UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
BALTIA AIR LINES, INC. (Baltia)
(Exact name of registrant as specified in its charter)
STATE of NEW YORK 11-2989648
(State of Incorporation) (IRS Employer Identification No.)
63-25 SAUNDERS STREET, SUITE 7 I, REGO PARK, NY 11374
(Address of principal executive offices)
Registrant's telephone number, including area code: (718) 275 5205
Check whether the issuer (1) filed all reports required to be filed by
Section 13, or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes "x." Required report filed herewith.
Class Number of Shares
Common Stock Par Value $.0001 Per Share 1,154,000
Preferred Stock No Par 82,500
Transitional Small Business Disclosure Format (Check one): No "x"
Item 1. Financial Statement.
<TABLE>
<CAPTION>
BALANCE SHEET
September 30,
1998
(Unaudited)
ASSETS
<S> <C>
Current assets:
Cash $ 47,203
Property & Equipment (net) 349,589
Other assets:
Deferred financing costs 450,000
Deferred offering costs 50,000
Total other assets 500,000
Total assets $ 896,792
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 263,013
Accounts payable to stockholders 38,318
Accrued expenses to stockholders 0
Accrued interest 0
Notes payable 0
Notes payable to stockholders 148,655
Total current liabilities 449,986
Stockholders' deficit:
Preferred stock - $.01 par value;
500,000 shares authorized, 82,500 shares 825
issued and outstanding at September 30,
1998 and December 31, 1997, respectively
Common stock - $.0001 par value;
100,000,000 shares authorized, 1,154,000
shares issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively 116
Additional paid-in capital 7,690,327
Prepaid media costs (396,090)
Deficit accumulated during development stage 6,848,323
Total stockholders' equity (deficit) 446,854
Total liabilities and stockholders' $ 896,792
equity/deficit
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
August 24,
Nine Months 1989
Ended Years Ended (inception)
September 30, December 31, to
September
1998 1997 1997 1996 30, 1998
(Unaudited
) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Expenses
General and 198,770 80,832 84,512 92,749 2,425,653
Professional 61,044 31,625 58,625 77,817 2,045,989
FAA 201,00 0 0 0 201,003
Service 0 0 0 0 1,352,516
Training 0 0 0 0 225,637
Abandoned 0 0 0 0 205,162
Total 460,817 112,457 143,137 170,566 6,455,960
Interest expense 0 0 0 68,120 392,363
Net loss $ (460,817) $(112,457) $ (143,137) $(238,686) $ (6,848,323)
Net loss per
common share -
basic and diluted $ (0.40) $ (0.10) $ (0.12) $ (0.21) $ (5.93)
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended Years Ended August 24,
September 30, December 31, 1989
(Inception
to
1998 1997 1997 1996 September
30, 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss .... ($460,817) ($43,646) ($143,137) ($238,686) ($6,848,323)
Adjustments to reconcile
net loss to net cash
provided by operations:
Depreciation ..... 19,853 0 0 0 239,263
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 ... (316,839) 1,000 17,749 24,407 2,058,759
Increase in accrued
interest ....... 0 0 0 0 0
Net cash (used)
provided for
operating activities (407,803) (42,646) (125,388) (214,279) (2,784,285)
Cash flows from investing
activities:
Purchase of equipment . (352,766) 0 0 0 (572,176)
Net cash (used) for
investing
activities .... (352,766) 0 0 0 (572,176)
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 ........ 0 0 0 0 0
Proceeds from issuance
of preferred stock .. 825,000 0 0 0 825,000
Proceeds from issuance
of common stock .... 0 0 0 0 1,133,214
Increase in paid-in
capital ........ 671 0 0 0 614,911
Purchase and retirement
of treasury stock ... (100) 0 0 0 (500,100)
Net cash provided
from financing
activities ..... 804,637 48,459 128,183 207,706 3,403,664
Net increase (decrease)
in cash ........ 396,834 5,813 2,795 (6,573) 619,379
Cash at beginning of
period ......... 3,135 340 340 6,913 0
Cash at end of period .. 399,969 6,153 3,135 340 619,379
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 pre-paid
media costs ...... 0 396,090 396,090 0 396,090
Deferred financing costs 850,000 0 0 0 850,000
Conversion of
liabilities ..... 1,276,322 3,130,437 3,130,437 0 4,406,759
Reclassification of
redeemable common stock 0 0 0 0 (400,000)
Surrender of rights to
redeem common stock . 0 400,000 400,000 0 400,000
Contributed services . 0 270,928 270,928 0 1,081,588
Stock issued for
interest ....... 0 0 0 0 63,500
</TABLE>
Notes to Financial Statement:
1. 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 25,600
common 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
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) 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.
2. PROPERTY and EQUIPMENT
Property and equipment at June 30, 1998 (Unaudited) consisted of the
following;
Aircraft deposit $ 100,000
Office equipment 269,442
Furniture & Fixtures 5,797
Automobiles 36,441
Total 369,442
Less, accumulated depreciation ( 19,853)
Total Property and Equipment $349,589
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 $19,853, $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
3. DEFERRED/CONVERTED FINANCING COSTS
(A) Bridge Loan Conversion
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan (see
Note 7) and in consideration issued two hundred fifty thousand (200,000)
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.
On November 12, 1998, the bridge note totaling $250,000 and its accrued
interest were converted into 25,000 shares of convertible preferred stock
at $10 per share (effective September 30, 1998).
