwards expire between the year 2006 and 2013. The Company is still
liable for certain minimum state and city taxes.
As of December 31, 1997, a net deferred tax benefit has not been reflected
to record temporary differences between the amount of assets and
liabilities recorded for financial reporting and income tax purposes due to
the establishment of a 100% valuation allowance relating to the uncertainty
of recover ability.
9. STOCKHOLDERS' DEFICIT
(A) Stock Options (Continued)
In 1992, the Company granted options to purchase 52,300 shares of common
stock, at $66.67 per share, to certain private investors. These options
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, 1998, no options have
been exercised.
(B) Retirement of Stock
On November 4, 1992, the Company issued 12,500 shares of stock for
$500,000 to a private investor. On November 24, 1992, these shares were
repurchased for the same amount from the investor and subsequently retired.
(C) Reverse Stock Split
On August 24, 1995, the Board of Directors authorized and the majority of
the current shareholders ratified a ten for one reverse stock split of the
Company's $.0001 par value common stock.
On December 30, 1997, the Board of Directors authorized and the majority
of the current shareholders ratified a two for one reverse stock split of
the Company's $.0001 par value common stock.
All references in the accompanying financial statements to the number of
common shares and per share amounts have been restated to reflect the
reverse stock splits.
(D) Proposed Public Offering
In 1996 the Company had engaged an underwriter to underwrite the Company's
Initial Public Offering on a best efforts basis. The Offering did not
raise
the required minimum of $6,000,000 and was withdrawn. Subsequently, the
Company received an offer from Hornblower & Weeks, Inc. to underwrite the
Company's proposed Public Offering on a firm commitment basis.
In June 1998, the Company entered into an agreement with Hornblower &
Weeks, Inc. to act as the Managing Underwriter and Madison Capital Markets
Corp. as the Co Manager Underwriter, in connection with a proposed firm
F-16
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' DEFICIT (Continued)
(D) Proposed Public Offering (Continued)
commitment Public Offering of securities and plans to file an amended
registration statement with the Securities Exchange Commission, as is
described in Note 10 (A) (2).
The Company intends to offer for sale 1,100,000 shares of common stock of
$.0001 par value, at a price of $5.50 per share and 1,100,000 Redeemable
Common Stock Purchase Warrants at $.10 per Warrant. Each Warrant entitles
the holder to purchase one Share for $6.05 during the five (5)year period
commencing six months from the date of the proposed Public Offering.
The Agreement with the Underwriter sets forth that on the Effective Date,
before giving effect to all shares of Common Stock and Warrants to be sold
in the proposed public offering, the Common Stock issued and outstanding
shall not exceed 2,442,500 common shares.
(E) Stock Buy Back Requirements
As of December 31, 1997 the Company was required to buy back 25,000 shares
at $16 per share, from certain current investors, if in the event said
investor wanted to sell his/her common stock within the two (2) year Lock -
up period and was denied such a waiver by the Underwriter.
On June 23, 1997 all current investors with redemption options referred to
above surrendered their redemption options. Accordingly, the Company
recorded Additional Paid in Capital in the amount of $400,000.
(F) Contributed Capital
The Company has recorded service contributions from certain key officers
who have worked for and on behalf of the Company. The service contribution
amounts have been calculated based on a normal rate of compensation, on
either a full or part time basis, as based on the number of hours worked by
each individual.
The Company maintains no obligation, present or future, to pay or repay
for any and all service contributions received. Accordingly, the Company
has not recorded a liability for, accrued for, and/or accounted for any
monetary reserves in connection with the service contributions.
On June 23, 1997, certain of the Company's management relinquished the
amount due them for back pay totaling $270,928. Accordingly, the Company
has recorded Contributed Capital in the amount of $270,928.
(G) Stock Issuance
The following schedule summarizes common shares issued for cash;
Year Number Range of
Issued of Shares Amounts Per Share
1989 250,000 $ 0.2000 to $ 0.2000
1990 136,300 $ 0.9766 to $ 20.0000
F-17
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' DEFICIT (Continued)
(G) Stock Issuance (Continued)
Year Number Range of
Issued of Shares Amounts Per Share
1991 32,700 $ 2.0000 to $ 20.0000
1992 139,200 $ 2.0000 to $ 20.0000
1993 1,368,675 $ 0.0040 to $ 20.0000
1994 95,050 $ 2.0000 to $ 20.0000
1995 140,575 $ 0.2000 to $ 15.7616
The following schedule summarizes common shares issued in non cash
exchanges (See Notes 2 (B), 5 and 6).;
Year Number Range of
Issued of Shares Amounts Per Share
1995 12,500 $ 5.0800 to $ 5.0800
1997 267,500 $ 10.8562 to $ 18.2556
10. COMMITMENTS AND CONTINGENCIES
(A) Commitments
(1) Lease Obligations
In October, 1995 the Company entered into a lease with Iceland Air, J.F.
Kennedy Airport, New York, to occupy space. The lease term is on a month
to month basis.
Currently, the Company is leasing space from Iceland Air for $1,200 per
month at J.F. Kennedy Airport, New York. Rent expense charged to
operations for the (Unaudited) six months ended June 30, 1998 and 1997 and
years ended December 31, 1997 and 1996 totaled $14,400, $6,000 $12,000 and
$13,200, respectively.
In January 1993, the Company leased office space from its President at
his residence. The lease term is on a month to month basis through
December 31, 1998. Rent expense charged to operations for the (Unaudited)
six months ended June 30, 1998 and 1997 and years ended December 31, 1997
and 1996 totaled $2,875, $2,287, $5,215 and $5,392, respectively.
(2) Underwriter Proposed Public Offering
In June 1998, the Company entered into an agreement with Hornblower &
Weeks, Inc. to act as the Managing Underwriter and Madison Capital Markets
Corp as the Co Managing Underwriter, in connection with a proposed Public
Offering of securities.
The Agreement sets forth the following terms and conditions;
(a) The Managing Underwriter shall receive a dealer's concession of ten
percent (10%) of the proposed Public Offering price.
F-18
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(A) Commitments (Continued)
(2) Underwriter Proposed Public Offering (Continued)
(b) The Managing Underwriter shall receive at closing of the proposed
Public Offering a non accountable expense allowance of three percent (3%)
of the total offering. In June 1998, the Underwriter received a fifty
thousand dollar ($50,000) non-refundable advance against the non -
accountable expense allowance. (See Note 2[f]).
(c) The Company shall sell to the Managing Underwriter five (5) year
warrants to purchase such number of shares of Common Stock and/or Warrants
as shall equal ten (10) percent of the number of shares of Common Stock
and Warrants (excluding the overallotment option) being underwritten for
the account of the Company at a price of the lesser of $.001 each or $100
in aggregate. The Warrants shall be exercisable at any time during a
period of four (4) years commencing at the beginning of the second year
after their issuance and sale at a price equaling 110% of the respective
initial public offering price.
(3) Line of Credit
On March 16, 1998, the Company was granted a credit line in the amount
of $6,200,000 through December 31, 1998, with a foreign bank. Monies are
available as follows;
(a) When the Company registers a subsidiary in the Republic of
Latvia, pursuant to local applicable regulations and, opens
an account with the bank.
(b) This credit facility cannot be utilized for primary funding of
capital investments.
