As filed with the Securities and Exchange Commission on February 5, 1999.
Registration No. 333-37409
_______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT No. 10
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.)
International Arrivals Terminal ("IAT") 4E
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) 425-2699
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
Offering
Price Per Aggregate Amount of
Title of Each Class Amount Being Security Offering Registration
being Registered Registered <FN1> Price <FN1> Fee <FN4>
<S> <C> <C> <C> <C>
Common Stock 1,000,000 $5.00 $5,000,000 $1,515.00
Warrants <FN2> 1,000,000 0.25 250,000 75.75
Common Stock 1,500,000 6.00 9,000,000 2,727.00
underlying Warrants
Over-Allotment 150,000 5.00 750,000 227.25
Common Stock
Over-Allotment 150,000 0.25 37,500 11.36
Warrants <FN2>
Over-Allotment 225,000 6.00 1,350,000 409.05
Common Stock
underlying Warrants<FN2>
Underwriter's Option 100,000 5.50 550,000 166.65
Common Stock <FN3>
Underwriter's Option 100,000 0.28 27,500 8.33
Warrants <FN3>
Underwriter's Option 150,000 6.50 975,000 295.43
Common Stock
underlying
Underwriter's
Warrants <FN3>
Outstanding Warrants 666,664 0.25 166,666 50.50
Selling Security Holders
Total Fee $5,486.32
Paid by Company $10,163.63
Refund due Company $4,677.31
</TABLE>
[FN]
Notes:
<FN1>
(1) Estimated for purposes of calculating registration fee.
<FN2>
2. Unless redeemed sooner by the Company, Warrants are exercisable at
$6.00 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 underwriter is entitled to
purchase from the Company up to 100,000 Shares at $5.50 per Share
and up to 100,000 Warrants at $.28 per Warrant. The exercise price
of Warrants underlying the Underwriter's Option is $6.50 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.
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, $9,641.43, 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 $5,435.82 leaves a balance refund
due to the Company of $4,727.81.
</FN>
This registration statement shall become effective in accordance with
Section 8(a) of the Securities Act of 1933 on February 9, 1999 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 and Outside Front Cover Page of
Cover 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>
SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1999
PROSPECTUS
(R) BALTIA AIR LINES - U.S. INTERNATIONAL AIR CARRIER
The New Way to Europe(tm)
1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
All of the 1,000,000 shares of common stock of $.0001 par value ("Common
Stock" or "Shares") and 1,000,000 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. as the managing underwriter ("Manager" or "Representative"
or "Underwriter"). The initial public offering price is $5.00 per Share
and $.25 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 1.5 shares of Common Stock for $9 per Warrant ($6.00 per Share)
commencing six months after the Effective Date of this Offering
until five years after the Effective Date of the Offering. The Company
may redeem outstanding Warrants, once they become exercisable, at a
price of $.25 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 February 12, 1998 ("Prospectus"), also relates to
a contemporaneously commencing secondary registration of eighteen
selling securityholders ("Selling Securityholders") of 666,664 Warrants,
all under a 12-month Underwriters' lock up. Each Warrant is identical to
those being offered to the public herein.
Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance that any such market will
develop or, if developed, that it will be sustained. The initial public
offering prices as well as Warrant exercise and redemption prices were
determined by negotiations between the Company and the Manager. 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 "BLA" and
"BLAW", 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.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Company
Public Commissions <FN1> <FN2>
<S> <C> <C> <C>
Per Share .... 5.00 0.50 4.50
Per Warrant ... 0.25 0.03 0.22
Total <FN3> ... 5,250,000 525,000 4,725,000
</TABLE>
[FN]
<FN1>
(1) Does not include a 3% non-accountable expense allowance which the
Company has agreed to pay to the Manager. The Company has also agreed
to issue to the Manager a warrant to purchase up to 100,000 Shares and
100,000 Warrants ("Representative's Warrant"), and to indemnify the
Underwriter 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 $300,000, and the Underwriter's non-accountable
expense allowance of $157,500.