(B) Additional Bridge Loan Conversion
In June and July 1998, the Company borrowed $550,000,and $25,000,
respectively, in "additional" Bridge Loans and in consideration issued four
hundred forty thousand (440,000) and twenty thousand (20,000) Warrants,
respectively, The Company estimates the fair value of the Warrants to be
$600,000 as based on the Black Scholes model of option pricing.
On November 12, 1998, the bridge notes totaling $550,000 and their
accrued interest were converted into 55,000 shares of convertible preferred
stock at $10 per share (effective September 30, 1998).
4. NOTES PAYABLE STOCKHOLDERS
In 1992 the Company issued Promissory Notes to certain shareholders in
exchange for $1,048,000. The Notes were due on demand and all interest was
payable upon principal repayment, at an annual rate of six and one half
percent (6 1/2%), from the date of issuance to the date of repayment.
On June 24, 1997 certain shareholders were issued 60,000 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 September 30, 1998 (Unaudited) and December 31, 1997 , interest expense
related to the above incurred since inception totals $0 and $392,363,
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, 10,000 shares of common stock as a non refundable prepayment
of interest from the date of the loan through repayment of the loan.
For the year ended December 31, 1995, the Company charged $63,500 to
interest expense for the shares issued in connection with the non -
refundable interest prepayment, based on an average price per share of
$5.08.
5. 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.
6. STOCKHOLDERS' DEFICIT
(A) Stock Options (Continued)
In 1992, the Company granted options to purchase 41,840 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) 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.
On November 30, 1998, the Board of Directors authorized and the majority
of the current shareholders ratified a 1.2 to 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.
(C) 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 Manager Underwriter, in connection with a proposed firm
commitment Public Offering of securities and plans to file an amended
registration statement with the Securities Exchange Commission, as is
described in Note 10 (A) (2).
The Company intends to offer for sale 1,000,000 shares of common stock of
$.0001 par value, at a price of $5.00 per share and 1,000,000 Redeemable
Common Stock Purchase Warrants at $.25 per Warrant. Each Warrant entitles
the holder to purchase 1.5 Shares for $6.00 each 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 1,154,000 common shares.
(D) Treasury Stock
On September 30, 1998, the Company purchase from Dmitrowsky 1,000,000
share of common stock for $100 plus an option for Mr. Dmitrowsky to
repurchase the 1,000,000 treasury shares upon the Company's inaugural
flight or upon exercise of any warrants, whichever occurs first.
7. COMMITMENTS AND CONTINGENCIES
(A) Lease Obligations
In October, 1995 the Company entered into a lease with Iceland Air, J.F.
Kennedy Airport, New York, to occupy space. The lease term is on a month
to month basis.
Currently, the Company is leasing space from Iceland Air for $1,200 per
month at J.F. Kennedy Airport, New York. Rent expense charged to
operations for the (Unaudited) nine months ended September 30, 1998 and
1997 and years ended December 31, 1997 and 1996 totaled $ 21,600, $ 12,000,
$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)
nine months ended September 30, 1998 and 1997 and years ended December
31, 1997 and 1996 totaled $ 4,312, $ 2,400, $5,215 and $5,392,
respectively.
(B) 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. The
initial letter of agreement expired October 21, 1998 and negotiations with
Cathay Pacific continue for a lease/purchase option of a 747 267 aircraft.
Upon signing of the Lease, the Company expects to pay a refundable
security deposit of eight hundred fifty thousand dollars ($850,000). The
"Initial" Security Deposit shall be applied toward the Security deposit.
PART II -OTHER INFORMATION
Item 1. Intentionally omitted.
Item 2. Intentionally omitted.
Item 3. Intentionally omitted.
Item 4. Submission of Matters to a Vote of Security Holders.
By Written Consent of a majority of Shareholders unanimously
passed the following: (i) On September 29, 1998: Purchase from Mr.
Dmitrowsky the quantity of 1,000,000 share of Company common stock to be
held as Treasury Stock. In the transaction Mr. Dmitrowsky received $100
plus an option to repurchase 1,000,000 shares of Treasury Stock for $100
upon completion of the Company's inaugural flight or upon exercise of any
warrants, whichever occurs first; (ii) On November 12, 1998 and to be
effective September 30, 1998: Approved modification of the Company's
Articles of Incorporation to authorize a total of 500,000 preferred shares
and, in exchange for Bridge Notes in the amount of $825,000 and their
accrued interest, the issuance of 82,500 preferred shares, each carrying a
10% coupon and automatic conversion to two shares of Company common stock
on the 90th day following the date of the Company's IPO closing unless
redeemed earlier by the Company upon written 20 days notice and payment of
$15 per Preferred Share; (iii) November 30, 1998 and effective September
30, 1998: Authorized a 1.2 to 1 reverse split of the Company's common
stock; (iv) July , 1998: Approve modification of the Company's Bylaws to
clarify that the seat reserved for the Underwriter's designee would
increase the size of the Board of Directors to five members.
Item 5. Intentionally omitted.
Item 6. Exhibits and Reports
Exhibit 3 - Articles of Incorporation and Bylaws
Exhibit 4 - Documentation of Bridge Note conversion to Preferred
Shares.
Exhibit 5 - Opinion of Legality - Steffanie J. Lewis, IBLF P.C.
Exhibit 13 - Annual Report to the Shareholders. The Company's 10KSB
as of December 30, 1997 is hereby incorporated.