(c) Terms of the borrowing's will be determined at the borrowing date,
upon receipt of fourteen days (14) advance written notice furnished by
the Company.
(d) The interest rate will be between ten (10) to fourteen (14) percent
per annum.
(4) Aircraft Lease
In August 1998 the Company paid one hundred thousand dollars ($100,000)
to Cathay Pacific Airways, Limited as a non refundable (except in the
event of non ratification by Cathay's Board of Directors) "Initial" Lease
Security Deposit to bind for lease one (1) Boeing 747 267 aircraft. In the
event the Company fails to finalize and execute a lease agreement with
Cathay Pacific Airways, Limited before September 25, 1998, the Binder will
expire.
Upon signing of the Lease, the Company shall pay a refundable security
F-19
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(A) Commitments (Continued)
(4) Aircraft Lease (Continued)
deposit of eight hundred fifty thousand dollars ($850,000). The
"Initial" Security Deposit shall be applied toward the Security deposit.
In the event the "Initial" Security Deposit is not returned and a formal
lease is not executed, the Company will charge off the one hundred
thousand dollars ($100,000) to expense.
The term of the lease shall be for a period of six (6) months with an
additional six (6) month option. Lease costs under the initial six (6)
month period shall be two hundred fifty thousand dollars ($250,000) per
month for an aggregate total of one million five hundred thousand dollars
($1,500,000). Lease costs under the optional six (6) month period shall be
three hundred thousand dollars ($300,000) per month for an aggregate total
of one million eight hundred thousand ($1,800,000).
Under the terms of the Lease, the Company shall be required to pay one
thousand five hundred ($1,500) per flight hour for maintenance costs.
Maintenance amounts shall be paid in arrears and accumulated in a reserve
account by Cathay Pacific Airways Limited. The Company shall be entitled
to withdraw amounts standing to the credit of the Maintenance Reserve
against presentation to Cathay Pacific Airways Limited, of receipts,
invoices or other evidence that the funds are required to pay maintenance
costs incurred in relation to the aircraft. The Maintenance Reserve, once
having reached two hundred fifty thousand dollars ($250,000) shall at no
time be permitted to fall below two hundred fifty thousand dollars
($250,000).
The Company shall be responsible to pay to Cathay Pacific Airways
Limited, certain legal fees and expenses incurred for the preparation,
negotiation and execution of the Binder and Lease Agreement.
(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 $114,00
F-20
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(B) Contingencies (Continued)
(2) Transaction Management, Inc.
On October 11, 1991, the Company was required by an arbitrator to pay
Transaction Management, Inc. 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.
(3) Subscribers' Flight Coupon Proposed Public Offering
At the closing, the Company will issue Flight Coupons to the subscribers
in its proposed Public Offering. For each 1,500 shares of common stock
purchased, the subscriber receives on Flight Coupon. One Flight Coupon
plus $650 will purchase two (2) Voyager Class round trip tickets. Two (2)
Flight Coupons plus $650 will purchase two (2) Business Class round trip
tickets. Three (3) flight Coupons plus $650 will purchase two (2) First
Class round trip tickets.
An estimate of the value of such a commitment by the Company cannot be
determined at this time. However, upon completion of the proposed Public
Offering, the Company will record deferred revenues and offset its costs
of rasing capital for all Subscribers' Flight Coupons issued.
(4) Compensation
The Board of Directors approves salaries for the Company's executive
officers as well as the Company's overall salary structure. For year one
following the closing of the proposed Public Offering, the rate of
compensation for the Company's executive officers is: (i) President
$186,000, (ii) Vice President Marketing $82,000, and (iii) Vice President
Europe $68,000. Pursuant to written agreement, during the 90 day period
commencing once the offering proceeds are released to the Company from the
escrow account, the President and the Vice Presidents will receive
compensation reduced to an amount equal to 50% of budgeted salaries. Upon
commencement of flight services 100% of respective budgeted salaries will
be paid. To this date, the Company has paid officers no salaries, nor
otherwise have compensated officers. Board Directors are not presently
compensated and shall receive no compensation prior to commencement of
revenue service.
The following table identifies executive compensation to be paid. No
executive salaries have been paid to date and reduced salaries will not
commence until proceeds are available from the proposed Public Offering
closes.
F-21
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (Continued)
(B) Contingencies (Continued)
(4) Compensation (Continued)
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-22
<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 es 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.
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 , 1998 (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.
BALTIA AIR LINES
The New Way to Europe (Nasdaq)
1,100,000 Shares of Common Stock
and
1,100,000 Redeemable Common Stock Purchase Warrants
PROSPECTUS
Hornblower & Weeks, Inc.
_________________________________________
August , 1998
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. The Underwriting Agreement provides
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 five years, commencing 1/1/93, the Company sold
1,604,300 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 297,813 shares for $3,311,860 under
exemption 4(6) of the Securities Act of 1933. In June 1997 the Company
converted $2,786,432 in liabilities owed to existing accredited
shareholders into 235,000 shares; and exchanged 32,500 shares for $400,000
in pre-paid media placements with an accredited investor. In August 1993
the Company sold 1,563 shares to an accredited investor for $25,000. From
August through December 1995, the Company sold 28,750 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, qualified as sophisticated and immediate
family, purchased 1,586,488 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 23,500 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 1,566,363
shares for $77,051 and six of their close friends purchased 6,625 shares
for $5,140.
In February 1998, the Company issued 250,000 warrants ("Class B Bridge
Warrants") in connection with a Bridge Loan for $250,000. These warrants
are exercisable during the four-year period commencing one year form the
Effective Date. Otherwise terms of these warrants are identical to Warrants
offered to the public in the Offering. The holder of the Class B Bridge
Warrants is being registered with the Offering as a Securityholder.
In June 1998 the Company issued 575,000 warrants ("Class A Bridge
Warrants") in connection with a series of Bridge Loans in the aggregate
amount of $575,000. The terms of these warrants are the same as the
Warrants offered to the public in the Offering. The holders of the Class A
Bridge Warrants are being registered with the Offering as Securityholders.
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(6) Issued in Connection with Bridge Loans
Hobbs Melville & Co., Inc.
Neil Jones
Socrates Skiadas
T.H. Holloway
Ron Rust
Hart Rotenberg
Richard Frank
M.S. Arden Inc.
Brian Sly
Russell Development Association
Richard Charbit
David Marston
J. Walker Clark
Arian Jacob
Joseph Rotenberg
Harvey DeLott
Michael Ostro
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 Underwriters' 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 Underwriters (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
10.1.3 DOT Letter - extension 2-11-98
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
10.6 Pegasus' B747-100
10.7 LainBanka
10.8 Financial Consulting Agreement (contained
in Exhibit 1)
10.09.1 February 1998 Bridge Loan Agreement
10.09.2 June 1998 Bridge Loan Agreement used for each June 1998 Bridge
Loan
10.10 Executive agreements for three months salary reduction
10.11 Cathay Pacific Airways Limited-Initial Agreement B747-200*
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 B747-200 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 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.
As filed with the Securities and Exchange Commission
on August ____, 1997
Registration No. 333-37409
___________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT NO. 7
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
Baltia Air Lines, Inc.