<FN3>
(3) The Company has granted the Manager an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 150,000
additional Shares and 150,000 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 $6,037,500, $603,750 and $5,433,750
respectively. See "Underwriting."
</FN>
The Securities are being sold by the Underwriter on a firm commitment
basis, subject to prior sale, when, as, and if delivered to and accepted
by the Underwriter, and subject to the right to reject any order, in
whole or in part, and subject to certain other conditions. It is
expected that delivery of certificates representing the Securities will
be made against payment therefor at the offices of Hornblower & Weeks,
Inc. in New York City, on or about February 16, 1999 ("Closing").
HORNBLOWER & WEEKS, INC.
The date of this Prospectus is February 12, 1999
<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 UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICES OF COMMON STOCK OR WARRANTS AT A
LEVEL ABOVE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET AND BOSTON
STOCK EXCHANGE. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information contained herein assumes no exercise of the
Over-Allotment Option, the Warrants and the Representative's Warrant.
Investors should carefully consider the information set forth under the
caption "Risk Factors."
THE COMPANY - HISTORICAL DEVELOPMENT
The Company, a U.S. airline, was incorporated in 1989 under the
laws of the State 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 U.S. 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
U.S.S.R. was transforming into separate sovereign nations, all of which
the Company believed limited its access to public or private financing.
Resources of the Company's officers and directors were insufficient to
commence revenue operations. Due to incomplete financing, the DOT
withdrew the Company's authorities in 1993.
In 1995, believing the capital markets to be favorable, the airline
industry to be in an up-turn, and Russia to have expanded its political
and economic ties with the United States which were reflected in the
growth of passenger traffic and freight, the Company reapplied for
JFK-St. Petersburg authority. Based upon the Company's planned initial
public offering ("IPO") and having examined the Company's operating
plan and management, its background and qualifications, the DOT found
the Management fit to operate a U.S. 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 U.S. airline to serve this rapidly developing
market, and testified to such in 1991 before the House Aviation
Subcommittee. Mr. Dmitrowsky, a U.S. 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 U.S. air carrier, the DOT reissued JFK-St.
Petersburg route authority to the Company. By August 1998, the Company
had met all Gate One requirements of the FAA certification process.
Prior to commencement of service, the Company is required to complete
the FAA Air Carrier Certification, a process which consists of document
approval, crew training, and flight demonstration.
BUSINESS STRATEGY
The Company's business strategy is to establish itself as a leading
carrier in the U.S.-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 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 Chief of Marketing 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 U.S.-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 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 U.S.
Postal Service stated that the Company may be required to carry about
half of all U.S. 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 U.S. 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 U.S.-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 negotiating an agreement with Cathay Pacific Airways
Ltd. for the of lease one B747 aircraft. The Company has allocated
$1,225,000 for acquisition of, and initial acquisition deposit on, the
aircraft. See "Use of Proceeds." There is no assurance that this
aircraft will be acquired.
BALTIA(R), VOYAGER CLASS(R), 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 has an internet domain,
"baltia.com" through which it expects to continue to provide information
to the public and sell tickets.
The Company's office is located in the International Arrivals
Terminal ("IAT"), 4-E, JFK International Airport, Jamaica, NY 11430
and its telephone number is (718) 553-6636.
THE OFFERING
Securities Offered(1) . . . . . . 1,000,000 shares of Common Stock and
1,000,000 Warrants. The Common
Stock and Warrants are separately
tradeable as of the date of this
Prospectus.
Description of Warrants . . . . . Each Warrant entitles the registered
holder to purchase 1.5 shares of
Common Stock at $9.00 per Warrant
($6.00 per Share)
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
$.25 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 . . . . 1,202,083 shares.