Exhibit 23 - Consent of Counsel - Steffanie J. Lewis, IBLF P.C.
(Implied and contained within Exhibit 5 filed herewith)
Exhibit 27 - Financial Data Schedule
as required by Item 601 of Regulation S-B which
is based on the foregoing Financial Statement
submitted in Item 1.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Baltia Air Lines, Inc., Registrant
Date: 11-20-1998 __________[Signed]______________________
By: Igor Dmitrowsky, President
Date: 11-20-1998 __________[Signed]______________________
By: Walter Kaplinsky, Secretary
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
BALTIA AIR LINES, INC.
under Section 805 of the Business Corporation Law
Filed by: Igor Dmitrowsky
Office and Post Office Address
63-25 Saunders Street, Suite 71
Rego Park, NY 11374
Tel: (718) 275-5205
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
ARTICLES OF CORPORATION OF BALTIA AIR LINES, INC.
Under section 805 of the Business Corporation law
IT IS HEREBY CERTIFIED THAT;
(1) The name of the proposed corporation is BALTIA AIR LINES, INC.
(2) The filing date of the corporation's certificate of incorporation is:
8/24/98
(3) The corporation requests that Article 4, "The aggregate number of
shares which the corporation shall have the authority to issue is one
hundred million shares ($.0001 par value) and fifteen thousand preferred
shares (no par value)" be deleted and replaced with the following language:
"The aggregate number of shares which the corporation shall have
authority to issue is one hundred million shares ($.0001 par value) and
five hundred thousand preferred shares ($.01 par value)."
(4) The amendment of the certificate of incorporation was authorized
by the corporation's Board of Director's and Written Consent of
Shareholders on 11/12/98
State of New York )
) SS.
County of Queens )
I, Igor Dmitrowsky, being duly sworn, depose and state that I am the
President and C.E.O. of Baltia Air Lines, Inc., the corporation named in
and described in the foregoing certificate and that I have read the
foregoing certificate and know the contents thereof to be true, except as
to the matters therein stated to be alleged upon information and belief,
and as those matters, I believe them to be true.
Igor Dmitrowsky
Sworn to me this 7th day of December, 1998
[signed: Desiree Cianciulli]
Notary Public
DESIREE CIANCIULLI
Notary Public, State, of New York
No. 41-4956405
Qualified in Queens County
Commission Expires Sept. 25, 1999
IN WITNESS WHEREOF, this certificate has been subscribed the 7th day of
December 1998, by the undersigned who affirms that the statements herein
are true under the penalties of perjury.
[signed: Igor Dmitrowsky]
Igor Dmitrowsky
<PAGE>
BALTIA AIR LINES. INC.
BYLAWS
ARTICLE I
Definition and Role of Bylaws
Baltia's Bylaws are laws established by the Shareholders to govern the
Corporation. including: (i) the Corporation's purpose, philosophy and
status, (ii) origin and delegation of authority iv, (iii) Company
structure and (iv) Company policies and procedures. Except where
directed otherwise by court, the Directors of the Board and the
President are charged by the Stockholders to follow and uphold the
Bylaws. All persons in the employ of or representing the Corporation
must comply with the letter and intent of the Bylaws. All Company
actions and documents must be in accordance with the letter and intent
of the Bylaws. No policy or procedure may contradict, circumvent, or
dilute the intent of the Bylaws. The Board is charged with the legal
interpretation of the Bylaws. The Bylaws were ratified by Shareholders
on 7/30/98/ The Bylaws may be changed or amended only by the Absolute
Majority Shareholder Action (see definition ARTICLE V(3)(b).
ARTICLE II
Corporation's Purpose and Role in Society
The Corporation exists and operates for the benefit of its Shareholders.
Because Baltia is an airline its purpose-in-life is defined as: To
provide the public high quality air transportation on an efficient basis
in order to (I) makeprofit for the Shareholders and (ii) to make the
Corporation appreciate in value and stability over time. An airline is a
business and it does not exist for the fun of flying airplanes, job
guarantees, or correction of social inequities.
For reasons of decency and practicality, the Corporation has a stake in
the well being of its employees and the society in which it operates.
However. the Corporation and the profit it generates belong to the
Shareholders. The Corporation contributes to the society's health
through its good and enduring business practices.
ARTICLE Ill
Foundation of Corporate Philosophy
The Corporation's Philosophy is based on: (i) Western Culture. (ii)
Capable and Responsible Managers. and (iii) Quality Personnel in all
Company Positions. The Corporate Philosophy is non-politicized and non-
religious.
(i) Western Culture Baltia is a U.S. airline and adopts the best values
from the Western Culture. The Corporation's philosophy on select
principles which are common to all civilized and decent people
irrespective of one's origin or religions (i) loyalty and reliability,
(ii) individual respect and responsibility, (iii) rational common sense
over generalizations and customs, (iv) basic decency and common good
over serf-aristocrat society, (v) stewardship (caring for the fellow
beings and responsible use of resources entrusted at one's disposal)
over indifference, and (v) civilized attitude and attire. The
Corporation details the requirements in its policy manuals.
(ii) Capable and Responsible Managers The Corporation's standard for
management is best stated as follows:"A bank does not fail because
tellers made mistakes. A bank fails because of poor management" In
order to prevent the perpetuity of poor managers, any form of tenure
which includes individual employment contracts is prohibited at Baltia.