Exhibits
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 Underwriters' 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 Underwriters (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
10.1.3 DOT Letter - extension 2-11-98
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
10.6 Pegasus' B747-100
10.7 LainBanka
10.8 Financial Consulting Agreement (contained
in Exhibit 1)
10.09.1 February 1998 Bridge Loan Agreement
10.09.2 June 1998 Bridge Loan Agreement used for each June 1998
Bridge Loan
10.10 Executive agreements for three months salary reduction
10.11 Cathay Pacific Airways Limited-Initial Agreement B747-200*
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 B747-200 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) or with the current
SB-2 registration, File No. 333-37409.
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 filed on October
8, 1997, as amended.
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,
1996 and 1997, the Company's SB2 333-37409 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's second SB-2
Registration Statement 333-37409 becomes effective and contracts completed
with Escrow and Transfer Agents, pursuant to draft 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 93,240,000 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.
The International Business Law Firm
By: (Steffanie J. Lewis)
Steffanie J. Lewis
Attorney
Date: August 27, 1998
Initial Letter of Agreement and Release
CATHAY PACIFIC
LEASING LIMITED
Cathay Pacific Leasing Limited
Newcourt Chambers
39 Bucks Road
Douglas
Isle of Man, IM1 3DE
Telephone: +44 1624
674595
Fax: +44 1624
674592
CompuServe:
100762,3424
E-mail:
[email protected]
JRPower's mobile: +44 4624
4905907
Fax Cover Sheet
DATE: August 5, 1998 TIME: 3:21PM
TO: Steffanie Lewis FAX: 001-703-522-1197
C.C. Richard Stock
Johnson Stokes & Master
C.C. Janet Chung FAX: 00-852-2383-2584
Cathay Pacific Airways Limited
FROM: Graihagh Mylchreest FAX: 44-1624-612598
Number of pages including cover sheet: 22
Baltia Airlines Inc.
The initial Deposit has been received, the LOIA is released to Baltia and
is
considered binding by Cathay.
Kind regards,
(Signature)
Graihagh Mylchreest
Director
Directors: P.A. Kemp, J.R. Power, R.M.J.Atkinson, E.M.C.Cain
R.A.K.Cater, A.J.Gorlett,G.Mylchreest
Incorporated in the Isle of Man (originally as Dunvant Limited)
Company Registration No: 070990C
<PAGE>
Cathay Pacific
Cathay Pacific Airways Limited
Swire House, 9 Connaught Road Central
Hong Kong
Telex: 82345 CXAIR HX
Telephone: (862) 2747 5302
Fax:(852) 2551 8298
August 5, 1998
Baltia Air Lines, Inc.
63-25 Saunders Street, Suite 7 I
Rego Park
NY 11374
For the attention of: Igor Dmitrowsky, Chairman and President
Dear Sirs:
This Letter of Initial Agreement ("LOIA") sets out, subject to
contract, the general terms and conditions relating to the
leasing by Baltia Air Lines ("BA") from Cathay Pacific Airways
Limited and/or any of Cathay Pacific Leasing Limited and/or a
subsidiary of that company ("Cathay") of one (1) Boeing 747-
267 aircraft and installed engines (the "Aircraft") together
with technical records as set out herein.
The parties agree to negotiate, in good faith, with a view to
agreeing on a definitive lease agreement (the "Lease
Agreement") upon signature of this LOIA and in consideration
of the non-refundable payment by BA to Cathay of USD100,000.
The parties agree to use reasonable endeavours to maintain the
subject matter of this LOIA confidential and to refrain from
announcements or confirmations or other disclosure to third
parties (other than each party's professional advisers), and
that so far as possible the transactions relating to the
Aircraft will only be publicly announced at the time of
delivery of the Aircraft to BA, subject to any disclosure
required by law or required to be made to any competent
authority, or any applicable manufacturers or suppliers or by
the Listing Rules of any Stock Exchange on which a party is
listed.
1. EQUIPMENT
1.1 Aircraft Description
One second-hand Boeing 747-267 passenger aircraft
with present registration mark B-HKG (Manufacturers
Serial No.21746.)
(a) Performance
The Aircraft will have the following
performance:
MTOW = 800,000 pounds
MLG = 630,000 pounds
MZFW = 536,500 pounds
OEW (typ) = 388,000 pounds
Fuel Cap = 52,288 US Gals
- 1 -
Registered office: 35th Floor, Two Pacific Place, 88 Queensway, Hong Kong
[logo] Swire Group
<PAGE>
(b) Interior Configuration
Prior to Delivery the interior of the Aircraft
will be changed in accordance with the BA
Modifications set out at Schedule 2 (to be
agreed) at the cost of BA.
(c) Aircraft Systems Equipment
The Aircraft Systems Equipment will be as per
Schedule 3 but subject to any amendments prior
to Delivery to comply with the Delivery
Conditions set out at Schedule 1 and BA's
Modifications set out at Schedule 2.
(d) External Livery
The Aircraft external livery is currently
Cathay standard. The Aircraft will be changed,
rubbed down and painted in BA standard livery
prior to delivery (in accordance with Schedule
1).
1.2 Description of Installed Engines
Four Rolls Royce RB211-524C2 engines per aircraft
rated at 51,500 pounds take off thrust, serial
numbers to be agreed (the "Engines").
2. LEASE AGREEMENT DETAILS
2.1 Lease Term
6 months (the "Initial Period"). Provided Cathay
has notified BA 60 days prior to the expiry of the
Initial Period that the Aircraft is available for
leasing for a further period of 6 months, BA shall
have the option to extend the term of the lease for a
further period of 6 months (the "Extension Period")
upon giving Cathay notice in writing 30 days before
the expiry of the Initial Period. Each party shall
have the right to terminate the term of the lease at
any time during the Extension Period upon giving 90
days notice in writing.
2.2 Initial Deposit
BA shall pay Cathay the non-refundable amount of
USD100,000 (the "Initial Deposit") upon execution of
this LOIA. The Initial Deposit will be returned to
BA without interest if Cathay fails to get approval
from its Board of Directors of this LOIA.
2.3 Security Deposit
BA shall pay Cathay a security deposit of USD850,000
(the "Security Deposit") upon execution of the Lease.
The Initial Deposit shall be applied toward the
Security Deposit. Provided that BA has performed all
of its obligations under the Lease Agreement, the
Security Deposit will be returned to BA without
interest:
(i) upon redelivery of the Aircraft in the condition
required by the Lease Agreement; and
(ii) if Cathay fails to honour its obligations under
the Lease Agreement and this LOIA.
Cathay shall be entitled to apply the Security
Deposit toward any loss or expense that Cathay incurs
as a result of BA failing to perform its obligations
under the Lease Agreement.
2.4 Rental
USD250,000 per month, payable in advance, to be
increased to USD300,000 after 6 months if the term of
the Lease Agreement is extended.
2.5 Payment Obligations Absolute
The obligation to Rent will be absolute and
unconditional and rental payment will be paid
(subject to paragraph 10 below) notwithstanding that
the Aircraft or any Engine may not be available to BA
after they have been delivered for any reason. For
the avoidance of doubt this provision shall not
preclude BA from bringing at law or in equity any
action against Cathay by reason of any failure by
Cathay to comply with its obligations under the Lease
Agreement or otherwise.