Common Stock Outstanding
After Offering . . . . . . . 2,202,083 shares(1)
Proposed Nasdaq SmallCap
Market Symbols . . . . . . . Common Stock: BALT
Warrants: BALTW
Proposed Boston Stock
Exchange Symbols . . . . . . Common Stock: BLA
Warrants: BLAW
USE OF PROCEEDS
Of the $4,267,500(2) net proceeds of this Offering, the Company
intends to reserve approximately $60,000 to pay liabilities, and to use
approximately $1.2 million for commencement of scheduled nonstop service
on the JFK-St. Petersburg route, including costs for aircraft deposit,
spare parts/ground equipment, general and administrative, contract
services, and mini-evacuation tests. Approximately $2.9 million 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 150,000
additional Shares.
(2) Based upon the IPO price of $5.00 per Share and $.25 per Warrant,
net proceeds to the Company of $4,267,500 are calculated by
deducting from the total Proceeds of $5,250,000.00, the Underwriting
Discounts and Commissions of $525,000.00, the Underwriter's
non-accountable expense allowance of $157,500, and expenses of
this Offering payable by the Company estimated at $300,000.
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth certain selected financial data for
nine months ended September 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>
Nine Months Ended Years Ended
September 30 December 31
1998 1997 1997 1996
<S> <C> <C> <C> <C>
Statement of Operations Data:
(Development Stage)
Operating revenue ..... 0 0 0 0
Pre-operating expenses ... $ 60,832 $ 112,457 $ 143,137 $ 170,566
Pre-operating loss ..... 60,832 (112,457) (143,137) (170,566)
Interest expense related to
bridge loans 850,000 0 0 0
Interest expense net-other 14,931 0 0 68,120
Net loss .......... (925,763) (112,457) (143,137) (238,686)
Loss per share of Common
Stock ............ (0.77) (.06) (.07) (0.13)
<CAPTION>
September 30, 1998
Pro forma
Adjusted
Balance Sheet Data: for Offering
Actual <FN1><FN2>
<S> <C> <C>
Working capital (deficit) ....... $(148,802) $ 4,118,698
Total assets ............. 242,422 4,509,922
Total liabilities .......... 176,568 176,568
Redeemable common shares <FN4> .... 0 0
Stockholders' equity <FN3> ...... 65,854 4,333,354
Net Tangible Book Value per share ... (O.07) 1.90
<FN>
<FN1>
(1) Does not include proceeds from the Over-Allotment Option of up to
150,000 additional Shares.
<FN2>
(2) Based upon the IPO price of $5.00 per Share and $.25 per Warrant,
net proceeds to the Company of $4,267,500 are calculated by
deducting from the total Proceeds of $5,250,000 the Underwriting
Discounts and Commissions of $525,000, the underwriter's
non-accountable expense allowance of $157,500 and expenses of
this Offering payable by the Company estimated at $300,000.
<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 62,497 restricted Shares;
(2) $1,628,000 in accounts payable were converted into 125,000
restricted Shares;(3) $110,000 in accounts payable to a
consultant were converted into 8,333 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. On September
29, 1998, the Company wrote off accounts payable in the amount of
$538,654 and the Company purchased 1,000,000 shares of Mr.
Dmitrowsky stock as treasury stock for a total of $100 plus an
option to purchase the 1,000,000 treasury stock from the Company
for $100 upon completion of the Company's inaugural flight or
upon exercise of any Company warrants, whichever occurs first.
On November 12, 1998, the Company amended its Articles of
Incorporation to authorize 500,000 preferred shares of Company
stock, $.01 par value, effective September 30, 1998 and converted
bridge loans totaling $800,000 plus accrued interest to 80,000
redeemable, convertible, preferred shares, each with a 10% coupon
(effective September 30, 1998). Ninety days after the date of
the Prospectus, each preferred share will automatically convert
to three unregistered shares of the Company common stock, unless
prior redeemed upon 20 days notice by the Company for $12 plus
accrued interest from September 30, 1998 per preferred share. On
November 30, 1998, the Company had a 1.2 to 1 reverse split of
its common stock.