Starting with the Chairman & President, any manager or employee can be
discharged on a moments notice without any further obligation.
(iii) High Quality Personnel at All Levels The Shareholders disagree
with the old tradition that the lower a position is on the ladder of the
corporation's organizational diagram the lower the quality requirements
for the persons filling those positions. The primary factor in the
Corporation's success and long-term endurance depends on the quality of
its employees at all levels, but especially at the front line level. The
Shareholders mandate that the Corporation hire and retain only the
highest quality personnel that its money can buy. The levels of
subordination in the Corporation's organizational diagram are for
controlling the organization and separating responsibilities. The
Shareholders adopt the motto of the United States "E Pluribus Unum" for
the Company organization.
ARTICLE IV
Corporate Status
1. US Flag Carrier - Notice to Foreign Investors and Lenders
Baltia Air Lines, Inc. is an airline of the United States of America.
Baltia shall maintain its U.S. nationality as defined in Title 49 of the
United States Code, Section 40102(a)(l5) (the "Statute"), which
specifies that the
President and two thirds of the Board and other managing officers be
U.S. citizens and that at least 75% of the outstanding voting stock be
owned by U.S. citizens. The Statute is interpreted by the U.S.
Department of
Transportation (DOT) to mean that the airline must actually be
controlled by U.S. citizens.
In order not to jeopardize Baltia's status as a U.S. flag carrier
through inadvertent or unauthorized sale of securities (in private or
public market), the Secretary is hereby authorized and directed to stop
any stock transactions that would raise the percentage of foreign owned
shares above 9% of the total outstanding voting stock. Unless directed
otherwise by the Board in writing, no transaction may be authorized
which would reach or
exceed the 25% foreign ownership limit specified by the Statute. The
Corporation's Stock Transfer Agent and Registrar (the "Transfer Agent")
shall monitor and implement the Corporation's stock transfer limitations
on foreign investment. Prospective foreign investors or lenders
interested in acquiring shares, or any other financial instrument which
might be construed as foreign influence, must first obtain a written
clearance from the Secretary. Any inadvertent disqualifying transaction
shall be null and void from the beginning. Any losses that may arise
from an aborted or nullified transaction shall be borne by the investor
or lender, not by the Corporation.
2. New York State Corporation
Baltia Air Lines. Inc. is a New York State Corporation.
3. Date and Form of Incorporation
Baltia Air Lines. Inc. was incorporated by Igor Dmitrowsky (the founder)
on August 24. 1989 as a for-profit
business corporation of perpetual duration under Section 402 of the
Business Corporation Law of the State of
New York. It is authorized to issue up to l00.000.O00 shares of Common
Stock at $0.0001 par value, and up to 500,000 shares of Preferred Stock
at $0.01 par value (as amended). The business purpose is to engage in
air
transportation and related services.
4. Certificate of Incorporation
Excepting its authority to change the Corporation's principal office
within the State of New York, the Board may not amend the Certificate of
Incorporation. The Certificate of Incorporation and its amendments shall
be in the custody of the Chairman.
5. One Class of Common Stock
The Corporation shall issue no more than one class of Common Stock, and
this shall be the only class of stock
entitled to vote, Preferred stock shall not be eligible to vote.
6 Location of Corporate Offices
The principal office of the Corporation (Company Headquarters) shall be
in the State of New York. within such
City and County as the Board shall determine. The Corporation may also
have offices at such other places. within or outside the State of New
York as the Board may determine.
7. Fiscal Year
The Fiscal year of the Corporation shall be the same as the Calendar
Year. The Fiscal year shall begin at 0:0 1AM
on January 1st and end at 12:00 PM on December 31st of each year.
ARTICLE V
Shareholder Authority
1. Shareholder Action is Supreme
Authority in the Corporation originates from its Shareholders and is
expressed through the Bylaws and by
Shareholder Action. Vote at a Shareholder Meeting or a Written Consent
constitute Shareholder Action. Shareholder Action as qualified below
shall override any Board Action or any Action taken by the Officers.
2. Business Requiring Shareholder Action
The following is business requiring at least Simple Majority Shareholder
Action: (1) election of the Board and dismissal of Directors, (II)
issuance of additional outstanding common stock, (III) forward and
reverse splits of outstanding stock, and ([V) issuance of preferred
stock. All other transactions require an Absolute Majority of
Shareholders.
3. Majority Rule
A majority can be either simple or absolute:
a) Simple Majority Assuming a quorum. a Simple Majority exists where
more than 50% of those present agree upon a proposed Action.
b) Absolute Majority An Absolute Majority exists where more than 50%
of the total outstanding shares agree upon a proposed Action.
4. Vote by Plurality of Shares
Every Shareholder shall be entitled to one vote for every share of
Common Stock registered in his name on the
Record Date. Every Shareholder shall be entitled to vote his shares on
every issue voted at a Meeting. The Bylaws hereby prohibit cumulative
voting.
5. Qualification of Voters
Only persons who are listed as holders of shares on the Record Date are
qualified to vote in person or by Proxy.
The Transfer Agent shall provide to the Secretary the list of
Shareholders as of 2:00 PM Eastern Standard Time
on each of the following Record Dates:
a) For the purpose of determining the Shareholders entitled to vote at
an Annual Meeting, the Record Date shall be July 24th.
b) For the purpose of determining the Shareholders entitled to vote at
a Special Meeting the Record Date shall
be set twenty days prior to the date of the Meeting.
c) The Record Date for determining the Shareholders entitled to sign a
Written Consent shall be the same as
the date of the Written Consent
d) If the Board declares a dividend, the Record Date for the purpose
of determining Shareholders entitled to receive a dividend payment shall
be the last date of a calendar quarter for which the dividend is
declared.