2.6 Taxation
The obligation to pay Rent shall not be reduced on
account of any deduction or withholding of tax,
unless such deduction or withholding is required by
law, in which event the relevant payment of Rent
shall be increased so that the net amount received by
Cathay is the same as it would have received, but for
such deduction or withholding. Cathay will use its
reasonable efforts to recover such deduction or
withholding which recoveries will be for the account
of BA.
It is understood that no stamp duty will be payable
in Hong Kong in connection with the Lease Agreement
or the transactions contemplated thereby. BA shall be
responsible for all other taxes, duties, charges,
value added taxes and levies imposed on or in
connection with this LOIA and the Lease Agreement,
whether levied in Hong Kong or outside Hong Kong.
2.7 Country of Aircraft Registration
United States of America
2.8 Agreed Value of Aircraft
USD35,000,000
2.9 Cathay's Bank Account
Funds to be remitted to Marine Midland Bank N.A., 140
Broadway, New York, ABA; 021001088, Swift Code:
MRMDU833 for the credit of The Hong Kong and Shanghai
Banking Corporation Limited, New York Branch, Account
No.000-712604-016, Account Name: Cathay Pacific
Airways Limited or to such other account nominated by
Cathay.
2.10 Termination Events
The Lease Agreement will contain usual provisions to
be agreed between the parties with respect to default
by BA and the occurrence of a default will cause the
leasing of the Aircraft to be terminated, whereupon
Cathay shall be entitled to repossess the Aircraft.
A full list of Termination Events is set out in
Schedule 5.
2.11 Representatives, Warranties and Covenants
The Lease Agreement will contain such standard
representations, warranties and covenants as may be
agreed between the parties with regard to the
operation, maintenance and insurance of the Aircraft
and the engines and regulatory condition of BA.
2.12 Inspection
Inspections of the Aircraft and Engines will be made
both at delivery and redelivery of the Aircraft for
the purpose of determining the condition of the
Aircraft. Cathay shall have the right to inspect the
Aircraft and Engines at any time when the Aircraft is
not carrying on scheduled operations (with Cathay not
being in any way obliged to do so). BA will pay
reasonable costs incurred by Cathay during one such
inspection in any one calendar year.
2.13 No Warranty
Subject to the Aircraft and Engines meeting the
Delivery condition set out at paragraph 5 and
Schedule 1, the Aircraft will be delivered to BA on
an "as is" "where is" basis. All warranties by
Cathay with regard to the condition of the Aircraft
will be excluded and BA will be required to disclaim
all such warranties whether express or implemented by
law and otherwise.
2.14 Financial and other Reporting
BA will provide monthly reports to Cathay regarding
its operation and maintenance of the Aircraft in such
detail and containing such information as Cathay may
require. In addition BA will provide Cathay with
quarterly financial statements when available.
2.15 Registration
Cathay's title to the Aircraft and Engines will be
registered to the satisfaction of Cathay.
2.16 Reservation of Title
BA will not have title to the Aircraft or Engines and
will not exercise or purport to exercise any
ownership right or privilege in respect of the
Aircraft, except registering the Aircraft on the U.S.
aircraft register. No sale, disposal, charge, lien
or mortgage of the Aircraft or any interest therein
may be made by BA.
Cathay may require the Aircraft and Engines to carry
a nameplate identifying Cathay's title and/or
ownership interest.
2.17 No Operational Interest
Cathay will not have any operational interest in the
Aircraft (other than by virtue of the covenants in
respect thereof given to Cathay by BA in the Lease
Agreement), and BA will not hold out Cathay as having
such interest.
2.18 Indemnity
BA shall keep Cathay fully harmless and indemnified
from all consequences of the operation, and
maintenance of the Aircraft and Engines
notwithstanding that Cathay may at any time provide
or assist in the maintenance of the Aircraft and
Engines.
2.19 Total Loss
On a Total Loss of Aircraft, BA will pay all amounts
due but unpaid under the Lease Agreement up to the
relevant date plus the Agreed Value.
2.20 Insurance
(a) BA will maintain liability and hull insurance of
a type acceptable to Cathay and with a first
class reputable insurance company and/or
underwriter in any major international aviation
insurance market acceptable to Cathay. The
Aircraft and Engines shall be insured for an
amount not less than the amount payable on Total
Loss provided above. In respect of third party
liability, the insurance shall provide cover for
not less than USD1.1 bn per incident. All
insurances shall name Cathay as additional named
assured without liability for premium tthe
extent of Cathay's interests.
(b) Insurance taken out by BA will cover in a manner
acceptable to Cathay risks associated with the
"Millennium Bug/Y2K problem" (relating to the
failure of computer hardware and/or software to
properly recognize any change of year, month,
date or time).
(c) BA shall provide political risk insurance in
favor of Cathay against the Aircraft's being
seized, detained, sequestered, requisitioned,
nationalized, confiscated, forfeited,
compulsorily acquired or destroyed for political
reasons.
(d) BA shall provide repossession insurance in favor
of Cathay to cover all costs and expenses
(including legal costs) of physically
repossessing the Aircraft and placing the
Aircraft in the condition required by the Lease
Agreement.
For the avoidance of doubt, it is recognized that the
Rent instalments mentioned in Paragraph 2.4 to this
LOIA will be increased by an amount necessary to
ensure that the cost of such political risk and
repossession insurance is funded by BA.
3. MAINTENANCE
3.1 BA shall pay to Cathay a monthly amount (the
"Maintenance Amount") of USD$1,500 per flight hour
which shall be accumulated in a reserve account (the
"Maintenance Reserve"). The Maintenance Amount shall
be payable in arrears on a monthly basis on the same
dates as payments of Rent are made. BA shall be
entitled to withdraw amounts standing to the credit
of the Maintenance Reserve against presentation to
Cathay of receipts, invoices or other evidences
acceptable to Cathay that the funds are required in
order to pay maintenance costs incurred in relation
to the Aircraft. The Maintenance Reserve, once
having reached it, will at no time be permitted to
fall below USD250,000. Cathay will be permitted to
ask the funds standing to the credit of the
Maintenance Reserve toward satisfaction of BA's other
obligations under the Lease Agreement in respect of
the Aircraft.
3.2 Without cost to Cathay, Cathay will use its
reasonable endeavours to assist BA to successfully
place the Aircraft on the FAA register.
3.3 Cathay grants BA authority to adopt the Cathay
maintenance program provided BA waives any rights
against CX in respect of such adoption of Cathay's
maintenance programme and agrees to indemnify Cathay
for any loss or liability that Cathay may suffer as a
result thereof.
4. DELIVERY
4.1 Scheduled Delivery Date and Location
Not later than January 1999, at either Hong Kong
International Airport, Chek Lap Kok or Xiamen. Exact
date to be determined.
4.2 Delivery Status
The Aircraft will be conditioned by Cathay to its
Delivery Maintenance Status prior to Delivery at the
expense of Cathay as set out in Schedule 1 and below,
and further modified at the expense of BA as set out
in Schedule 2.
(a) Airframe
The airframe will be delivered with the
following minimum times to run to the next:
C Check - 16 months
D Check - 16 months
Gear Change - 16 months (based on 6 yr
economic O/H life)
Flap Carriage - 16 months forecasted life remaining at
BA
change usage
Other Hard - 6 months
Lifed
There will be no outstanding deferred defects
on
the flight deck/cabin logs. Repetitive inspections will be
covered by maintenance schedule amendment by mutual
agreement.