<FN4>
(4) In June 1997, certain shareholders canceled their option to sell
back to the Company 20,833 Shares at total buy-back amount of
$400,000.
</FN>
</TABLE>
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 September
30, 1998, the Company has accumulated a loss of $7,313,269 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 $4,267,500 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 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 New York-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 U.S.S.R. 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 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 $2.9
million with which to meet the DOT financial requirement to commence
service with one round trip per week. Once operations have commenced,
the Company may increase service as traffic demands up to 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, U.S. 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 U.S. 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 on the
President within 90 days after the Closing of the Offering. 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 58% 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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." U.S. 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 U.S. government. However, the Company is
subject to any change negotiated by U.S. 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 - U.S.
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 U.S.-Russia market. Because the Company's
right to operate from the U.S. to Russia is protected by the Bilateral
Agreement, the Company's service is not likely to be interrupted by
political change, unless a breakdown in diplomatic relations occurs
between the U.S. 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 may have a
material adverse effect on the Company's operations. See "Business -
U.S. 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 aircraft. An aircraft is presently
available for delivery in 1999. Cathay Pacific Airways Ltd presently
has additional sister ships also available to Baltia. Upon successful
completion of this Offering, the Company expects to complete the
lease. 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 $250,000 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 is better than 97% (Boeing report ID:RM
23004). The FAA requires that the Company have line maintenance at
JFK and in St. Petersburg, as well as spare parts reserves and parts
pool arrangements at both airports. Despite the technical servicing
capability required by the FAA, the Company may experience delays due
to technical problems which a multi-aircraft operator would be better
equipped to resolve. Such potential occurrences may impact adversely
on the Company's marketing objective to provide reliable on-time
service to passengers and cargo shippers. There is no additional
safety risk associated with operating a single aircraft because the
FAA requires U.S. airlines to observe uniform safety standards
regardless of the number of aircraft.
For each hour of aircraft operation, the Company accumulates
capital reserves for various maintenance items. It is possible that
during the initial period, until sufficient maintenance cash reserves
are accumulated, an unexpected significant maintenance cost can
adversely impact the Company's operating cash flow. See "Business -
Description of the Industry," and "Pending Aircraft Acquisition."
Currency Exchange Fluctuations
In addition to dollar sales throughout the U.S. and in Russia,
the Company will accept non-dollar currencies at St. Petersburg. The
Company is authorized to freely transfer its funds between the U.S.
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 U.S.-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, Aeroflot and other smaller foreign airlines.
Only U.S. 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 U.S. and Russia.
Of US non-stop service, Delta is currently providing non-stop service to
Moscow, and the Company will fly non-stop to St. Petersburg. Of Russian
non-stop service, Aeroflot is currently providing non-stop service from
New York to St. Petersburg on Friday and Sunday and from New York to
Moscow five days a week.
Despite the apparent advantage that the Company may have by
providing the only U.S. non-stop service to passengers and cargo
shippers in the U.S. - St. Petersburg market, the major carriers have
an established name and reputation. As a start-up U.S. 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 U.S. 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 U.S. 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," "--- U.S. 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 guarantee 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 intends to lease, 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 U.S. airline, the Company is required to maintain
comprehensive airline liability insurance. The Company intends to
carry $1.1 billion 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 U.S.
airline should it find that non-U.S. 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 U.S. certification and the Company and LainBanka would have a
continued interest in retaining U.S. 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 - One 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 $4,267,500, the executive officers' compensation totals
$42,000 which represents 1% 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.
Notwithstanding 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 125,000 restricted shares, the outside legal counsel,
Steffanie J. Lewis, The International Business Law Firm, P.C., owns a
total of 158,333 shares, or approximately 13%, of the Company's issued
and outstanding Common Stock. After this Offering Ms. Lewis will own
7.2%, and assuming Mr. Dmitrowsky exercises his option for 1,000,000
shares, Ms. Lewis will own approximately 4.9%. Her financial interest
could influence her independent opinion, but her professional integrity
and practice of full disclosure to the Company's management and board
of directors reasonably prevents such occurrence.