6. Regular Annual Meetings
The Corporation shall hold an Annual Shareholders Meeting on the 24th
day of August (date of Incorporation), or
if the 24th of August falls on a legal holiday or a weekend then the
Annual Meeting shall be scheduled on the next
business day. The primary purpose of the Annual Meeting is to elect a
Board. Other items requiring Shareholder Action may be transacted if
corresponding Resolutions are proposed by the Board. An Absolute
Majority may transact any business. Because these are regular Meetings,
no Quorum requirement is set for the Annual Meetings.
7.Special Meetings
A Special Meeting may be called when transactions requiring Shareholder
Action must be handled prior to the
next Annual Meeting. Special Shareholder Meetings can be called by the
Chairman, by two or more Directors of
the Board, or by an Absolute Majority with 20 days written notice.
Except an Absolute Majority may call a Special Meeting without notice. A
Quorum of 20% of the outstanding shares is required for the transaction
of business. If a Quorum is not registered prior to 9:00 AM on the
Meeting date, the Meeting shall be canceled. If a Quorum is once
registered it is not broken by subsequent withdrawal of any
Shareholders.
8. Notice of Meetings
Except when a Special Meeting is called by the Absolute Majority, each
Shareholder entitled to vote shall be given
a written Notice of a Meeting. The Notice shall be titled either "Notice
of the Annual Shareholder Meeting" or
Notice of a Special Shareholder Meeting" and shall state the address,
date and hour at which the registration and
meeting will commence. If it is a Special meeting the Notice shall state
the purpose for which the Meeting is called, including any proposed
resolution and the persons calling the Meeting. (Annual Meetings need
not state the
purpose.) The Notice shall have a date of issue which shall be the same
as the Record Date. Notice is given when deposited in the United States
mail with first class postage pre-paid, and addressed to the Shareholder
at his/her
address as it appears on the Corporation's record of Shareholders. The
Transfer Agent shall process the mailing of the Notices
9. Waiver of Notice
Notice of a Meeting need not be given to any Shareholder who signs a
Waiver of Notice, whether before or after the Meeting. The attendance of
any Shareholder at a Meeting, in person or by proxy, shall also
constitute a Waiver of Notice.
10. Shareholder Proxies
Every Shareholder entitled to vote at a Shareholder Meeting may
authorize another person to act for him/her by Proxy. In order to
transfer voting authority to another person, the Shareholder must
execute a Proxy document in the name of that person and the Proxy
document must be submitted to the Secretary during registration for the
Meeting. A Proxy authorization shall be for one specific Meeting only
and shall not be made more than fifty days in advance of the Meeting.
Until it is voted, the Proxy can be withdrawn at the pleasure of the
Shareholder. However, no Proxy can be withdrawn after it has been
voted.
11. Time and Place of Meetings
Registration shall commence at 8:00 AM, and Meetings shall open at 9:00
AM. Meetings shall be held at such place within the State of New York as
the Board shall determine.
12. Admittance to Meetings
Only the following persons shall be admitted to Shareholder Meetings:
(I) Shareholders (or their Proxies) entitled
to vote, (ii) Secretary, (iii) Chairman, (iv) members of the Board, (v)
General Counsel, (vi) Transfer Agent, and
(vii) persons invited by the Board. No other persons shall be admitted
to Shareholder Meetings. Except for the
representative(s) of the Absolute Majority a person admitted to a
Meeting who disturbs the orderly process shall be warned by the
Secretary, and if the Member continues the disturbance, he or she shall
be removed from the Meeting.
13. Procedure for Transacting Business at Meetings
The Secretary shall preside over Shareholder Meetings. The Transfer
Agent shall assist the Secretary in the
determination of voter eligibility, the tallying of shareholders and
shares present, and in the determination of a Quorum (Quorum is required
for Special Meetings only). No debate shall be conducted at Shareholder
Meetings.
a) Attendee Registration. Prior to registration, the Secretary shall
have received from the Transfer Agent a list
of Shareholders of Record and shall additionally list other persons
authorized to attend a Meeting. At 8:00 AM the
Secretary shall commence the registration at the entrance to the
Meeting. During registration the Secretary shall
use the list to: (i) identify each attendee. (ii) note the time of each
registration, (iii) issue a numbered voting card to each Shareholder
corresponding to his/her number on the list of Shareholders. Each
attendee shall be given a
copy of the Chairman's report and proposed resolutions. Before 9:00 AM
the Secretary shall tally the number of
shares represented, and adjust for late arrivals.
b) Opening of the Meeting. The Secretary shall declare Shareholder
Meetings open at 9:00 AM. (If a Quorum
is not registered by 9:00 AM for a Special Meeting, the Secretary shall
declare such a Meeting canceled.)