(b) Engines
Each Engine will have a minimum of 12 months
utility remaining before removal, repair or
overhaul.
There will be no outstanding deferred defects
or
repeat inspections outside of AMM limits on the
Engines unless otherwise agreed by BA, such
agreement not to be unreasonably withheld.
5. DOCUMENTATION
Operating manuals for the Aircraft and Engines will be
provided to BA by Cathay on or before Delivery and shall
be returned to Cathay upon acceleration or expiry of the
Lease Agreement. BA shall be responsible for obtaining an
FAA Flight Manual if necessary.
All applicable publications, technical records and other
customary documentation (including without limitation
Cathay's maintenance specification manual, check job cards
and card database, cockpit manual chart and training
manual) will be made available to BA at BA's request. The
Maintenance Manual and IPC applicable to the Aircraft will
be provided to BA and will be maintained by BA for the
duration of the Lease Term. BA will return them to Cathay
on termination or expiry of the Lease Agreement in the
form maintained by Cathay.
6. OPERATION
6.1 The Lease Agreement will provide that BA may not
sublease or enter into any agreement whereby BA parts
with possession of the Aircraft and/or any Engine.
6.2 Cathay will assign to BA all of Cathay's rights
remaining under any warranties or guarantees relating
to the Aircraft, Engines and all other systems and
equipment thereon for the duration of the Lease
Agreement.
7. CHANGES TO THE AIRCRAFT DURING THE LEASE TERM
BA may, and shall, in the case of mandatory requirements,
make changes to the Aircraft interior and systems as a
result of any mandatory requirement of any relevant
airworthiness authority at BA's cost.
Any equipment removed from the Aircraft will be returned
to Cathay and, where such equipment is required to be re-
installed on the Aircraft for redelivery in accordance
with the Return Conditions set out at paragraph 19 below,
Cathay will make available such equipment in the same
condition as when returned to it for retrofit at BA's
cost.
8. RETURN CONDITIONS
8.1 Maintenance
The Aircraft must be capable of being put back on the
HK CAD register and on the Cathay system of
maintenance should it be returned under the Lease
Agreement and thus will require a bridging check at
Cathay's cost. BA will use all reasonable endeavours
to assist Cathay with regard to the above.
8.2 Engine, Engine Module and Component Serial Numbers
In general, the engines, modules and components (by
serial number) fitted at Delivery should also be
fitted should the Aircraft be returned under the
Lease Agreement save the deviation may be made
provided that such replacements engines, modules and
components are in good working condition and are of
similar life, modification standard and utility as
the engines, modules and components replaced.
8.3 Records
Full records will be provided on return of the
Aircraft for all maintenance activity including all
component changes, repair schemes, design deviations,
technical log entries, NRC's, service bulletin
incorporation, in-house modification, AO compliance
etc. All life limited parts will have records back
to birth.
8.4 The Aircraft and Engines shall be in the same
condition as the Delivery maintenance status as set
out at Schedule 1 to this LOIA
8.5 Airframe
The airframe will be returned with the following
minimum times to run to the next:
C Check - 16 months per BA's schedule
D Check - 16 months
Gear Change - 16 months forecasted life
remaining at Cathay usage based
on Cathay's current annual
cycle
usage
Flap Carriage - 16 months forecasted life
remaining at Cathay's
Change annual cycle usage
Other Hard Life - 6 months
Parts
There will be no outstanding deferred defects on the
airframe. Respective inspections will be covered by
maintenance schedules amendment.
Cathay and BA will negotiate in good faith to agree a
mechanism, to be documented in the Lease Agreement,
whereby the Aircraft is to be returned to Cathay in
the condition in which it was delivered to BA, but in
such a manner that the costs associated with this
approach are minimised.
8.6 Engines
Each Engine will have a minimum of 12 months utility
remaining before removal, repair or overhaul.
There will be no outstanding deferred defects or
repeat inspections outside of AMM limits on the
engines except as mutually agree.
8.7 Internal
The Aircraft will be returned in Cathay configuration
and will be clean by normal international aviation
standards. If any interior equipment installed by BA
is not required by Cathay on return of the Aircraft,
they will be removed by BA at its cost before
redelivery.
8.8 External
The Aircraft will be returned in standard Cathay
livery (or livery of another airline nominated by
Cathay) following rub-down and painting if requested
by Cathay. The paint shall be of the same
specification as Cathay's paint specification.
8.9 Location
The Aircraft will be redelivered to Cathay in Hong
Kong or to an airport nominated by Cathay.
9. CONDITIONS PRECEDENT
9.1 BA's obligation to lease the Aircraft from Cathay
shall be subject to the conditions set out below:
(a) The Aircraft shall meet the Delivery
Conditions
set out in Schedule 1 (as evidenced where
appropriate by satisfactory performance in any
predelivery inspection/tests or test flights
which relate to delivery conditions) and, if
practicable, BA's Modifications program as set
out in Schedule 2 shall have been completed.
(b) Execution and delivery of an agreed Lease
Agreement (with the requisite approvals of the
board of directors of both parties) no later
than 5 p.m. Hong Kong Time on 14th September
1998 or such later date as may be mutually
agreed between the parties, and completion of
any predelivery obligations agreed between the
parties.
(c) The absence of Total Loss or Event of Loss
(as
will be defined in the Lease Agreement) with
respect to the Aircraft.
9.2 The Aircraft will not be delivered until BA has
satisfied Cathay that all corporate and national
consents, authorizations and permissions have been
obtained to enable BA to take the Aircraft pursuant
to the Lease Agreement and perform its obligations
thereunder. In addition, Cathay must be satisfied as
to all regulatory matters relating to the Aircraft
and engines, its registration, operation, maintenance
and insurance and the regulatory and financial
condition of BA.
10. LOSS OR DAMAGE PRIOR TO DELIVERY
If before delivery there is a Total Loss with respect to
any Aircraft or Engine, Cathay shall promptly notify BA of
such occurrence, whereupon Cathay shall return all
payments BA has made to Cathay related to this lease, and
neither party shall have any further obligation or
liability to the other in respect of such Aircraft or
Engine.
11. DELAY IN DELIVERY
The Lease Agreement shall include customary provisions
relating to the excusable delay (usual force majeure
events) and non excusable delay (including provisions for
compensation in the event of non excusable delay).
12. EXPENSES
BA will upon execution of this LOIA pay all reasonable
legal fees plus disbursements incurred by Cathay in
relation to the preparation, negotiation and execution of
the LOIA and the Lease Agreement up to a maximum of:
(a) HK$175,000 plus disbursements for the Aircraft in
respect of Hong Kong legal counsel;
(b) US$5,000 in respect of U.S. legal counsel.
For the avoidance of doubt BA will be responsible for its
own legal expenses and any expenses associated with
obtaining FAA approvals of the registration, leasing
and/or operation of the Aircraft unless otherwise
specified.
13. OTHER MATTERS
13.1 Usual damage charts, loose equipment and fuel status
to be provided as part of Delivery documentation.
13.2 Immediately prior to Delivery, BA to have a one and a
half hour test flight at Cathay's expense with
Cathay's crew, with BA's pilots/engineers riding as
observers during the test flight.