In 1990, Airline Economics, Inc. was engaged by the Company as
industry analysts for the U.S. - U.S.S.R. 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 23,958 shares of Common Stock, or
approximately 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 8,333 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 $176,568. Excepting
$60,000 reserve, 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 U.S. DOC,
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, directors, and
counsel of the Company will own 36.5% of the issued and outstanding
Shares (assuming the Warrants, the Over-Allotment Option, and
Representative's Warrant 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 U.S. 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 Underwriter and the Company. In determining
the number of Shares and Warrants to be offered and the Offering
price, the Company and the Underwriter 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, IPO investors may not
be able to resell their Common Stock, or Warrants at or above the
public offering price, if at all, and an IPO investor 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
One year after the closing of this Offering, the market may be
adversely influenced by the trading of up to 666,664 Outstanding
Warrants and/or the underlying 999,996 common shares. In Spring 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 in promissory notes and 825,000 Bridge
Warrants. In Fall 1998, the Company exchanged $800,000 promissory
notes plus accrued interest thereon for 80,000 Redeemable Convertible
Preferred Shares, and exchanged 800,000 Bridge Warrants for 666,664
Warrants identical to those offered to the public in this Offering
("Outstanding Warrants"). The Holders of these Outstanding Warrants
are being registered as Selling Securityholders contemporaneously with
this Offering, but the underlying shares are not being registered with
this Offering. All the Selling Securityholders have signed agreements
with the Underwriter locking up both the Outstanding Warrants and
their underlying Shares for a period of 12-month from the Effective
Date. If the lock-up agreement is dissolved, all Outstanding Warrants
may be immediately traded and are exercisable six months after the
Effective Date. If the underlying shares are then registered, or
otherwise authorized for sale, the market may be adversely influenced
by the trading of up to 999,996 additional shares.
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 operating history or $50
million market capitalization. Although the Company qualifies for
initial quotation of its Securities on Nasdaq SmallCap Market, for
continued listing, a company, among other things, must maintain 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 SmallCap
Market 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 $.25 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, HI, NY, NJ, CO, CT, DE, FL, GA, IL, MA, MD,
MI, MO, MS, MT, NM, OR, RI, SC, TX, UT, VA, VT, WA, and WV. Certain
exemptions under certain state 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."
Underwriter's Warrants
Subject to the requirements of the SEC and NASD, the Company will
grant to the Manager, as partial consideration for services rendered,
a warrant to purchase up to 100,000 Shares and 100,000 warrants
("Underwriter's Warrants"), exercisable at any time during a period of
four years commencing one year from the date of this Prospectus
after which time all rights attached terminate. The Underwriter's
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 Underwriter' 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 Underwriter' Warrants is sold in the
public market, may adversely affect the market price of the Company's
Common Stock. The Underwriter' 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 Underwriter. See "Description of
Securities - Underwriter' Warrants, Underwriting, and Dilution."
Underwriter as Market Maker
In connection with the Offering, the Underwriter 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 Underwriter may also create a short position for the
account of the Underwriter by selling more securities in connection
with the Offering than they are committed to purchase from 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 Underwriter may also cover all or a portion of such
short position, up to 150,000 additional shares of Stock and 150,000
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 Underwriter and selling group
members (if any) and their respective affiliates may also engage in
passive market making transactions in the Common 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
SmallCap 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."
Underwriter's Influence on the Market May Have Adverse Consequences
A significant number of Shares and Warrants may be sold to
customers of the Underwriter. Although they have no legal obligation
to do so, the Underwriter, from time to time in the future, may make a
market in and otherwise effect transactions in the Company's
securities, subject, however, to the restrictions and limitations
imposed by Rule 103 of Regulation M under the Securities and Exchange
Act of 1934, the effect of which will prevent the Underwriter from
effectuating certain transactions in the Company's securities until
the distribution of the securities offered hereby has been completed.