Shareholders who arrive after 9:00 AM will be admitted. after
registering, during the Chairman's Report, but there
will be no admission during voting.
c) Chairman's Report. Following the opening of the Meeting, the
Chairman shall read his report (Annual or Special). Only the Chairman
and his delegates may report to the Shareholders during the Meeting. In
order for the
Shareholders to have an overview of the subject matter, the Chairman
shall have prepared his report prior to the
Meeting in a comprehensive manner, written in clear straight-forward
language, on no more than 5 pages single
spaced in Times New Roman font size 11. The Chairman's presentation
shall be limited to 30 minutes (which includes
presentation by any other persons assisting the Chairman).
d) Voting. Following the Chairman's report, the Secretary shall start
the voting. Only the Resolutions enumerated on the List of Resolutions
for Shareholder Action can be brought to vote, and shall be brought in
listed order. Excepting the Board election, the voting for all other
Resolutions shall be of the "yes" or "no" type. The Secretary shall
tabulate the "yes", "no" and "abstain" votes on each such Resolution.
If the Resolution is defeated, it may not be re-submitted for vote till
the next Annual Meeting. Because Board election may involve competing
proposals, each Shareholder shall be able to vote for the one and only
proposal of his or her choice. The Secretary shall tabulate the votes
for each of the Board nominations and abstentions. The Board nomination
with the most votes wins. The Shareholders shall use their numbered
voting cards to vote in response to the Secretary's question for a vote.
After each Resolution is voted on, the Secretary shall cross-reference
the votes with the number of shares registered to check for errors. Any
mistakes shall be clarified before proceeding to the next Resolution or
the
Adjournment.
e) Adjournment After the last Resolution is voted on, the Secretary
shall adjourn the Meeting.
14. List of Resolutions for Shareholder Action
Prior to a meeting the Secretary shall have prepared a List of
Resolutions for Shareholder Action in accordance
with items (I) through (IV) of ARTICLE V(2) Business Requiring
Shareholder Action. No other Resolutions shall be listed, unless Action
is undertaken by the Absolute Majority.
a) Election of the Board is the main Shareholder Action at each Annual
Meeting, and unless there is other
Business Requiring Shareholder Action, Board election shall be the only
Resolution listed. To elect the Board,
Shareholders shall not vote for individual Directors, instead the voting
shall be for a complete Board and, for so long as required by contract
with the IPO underwriter, one additional Director designated by the
Underwriter. There may
be one or several competing proposals (nominations) of the Board, each
of whom shall have been nominated by
the holders of not less than 10% of the outstanding shares entitled to
vote. If there are more than one Board
nominations, they will all be part of Resolution (I), each identified as
proposal a), b), c), d), etc. Each Board
nomination shall consist of four Director candidates, one of whom shall
be designated as Chairman & President and another as Secretary. The
fifth Directorship position is reserved for the underwriter's designee
and shall be
abolished once the requirement by the underwriter has expired. Each
Director candidate of a proposed Board
must meet the criteria for Director Qualification, or the entire Board
nomination is invalid. Board nominations
must be submitted to the Secretary not less than 24 hours before the
commencement of the Meeting. The Board shall be elected at each Annual
Meeting for one year, until the next Annual Meeting. Individual
Directors or the entire Board can be removed and replacement(s) elected
at a Special Meeting or by Written Consent.
b) Unlike the Board nominations which can only be made by the
Shareholders, the other items of the Business Requiring Shareholder
Action can only be proposed by the Board (except for Absolute Majority).
At a Special Meeting, the Resolutions listed must be further limited to
include only the issue(s) stated in the Notice, i.e. for which the
Meeting was called.
15. Qualification of Directors
No person can qualify as Director who is or has been: (i) a professional
in the airline industry (pilot, mechanic,
etc.), (ii) an executive or manager in the airline industry, (iii) a
politician, (iv) leader of another business excluding the Founder,
current Directors and Executives, (v) a celebrity, (vi) a recognized
person whose function is solely to enhance the roster, (vii) or a
"financial genius". Each Director shall be at least 25 years of age,
except that the two Directors who serve as the Chairman and the
Secretary shall be at least 30 years of age. Excepting the
Underwriter's designee, each Director must be a shareholder.
16. Shareholders Consolidate Executive and Operating Leadership
Authority must not be dispersed among many. The Shareholders are afraid
of a "two-star" system where a company chairman and president are two
different persons revolving around one another because such a system is
inherently unstable and inevitably is dominated by the stronger "star",
which ever it may be. Also, the Shareholders are uncomfortable about the
very idea that a person operating their business might not be directly
authorized by them. The Corporation shall have one clear and effective
leader designated by Shareholder Action during the Board election. The
Shareholders charge the Chairman of the Board to serve as President
under the title "Chairman & President", thus concentrating in one person
the executive and operating leadership. The Chairman may not delegate
the functions of President to another individual. Only exception: When
serving as Chairman, the founder may delegate the functions of President
to another person provided such selection is approved by the Board.
17. Written Consent of Shareholders
Any Shareholder Action that can be taken by vote may be taken without a
Meeting on Written Consent when signed by the Absolute Majority. Such
Shareholder Action can be taken at any time. No Notice is required on
Written Consent.
18. Correct Shareholder Addresses
The Transfer Agent shall be charged to maintain a current list of
shareholder addresses and towards this goal will
attempt to locate shareholders whose addresses are no longer valid.
However, the burden and responsibility for
providing correct mailing address and for updating any subsequent
address changes shall be the responsibility of
each Shareholder. Address changes must be directed to the Secretary or
the Transfer Agent. The Corporation is
not responsible for any lost Notices or dividend payments resulting from
a Shareholder's failure to provide correct
mailing address. If a correct address for a Shareholder is not
available, dividend payments may be directed to the
custody of the New York State.