13.3 At Delivery, it is anticipated that re-registration
will occur immediately after the test flight.
13.4 BA to ensure that FAA is in full concurrence with the
proposed modification process and delivery
arrangements. Cathay to provide reasonable
assistance to BA (at BA's expense) in obtaining
necessary FAA approvals/waivers.
13.5 Cathay to provide all Records/Paperwork and back to
birth records, reports, data, on Delivery where
required for FAA purposes, but otherwise as soon as
possible thereafter to an agreed schedule.
13.6 Listing of publications and documents TBD.
13.7 Legal opinions acceptable to Cathay.
13.8 Cathay shall deliver the Aircraft to BA with three
shipsets of galley equipment and 16 LD3 cargo
containers.
14. BROKERS
Each party shall indemnify the other against any claims
made by any broker for commissions or other amounts
claimed to be due on account of actions by such party, it
being acknowledged by both parties to the transaction that
neither of them has engaged nor employed any broker or
commission agent in this transaction.
15. GOVERNING LAW
This LOIA and each Lease Agreement shall be governed by
English law.
16. PRIOR APPROVALS
The obligations of both parties are subject to approval by
the Board of Cathay and by the Board of BA.
17. Target dates
Both BA and Cathay will use best efforts to reach
agreement on outstanding issues and to finalize
documentation by 5 p.m. Hong Kong time, 14 September 1998.
Failure to finalise and execute documentation by 14th
September 1998 will cause this LOIA to expire and neither
party will have any continuing obligations to the other.
for Cathay Pacific Airways Limited for Baltia Air Lines Inc.
By ...(Richard Cater)....... By ..(Igor Dmitrowsky)......
Its: ..(Financial Mgr, Airline Its ...(President).........
Planning)
Date ..(5th August 1998)....... Date ..(August 5, 1998)....
Witness ..(RGI Stock).......... Witness .(Walter Kaplinsky).
(Marginal Note: N.B. Not Released until confirmed by Graihagh
Mylchreest)
<PAGE>
SCHEDULE 1
Condition at Delivery: Delivery Maintenance Status
The condition of the Aircraft upon Delivery shall be the
following:
1. Cathay shall be entitled to lease the Aircraft and all
equipment and systems thereon to BA such that BA will have
the right to quiet enjoyment of the Aircraft in accordance
with the Lease.
2. The Aircraft shall be on Hong Kong CAD Register and have a
valid Certificate of Airworthiness.
3. The Aircraft will be fresh out of the appropriate 'C' check,
and will be clear for 16 months service on the Cathay
maintenance programme unless stated to the contrary
elsewhere in this Letter of Intent.
4. All other lifed components not referred to elsewhere in this
Letter of Intent (including, without limitation flight
safety equipment) will have not less than 6 months
remaining to the next scheduled removal, repair or overhaul
under the Cathay maintenance programme.
5. The Aircraft shall have all fixed and loose equipment as is
normally installed by Cathay for its passenger operations,
except as may be deleted by BA's Modifications.
6. There shall be no carried forward or current defects
remaining uncleared on the flight deck/cabin logs prior to
Delivery unless otherwise agreed between the parties. Any
permanent repairs that require repeat inspections will be
reviewed prior to Delivery with mutual agreement as to
action to be taken.
7. All Aircraft documents and technical publications shall be
made available to BA.
8. Each Engine and the Auxiliary Power Unit shall be boroscoped
at Cathay's expense and will have no special call outs or
on-watch conditions. Any defects identified during the
boroscope and/or ground test beyond the Manufacturer's
limits shall be rectified at Cathay's expense. BA shall
have the opportunity of participating in and reviewing the
results of such boroscope and/or tests.
9. The Aircraft including without limitation the wings and
horizontal stabiliser will be rubbed down and painted to
BA's standard livery. The paint shall be of the same
specification as BA's paint specification. The interior and
exterior of the Aircraft will be clean by normal
international airline standards.
<PAGE>
SCHEDULE 2
BA's Modifications
Cathay's obligation is to Deliver the Aircraft in its Delivery
Maintenance Status as detailed at Schedule 1. Concurrent with
that programme, it is agreed that Cathay (in consultation with
BA) will procure that the Cathay maintenance provider perform
the following work (at BA's cost):
[To be agreed]
Pricing for BA's Modifications package will be defined and costed
out prior to signature of the leases. Details of the work scope
and value will be finalised not later than 30 days prior to
Delivery in respect of each Aircraft input.
The parties will co-operate with a view to maximising resources
and efficiency in dealings with contractors and suppliers.
<PAGE>
SCHEDULE 3
Aircraft Systems Equipment
Qty Description Manufacturer/Model No./Part
No.
3 VHF Comm Collins 618M4
2 HF Comm Collins 618T/628T
1 ACARS Allied Signal
2 ADF Collins 51Y-7
3 VHF Nav Collins 51RV5B
2 DME Collins 860E5
2 LRRA Collins 860F4
2 ATC Allied Signal TRA67A
1 TCAS Allied Signal CAS81
1 Marker Collins 51Z4
1 GPWS Sundstrand Mark 2
2 Radar Allied Signal RDR1F
1 Satcom Collins SAT906 6 channel high gain system
with
CMC CMA2102 top mount antenna
3 INS Litton LTN92
1 QAR Penny and Giles
1 CVR Fairchild A100-300
1 DFDR Teledyne 2222597-X or
Teledyne 2228766-X or
Lockheed 10077A500-XXX
2 Autopilot 2 Channel Fail Passive
1 Autothrottle Bendix "Speed Hold" capability only with
TAT/EPRL Computer
In Flight Entertainment
Matsushita 2000E Interactive system with in-seat video in ALL
seats and the following additional equipment.
One 16 channel MAS RD-AX7094 CD Audio Reproducer
9 Super VHS MAS Video Tape Players
5 Sony overhead video projectors and screens
One 16 inch MAS CRT monitor (in zone A)
One 10 inch MAS LCD monitor (in zone A)
Five 7 inch MAS LCD monitors
One MAS CD player/data loader
One Pre Recorded Announcement Reproducer Matsushita RD-AX7351
One Airshow 210 DIU
One GTE Airfone system with 6 wired handsets (via Satcom)
One Avtech Fax Machine
One Sextant Cabin Printer
<PAGE>
SCHEDULE 4
Rent
USD250,000 per month from the Delivery Date for a period of 6
months.
USD300,000 per month if the lease term is extended for a
further period of 6 months.
Rent will be adjusted to take into account the insurance
required to be obtained in accordance with Paragraph 2.20(c)
and (d) of this LOIA.
<PAGE>
SCHEDULE 5
Section 12. Events of Default
A fundamental term and condition of this Agreement is that none
of the following events shall occur during the Term and that
the occurrence of any of the following events shall constitute
an "Event of Default" (whether any such event shall be
voluntary or involuntary or come about or be effected by
operation of Law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):
12.1 Failure to Pay Scheduled Amounts
Purchaser shall have failed to make any periodic or
scheduled payment in accordance with this Lease Agreement
[or any other Operative Document] (including any payment
of the Purchase Price) within three Business Days after
the date the same shall have become due.
12.2 Failure to Pay Demand Amounts
Purchaser shall have failed to make any demand payment in
accordance with this Lease Agreement [or the other
Operative Documents] when the same shall have become due
after demand and such failure shall continue for 10
Business Days.