Such market making activities, if commenced, may be discontinued at
any time or from time to time by the Underwriter without obligation or
prior notice. If a dominating influence at such time, the
Underwriter's discontinuance may adversely affect the price and
liquidity of the securities. In addition, and in the event an active
interdealer market fails to develop in the Company's securities,
whether as a result of the dominance and control of the
Representative, or otherwise, such a course of action may decrease
market liquidity and in turn adversely effect the purchasers of the
Shares and Warrants.
Substantial Dilution to Purchasers
Assuming no value attributable to the Warrants, at the IPO price
of $5.00 per Share, purchasers in this Offering will incur immediate
and substantial dilution of $3.10 (62%) dilution per Share in the net
book value per share of their investment. Purchasers in this Offering
will be contributing approximately 39% of the total investment
consideration to the Company but will receive 45% of the shares
outstanding (assuming the Warrants, Representative's Warrant are not
exercised). Additional dilution will occur upon the exercise of
Warrants, Representative's Warrant, and Over-Allotment Option.
Accordingly, in the aggregate, purchasers in this Offering, may bear a
greater risk of loss than the current stockholders. See "Dilution."
Shares Eligible for Future Sale
Shares Eligible for Future
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 2,202,083 shares
of Common Stock will be outstanding. The 1,202,083 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 93% Insider Shares (1,061,639
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 Underwriter. Whether or not to grant
consent lies within the discretion of the Underwriter, who have no
present intent to grant consent for any shares currently outstanding.
Should the Underwriter 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 Underwriter' lock up, 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
Underwriter, for 24 months following the Prospectus date, the Company
shall not issue any additional equity securities without the
Underwriter' prior written consent. Following the exercise of the
1,000,000 Warrants, and the Representative's Warrant consisting of
100,000 Shares and/or 100,000 Warrants, the Company will have
outstanding 3,952,083 Shares. This does not include the exercise of
666,664 Outstanding Warrants. The Company is also authorized by its
Certificate of Incorporation to issue 500,000 Preferred Shares, of
which 80,000 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.
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
(Prior to and Subsequent to Closing)
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 $60,000 for liabilities. The net Proceeds from
the sale of 1,000,000 Shares and 1,000,000 Warrants are estimated to
be $4,267,500 after deducting underwriting discounts, Underwriter' 3%
non-accountable expenses and other Offering expenses of $300,000.
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 aircraft. Consideration was given to the
prior ownership and maintenance of the aircraft. The $750,000
aircraft deposit and first month aircraft lease payment are based upon
negotiations with Cathay Pacific Airways. The Company expects to make
subsequent monthly lease or purchase payments from operating revenue.
It is the opinion of the Director of Technical Services that
spare parts for the B747-267 are in relative abundance at favorable
prices. The numbers in the table below are Company estimates only.
The bridge funds represent 16.2% of Total Budgeted costs and were
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 $20,000 payment of liabilities.
<TABLE>
<CAPTION>
USE OF PROCEEDS(Prior to and Subsequent to Closing)
<S> <C> <C>
Aircraft Lease or Purchase Deposit<FN1> ... $1,225,000 24.1%
Spare Parts/Ground Equipment<FN2> ...... 373,000 7.3%
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 0.4%
Mini-Evacuation Test <FN8> ......... 50,000 1.0%
Repayment of Liabilities <FN9> ....... 60,000 1.2%
Reserve Working Capital <FN10> ....... 2,958,500 58.1%
Total Budgeted (for FAA Certification and to
Commence Service) .............. $5,092,500 100.0%
Less Bridge Funds (used prior to Closing) .. $825,000
TOTAL (Net Proceeds) .......... $4,267,500
<FN>
<FN1>
(1) Represents initial deposit. Anticipated monthly lease payments
are $250,000, 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 1% 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,
U.S. 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 $60,000 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.