ARTICLE VI
Authority Delegated to the Board
1. The Purpose of the Board
Why do Shareholders delegate authority to "a board"? As the owners of
the Corporation, the Shareholders have
the ultimate say in how their business is run, but the Shareholders
realize that as a group of individuals they
cannot oversee or run a commercial enterprise efficiently by committee.
In order to avoid the cumbersome and
ineffective governing by parliamentary procedure and to assure that the
Company has an effective governing body,
the Shareholders elect a Board consisting of four or, so long as
required by the Underwriter, five qualified Directors, one of whom is
designated as Chairman &
President and another as Secretary.
The Directors of the Board are Shareholder appointed trustees. Except
for the business requiring direct
Shareholder authorization. the Board is empowered to make such
arrangements as are necessary to run the
business for the benefit of the Shareholders in conformity with the
Bylaws and Shareholder Actions.
2. Small Board.
The Corporation shall have a small Board consisting of four Directors
and a fifth Director to be designated by the Underwriter. The fifth
Directorship shall be abolished when the Underwriter's requirement has
expired. A larger Board has a tendency to get caught-up in its own
procedural constraints and games rather than efficient and rational
solving the issue(s) at hand, and this condition is especially acute
when decisions have to be made under pressure. There are three basic
reasons for having a small Board: (i) a group larger than four to five
people requires some form of parliamentary procedure to transact
business, thus, defeating the very purpose for which the Shareholders
have elected the Board,(ii) the reliability and integrity of a Board is
not enhanced by an increased number of Directors because dispersing
authority among many reduces the burden of responsibility of each
member, and (iii) eagles don't fly in flocks. Shareholders do not trust
a committee process. They entrust their business to the hands of four or
five qualified individuals.
3. Board Implements the Majority's Mandate
The Board may not implement its own agenda or that of another party.
Except for the fiduciary duty to all of the Shareholders, the Directors
shall implement the majority's mandate as expressed by Shareholder
Action.
4. The Role of the Board in the Corporation
The Board does not actually run the business on a day-to-day basis, It
oversees that the Corporation follows the Bylaws and sets the direction
and norms by which the business must be conducted. Except for those
Directors
who are appointed by the Board to serve in management, Directors shall
not hold any management position in the Corporation. Formal Board
Actions are reserved for significant Corporate decisions. Once the
Corporate
direction is established and the standards for conducting the business
are set, the Directors' role shall be that of Shareholder watchdogs. To
insure that the Board has an on-going first-hand exposure with the
Company's
business the way it is experienced by the customer. The Directors (as
well as executive officers) are charged to participate in the Company's
quality monitoring and enforcement programs.
5. The Chairman's Functions
The Chairman is the Corporation's Chief Executive Officer (CEO). The
Chairman or person(s) designated by the Chairman, if any, shall be the
sole spokespersons for the Corporation. The Chairman shall preside over
Board
Meetings. The Chairman shall keep in safe custody Corporate Seal and
affix the seal to such instruments as the Board may authorize. With
respect to the Corporation's publicly traded securities the Chairman
shall delegate to
the Stock Transfer Agent the processing function of the Corporations
certificates with imprinted facsimile seal. The Chairman is charged to
keep key documents and corporate records in a proper and safe manner,
but may delegate this function, in full or in part, to the Secretary.
6. The Secretary's Functions
The Secretary is entrusted by Shareholders to perform certain Corporate
duties. Except were directed otherwise by the Absolute Majority. The
Secretary shall preside over Shareholder Meetings and give notice of
such Meetings. The Secretary shall maintain Shareholder records and act
as liaison with the Transfer Agent for this purpose. The Secretary shall
attend all Board Meetings and record Board Action. The Secretary shall
perform such other Corporate duties as may be required of the Corporate
Secretary.
7. Regular Annual Meetings
Following each Annual Shareholder Meeting, the newly elected Board shall
hold a Meeting. At the Annual Board Meeting the Directors shall
implement Shareholder Actions and review the resolutions of the previous
Board.
8. Special Meetings
A Special Meeting of the Board may be called by the Chairman. Special
Board Meetings may be called to act on issues of significant importance
requiring Board approval. Board Meetings should not be called for
business that belong in the Executive Office.
9. Time and Place of Meetings
The Board may hold its meetings at any time at the office of the
Corporation or at such other place as the Chairman may designate. If
unable to participate by personal presence, Directors may participate in
a Meeting over the phone.
10. No Formal Notice of Meetings
When calling a Board Meeting, the Chairman shall notify Directors in
person or over the phone. Board Meetings shall be held without formal
advance notice. Four or five people should not have difficulty coming
together to
discuss business. If anyone expects a formal invitation, then they are
the wrong people for this Corporation's Board.
11. Board Action
The vote of a majority of the Directors present at the time of vote,
provided a quorum of three Directors is present,
constitutes Board Action. The Chairman and Secretary must be present at
the meeting for the Board Action to be taken. If there is a tie, the
Chairman shall cast an extra vote. Any Board Action is subject to
override by
Shareholder Action.
12 Procedure for Transacting Business at Meetings
The Chairman shall preside over all Board Meetings. The Secretary shall
note the Board Action in the minutes. In order to transact business
efficiently, any form of parliamentary procedure is prohibited at Board
Meetings.
Instead, Directors shall speak with one another like normal people.
After a report by the Chairman on the issue at hand, followed by
informal discussion among the Directors, the issue shall be resolved by
vote and the Chairman shall adjourn the Meeting.