12.3 Insurance
12.3.1 Purchaser shall failed to carry and maintain, or
cause to be carried and maintained, on or with
respect to the Aircraft, any insurance required to be
maintained in accordance with the provisions of
Clause [ ].
12.3.2 The Aircraft shall be operated at a time in
contravention of any requirements or conditions of
any insurance required under Clause [ ].
12.4 Certain Covenants
Purchaser shall have failed to comply with its obligations
under Clauses [ ].
12.5 Other Covenants
Purchaser shall have failed to comply with, observe or
perform, and shall fail to cause to be complied with,
observed and performed, any of its covenants, agreements
or obligations hereunder [or under any other Operative
Document], and such failure shall continue for 30 days
after the earlier of (1) the date of written notice
thereof to Purchaser or (2) the date Purchaser assuming
exercise of reasonable diligence, should have known of
such failure.
12.6 Representations and Warranties
Any representation or warranty made by Purchaser herein
[or in any other Operative Document] shall have proven to
have been incorrect, inaccurate or untrue in any material
respect as of the time made and (i) such incorrectness,
inaccuracy or untruth shall be material at any relevant
time and (ii) with respect to any incorrectness,
inaccuracy or untruth that is capable of cure, such
incorrectness, inaccuracy or untruth shall have continued
for a period of 30 days after the earlier of (y) the date
of written notice thereof to Purchaser or (z) the date
Purchaser, assuming exercise of reasonable diligence,
should have known of the same.
12.7 Voluntary Bankruptcy, Etc.
Purchaser shall have (1) commenced any proceeding or filed
any petition seeking relief under any applicable
bankruptcy, insolvency, liquidation, administration,
receivership or other similar Law, (2) consented to or
acquiesced in the institution of, or failed to contravene
in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (3) applied for or
consented to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for itself or
for a substantial part of its property or assets, (4)
filed an answer admitting the material allegations of a
petition filed against it in any such proceeding, (5)
proposed or entered into any composition or other
arrangement, or made a general assignment, for the benefit
of creditors or declared a moratorium on the payment of
indebtedness, (6) become insolvent or suspended payments
on, become unable to, admitted in writing its inability to
or failed generally to pay, any material portion of its
debts as they become due, (7) sought its own liquidation,
reorganization, dissolution or winding up or (8) taken any
corporate action (including a petition, proposal or
convening of a meeting by the shareholders or directors of
Purchaser) for the purpose of effecting any of the
foregoing.
12.8 Involuntary Bankruptcy, Etc.
A proceeding shall have been commenced or a petition shall
have been filed, in either case, without the consent or
application of Purchaser, seeking (1) relief in respect of
Purchaser or of a substantial part of its property or
assets under any applicable bankruptcy, insolvency,
liquidation, administration, receivership or similar Law,
(2) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for Purchaser or for a
substantial part of its property or assets or (3) the
liquidation, reorganization, dissolution or winding up of
Purchaser; and such proceeding or petition shall continue
undismissed for 10 days or an order or decree approving or
ordering any of the foregoing shall be issued and shall
not immediately be stayed.
12.9 Illegality
The validity, legality or enforceability of Purchaser's
obligations under this Agreement [or any other Operative
Document] is challenged by Purchaser or any other Person
claiming by or through Purchaser.
12.10 Indebtedness or Lease Default
(1) Purchaser shall have failed to pay any amount in
respect of any Indebtedness, or any interest or premium
thereon, when due (whether by a scheduled maturity,
required prepayment, acceleration, demand or otherwise),
or Purchaser shall fail to perform or to comply with any
other covenant, agreement or condition contained in any
agreement or instrument relating to such Indebtedness, and
such failure to pay, perform or comply shall continue
after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness,
if, as a result of any such failure, the maturity of such
Indebtedness is capable of being accelerated and if the
aggregate outstanding amount of all such Indebtedness
exceeds, in the aggregate together with any other
Indebtedness in respect of which Purchaser has failed to
make any payment or in respect of which Purchaser has
otherwise failed to perform or comply, US$1,000,000 (or
the equivalent thereof), (2) Purchaser shall breach or
otherwise fail to perform or comply with any
representation, warranty or covenant of any two aircraft
leases and such breaches or failures to perform or comply
shall continue after the applicable grace periods, if any,
specified in such leases, if, as a result of such breaches
or failures, one or more aircraft lessors shall have the
contractual or other legal right to terminate the leasing
of the relevant aircraft or repossess, or order the
redelivery of, such aircraft and the remaining term of
each such lease is greater than six months, or (3) any
"Event of Default" shall occur and be continuing under and
as defined in any Other Conditional Sale Agreement.
12.11 Government Action
Any Government Entity or any Person acting or purporting
to act under governmental authority shall have taken any
action to condemn, seize or appropriate, or to assume
custody or control of, or to levy or sue out upon any
distress or other execution involving, all or a material
part of the property of Purchaser.
12.12 Judgments
One or more judgments are rendered against Purchaser that
either (1) imposes or impose or Purchaser an obligation or
obligations for the payment of money in excess of
US$1,000,000 (or the equivalent thereof) in the aggregate
or (2) grants or grant to any Person equitable relief of
any nature that could, if enforced, be reasonably expected
to have a Material Adverse Effect and, in the case of any
such judgment or judgments, the same shall remain
undischarged for a period of 10 days or more, during which
time execution of such judgment or judgments shall not be
effectively stayed nor adequate bonding fully covering
such judgment or judgments exist.
(RJIS/770893/5)
[RJISSEC/Cathay/770893.5/Dox/D196.04]
[logo] J.R. Lupo, P.A. CPA
A Professional Corporation
Member of American Institute of Certified Public Accountants
Member of New Jersey Society of Certified Public Accountants
Baltia Airlines Inc.
63-25 Saunders St. Suite 7I
Rego Park, NY 11374
We hereby consent to the use in this registration statement -
333-37409 on form SB-2 of our opinion dated June 4, 1998 and
August 17, 1998 and to the reference to our firm under the
caption "Experts" in same registration statement.
J.R. Lupo, P.A. CPA
(Signature: J.R. Lupo, P.A. CPA)
25 Pompton Ave. Ste 202
Verona, NJ 07044
August 27, 1998
25 Pompton Avenue, Suite 202, Verona, NJ 07044, Tel: (973) 239-2239, Fax
(973) 239-4852
AIRLINE ECONOMICS INTERNATIONAL, INC.
Lee R. Howard Telephone (706)579-1466
President
6088 Indian Pipe Drive
487 Big Canoe
Big Canoe, Georgia 30143 USA
Igor Dmitrowsky
President
Baltia Air Lines, Inc.
63-25 Saunders Street, Suite 7I
Rego Park, NY 11374
August 27, 1998
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 Howard)
SUBJECT TO COMPLETION, DATED August ___, 1998
PROSPECTUS SUPPLEMENT
(c) BALTIA AIR LINES - U.S. INTERNATIONAL AIR CARRIER
The New Way to Europe(tm)
Eighteen Selling Securityholders
of Bridge Warrants and
825,000 Shares of Common Stock
Underlying Bridge Warrants
___________________
Baltia Air Lines, Inc. ("Baltia" or "Company"), a New York corporation,
hereby identifies seventeen Selling Securityholders, holding unregistered
Bridge Warrants of the Company, entitling the holders to purchase up to
825,000 registered shares of common stock of $.0001 par value ("Common
Stock" or "Shares") in accordance with the terms, conditions and plan of
distribution set forth herein. This secondary offering commences
contemporaneously with the Company's primary offering.