Use of recording devices is prohibited at Board Meetings. Only the
Directors, the General Counsel and representative(s) of the Absolute
Majority may attend Board Meetings. Board discussions shall be kept
confidential,
13. Written Consent
Any action that may be taken at a Board Meeting by vote may be taken on
Written Consent. Board Action may be taken on Written Consent when
signed by a majority of the Directors, provided the Chairman is one of
the signatories.
14. Informal Consultation Among Directors
The Chairman may conduct informal consultation with Directors on any
business of significance, not requiring an
official Board Action in prder to obtain informal consent from the
Directors.
15. No Committees of the Board
Excepting the Audit Committee, the small Board of this Corporation shall
form no Board Committees. Any issue which might otherwise have been
brought to a committed must be serious enough to be considered by the
Board.
16. Director's Compensation
The Directors are Shareholder-appointed trustees to oversee the
Shareholders' business. The Shareholders do not
Expect the Directors to do their job for free or for some obscure other
reason. The Shareholders have concluded that
when the Company commences revenue operation, each Director shall be
paid for his/her service an annual sum of
$40,000 (payable in equal quarterly amounts) plus 1/10th of one percent
of the amount declared in dividends to the
Shareholders (payable simultaneously with dividend disbursement on
Common Stock only.) Additionally,
Chairman may authorize expenses for actual attendance at each Meeting.
17. Chairman's Compensation
In addition to receiving his quarterly compensation as Director, the
Chairman shall receive annual compensation
calculated as one percent of the amount remaining when the Company's
outstanding debt is subtracted from the
net operating profit, as of the end of the Fiscal Year.
I8. Secretary's Compensation
In addition to receiving his quarterly compensation as Director, the
Corporate Secretary shall be paid for his
service a sum of $40,000 (payable in equal quarterly amounts).
19. Director Resignation
A Director may resign at any tune for any reason by giving a written
notice to the Chairman. The resignation shall
take effect upon receipt of the notice by the Chairman and the
acceptance of the resignation shall not be necessary
to make it effective. If the Chairman is resigning, notice shall be
given to the Secretary.
20. Director Removal
Any and all of the Directors may be removed on a moment's notice for any
reason, or no reason, by an Absolute
Majority.
21. Filling Directorship Vacancies
Except for the requirement to maintain a minimum of three Directors on
the Board, there is no requirement to fill Directorship vacancies
between Annual Shareholder Meetings unless otherwise requested by the
Absolute Majority. A Director selected to fill a vacancy shall hold
office for the unexpired term of his/her predecessor or until his/her
prior removal.
22. Indemnification
Except for willful negligence or intentional criminal conduct, the
Corporation shall indemnify its Directors,
Chairman & President, Secretary, Officers and Counsel against personal
liability, including shareholder and/or regulatory actions.
23. Liability Insurance
Subject to the availability of funds to pay for the insurance premium,
the Corporation shall carry D&O liability
coverage for its Directors, Chairman & President, Secretary and
Officers. Such coverage shall extend for three
years following the end of their service. The D&O insurance does not
cover willful negligence or intentional criminal conduct.
Walter Kaplinsky, Secretary, affirms that the bylaws were ratified as
amended by Written Consent of the Absolute Majority of Shareholders on
July 30, 1998.
_______[signed]_____________________
Walter Kaplinsky, Secretary
Baltia Air Lines, Inc.
Written Consent of Shareholders
November 12, 1998
The undersigned, being the holders of a majority of the
outstanding stock of Baltia Air Lines, Inc., on this day at
Baltia's Corporate Offices and at the Counsel's Office passed the
following:
1. Resolved, that the Company's 1.2 to 1 reverse stock split is
hereby authorized, effective as of September 30, 1998.
2. Resolved, that the Company is hereby authorized to amend its
Certificate to authorize 500,000 shares of preferred stock
at $.01 par value, in lieu of the existing 15,000 preferred
shares of no par value.
3. Resolved, that the Company is hereby authorized to issue
82,500 preferred shares to convert $825,000 of bridge notes.
Each preferred share converts automatically in two shares of
common stock on the 90th day following the date of the
Company's IPO closing, unless redeemed earlier by the
Company. The Company may redeem the preferred shares at $15
per share, on written 20 days notice. Each preferred share
carries a 10% coupon, payable at the time of redemption.
4. Resolved, that the Company is authorized to convert bridge
warrants into regular warrants at the time preferred shares
are converted into common stock.
Consented by: [signed: Igor Dmitrowsky] 430,917 shares
Igor Dmitrowsky
Consented by [signed: Walter Kaplinsky] 61,042 shares
Walter Kaplinsky
Consented by: [signed: Steffanie J. Lewis] 158,333 shares
Steffanie Lewis
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 No. 333-37409, as currently amended.
The principal documents in said transactions include New York
State Corporate certificate of good-standing, articles and bylaws
of the Corporation, U.S. Department of Transportation Order
96-1-24, U.S. 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 U.S. 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
97,746,000 common stock. The Company has 417,500 preferred stock
authorized, assuming a September 30, 1998 effective date of
conversion of bridge note to 82,500 shares of preferred stock.
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. The Company is awaiting notarized return from the State
of New York of its amended Articles of Incorporation and written
consent to the conversion of bridge notes to preferred stock from
4, of the 18 note holders, who are out of the country. 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: December 7, 1998
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