The Company's Prospectus dated June ______, 1998, ("Prospectus")
also relates to these seventeen Selling Securityholders
of 825,000 warrants and to the 825,000 Shares underlying those warrants.
The warrants were issued in connection with money ("Bridge Loan") the
Company borrowed in order to purchase goods and services identified in the
Prospectus under "Use of Proceeds" which otherwise would be purchased with
proceeds of the offering described in the Prospectus.("Offering") The two
classes of warrants are as follows.
Class B Bridge Warrants. In February 1998, the Company issued 250,000
warrants in connection with a Bridge Loan for $250,000. ("Class B Bridge
Warrants") These warrants are immediately tradeable and exercisable during
the four-year period commencing one year form the date the Prospectus
becomes effective ("Effective Date") unless redeemed earlier by the
Company. Otherwise, the terms of Class B Bridge Warrants are identical to
those offered to the public in the Prospectus. When the warrants
exercised, the 250,000 underlying shares may be resold.
Class A Bridge Warrants. In June 1998, the Company issued 575,000 warrants
in connection with a series of Bridge Loans in the aggregate amount of
$575,000. ("Class A Bridge Warrants") These warrants are immediately
tradeable and the terms are identical to the Warrants offered to the
public in the Prospectus. (See "Notes to Financial Statements" in the
Prospectus.) When the warrants exercised, the 250,000 underlying shares
may be resold.
The Company may redeem outstanding Class A and Class B Bridge Warrants,
once they become exercisable, at a price of $.10 per warrant on not less
than 30 days' written notice, provided the closing bid quotations of the
Shares have exceeded $10 for 20 consecutive trading days ending on the
third day prior to the date on which notice is given. See "Description of
Securities" in the Prospectus.
Each Class A and Class B Bridge Warrant entitles the holder to purchase one
Share for $6.05. The 825,000 Shares underlying the 825,000 Bridge Warrants
are registered effective on the Date of the Prospectus.
------------------------------------
The following list identifies each Selling Securityholder and the number of
Bridge Warrants each holds.
CLASS A BRIDGE WARRANT HOLDERS:
Neil Jones . . . . . . . . . . . . . . . . . . . . . . . . 50,000 warrants
23 Tucquan Glen Road
Holtwood, PA 17532
Socrates Skiadas . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
154-5017 Road
Whitestone, NY 11357
T.H. Holloway . . . . . . . . . . . . . . . . . . . . . . 50,000 warrants
16 Cloister Parkway
Amarillo, TX 79121
Ron Rust . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
103 Brookmeadow Road
Wilmington, DE 19807
Hart Rotenberg . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
BT1 Computers
1789 NW 79th Avenue
Miami, FL 33126
Richard Frank . . .. . . . . . . . . . . . . . . . . . . . 50,000 warrants
199 Brook Street
Scarsdale, NY 10538
M. S. Arden Inc. . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
1109 Arden) Avenue
Staten Island, NY 10312
Charles Xue . . . . . . . . . . . . . . . . . . . . . . . 50,000 warrants
1 Lincoln Plaza Apt. 24V
New York, NY 10023
Russet Development Association . . . . . . . . . . . . . . 25,000 warrants
39 Brighton, Avenue
Boston, MA 02134
Richard Charbit . . . . . . . . . . . . . . . . . . . . .100,000 warrants
7 Rue Ste. Isaure
Paris, FRANCE 75018
David Marston . . . . . . . . . . . . . . . . . . . . . . 15,000 warrants
119 Gand Avenue
Paonia, CO 81428
J. Walker Clerk . . . . . . . . . . . . . . . . . . . . . 10,000 warrants
P.O. Box 11359
Columbia, SC 29211-1359
Arian Jacob . . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
9 Mica Court
Baltimore, M D 21209
Joseph Rotenberg . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
BTI Computers
1789 NW 79th Avenue
Miami, FL 33 126
Harvey DeLott . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
c/o Qua1ity Truck Parts
2421 S. Wabash Avenue
Chicago, IL 60616
Michael Ostro . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
85 Glen Park Avenue
Toronto, Ontario
CANADA H6B2C3
Lonny DeWalt . . . . . . . . . . . . . . . . . . . . . . 25,000 warrants
10516 Spencer Hill Road
Corning, NY 14830
CLASS B BRIDGE WARRANT HOLDER:
Hobbs Melville & Co. . . . . . . . . . . . . . . . . . . .250,000 warrants
110 Wall Street
New York, NY 10005
Total: 18 Securityholders . . . . . . . . . . . . . . . 825,000 warrants
(Class A and Class B
Bridge Warrants)
PLAN OF DISTRIBUTION.
No underwriter is involved in the distribution of the
securities that may be owned by the Selling Securityholders, but rather
sales will be made by the Selling Securityholders either directly or
through one or more securities brokers or dealers in privately negotiated
transactions, or in transactions on The Nasdaq SmallCap Market or Boston
Stock Exchange, if the Company's securities are listed thereon. However,
there is no assurance that the Company will qualify for listing or, if
listed, will be able to maintain that listing. Alternatively, the sales
may be over-the-counter transactions on The Nasdaq Stock Market. At the
closing of the Company's initial public offering presented in the Company's
Prospectus dated _______, 1998, this Prospectus Supplement will be
distributed setting forth the identity of each Securityholder and the
number of Warrants each holds.
Bridge Warrants are expected to be sold at prices acceptable
to the buyer and seller. Broker-dealers through which the Selling
Securityholders effect sales of the warrants may receive compensation in
the form of discounts, concessions or commission from the Selling
Securityholders and/or the purchasers of the warrants. The Underwriters
may act as broker-dealers on behalf of one or more of the Selling
Securityholders. If engaged in connection with sales by Selling
Securityholders, the Underwriters do not anticipate that they will receive
in excess of the customary brokerage commission in connection therewith.
Class A and Class B Bridge Warrants are tradeable on the
Effective Date of the Company's Prospectus. Class A Bridge Warrants are
exercisable commencing six months after the Effective Date and continue
until the fifth anniversary of the Effective Date unless redeemed sooner by
the Company. Class B Bridge Warrants are exercisable for a four-year
period commencing one year from the Effective Date unless redeemed sooner
by the Company. The Company may redeem the its outstanding shares upon no
less than 30 days written notice, provided the closing bid quotations of
the Company's 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. Both Class A and Class B Bridge Warrants entitle the holder to
purchase one share of the Company's common stock @ $6.05 per share. The
825,000 shares underlying both Class A and Class B Bridge Warrants are
registered effective on the Date of the Prospectus.
The Selling Securityholders will receive the entire proceeds
from the sale of their Bridge Warrants, less any commissions paid to
brokers or dealers for executing such transactions. Although the Company
will not receive any funds from the sale of the Selling Securityholders'
Bridge Warrants, the Company expects to pay for all expenses of
registration and will furnish Prospectuses to the Selling Securityholders.