</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 September 30,
1998, total current liabilities were $176,568. 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 would total
approximately $600,000. This premium is expected to include
comprehensive airline liability coverage up to $1.1 billion any one
occurrence. Monthly premiums will not be paid from Net Proceeds but
rather from anticipated operating revenue. 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 September 30, 1998 and gives effect to the sale of 1,000,000
Shares and 1,000,000 Warrants offered hereby at $5.00 per Share and
$.25 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>
September 30, 1998
(Unaudited)
Pro Forma
Stockholders' Equity: Actual as Adjusted<FN1>
<S> <C> <C>
Preferred Stock, $.01 par value; 500,000
shares authorized, 80,000 issued and
outstanding at September 30, 1998 and
December 31, 1997, respectively. 800 0
Common Stock, $.0001 par value;
100,000,000 shares authorized, 2,035,416
shares issued, and 1,202,083 shares issued
and outstanding before Offering <FN2>, and
2,202,083 shares issued and outstanding at
Offering $203 $303
Common Treasury shares - at cost (100) (100)
Additional paid-in capital 7,774,310 12,041,810
Deficit accumulated during development (7,313,269) (7,313,269)
Prepaid media costs (396,090) (396,090)
Total stockholders' equity 65,854 4,333,354
<FN>
<FN1>
(1) Based upon the IPO price of $5.00 per Share and $.25 per Warrant,
Net Proceeds of $4,267,500 are calculated by deducting from the
Proceeds of $5,250,000 the Underwriting Discounts and Commissions
of $525,000, the Underwriter' non-accountable expense allowance
of $157,500, and expenses of this Offering payable by the Company
estimated at $300,000.
<FN2>
(2) The Company has 1,202,083 Shares issued and outstanding. This
number does not include the 1,000,000 Shares for which Mr.
Dmitrowsky has an option to purchase for $100 upon completion of
the first revenue flight or the exercise of any Company option/
warrant, whichever occurs first.
<FN3>
(3) Stockholders' deficit attributes zero value to $396,090 of
pre-paid media placements.
</FN>
</TABLE>
DILUTION
As of September 30, 1998, the Company had 1,202,083 Shares issued
and outstanding. Assets at September 30, 1998 were $242,422, of which
$92,422 were tangible. Total liabilities at September 30, 1998 were
$176,568. Thus, net tangible book deficit was ($84,146) or ($.07) 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'
equity of $65,854. Without taking into account any changes in the net
tangible book deficit after September 30, 1998, other than to give
effect to the sale of 1,000,000 Shares and 1,000,000 Warrants offered
herein at initial offering prices of $5.00 and $.25 for Shares and
Warrants, respectively, and the application of Net Proceeds of
$4,267,500, the pro forma book value of the Company's Common Stock
will be $4,183,354 or $1.90 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 $5.00 per
Share and pro forma net tangible book value per Share) of $3.10 (62%)
per Share. The dilution will increase should, or when, Mr. Dmitrowsky
exercise[s] his options to purchase 1,000,000 Shares upon completion of
the first revenue flight or upon exercise of any option/warrant,
whichever occurs first.
<TABLE>
<CAPTION>
The following table illustrates as of September 30, 1998, the per
Share dilution.
<S> <C> <C>
IPO price ........................ $5.00
Net tangible book deficit .......... ($0.07)
Increase attributable to new investors ... $1.97
Pro forma net tangible book value after Offering .... $1.90
Dilution to new investors ................ $3.10
</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 Consideration
Average
Percent Percent Price per
Shares Shares Amount Contribution Share
<S> <C> <C> <C> <C> <C>
Existing
Shareholders 1,202,083 55% 7,774,310 61% $6.47
New Investor 1,000,000 45% 5,000,000 39% $5.00
Total 2,202,083 100% 12,774,310 100%
</TABLE>
The foregoing analysis assumes no exercise of Warrants,
Representative's Warrant, 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 nine months ended September 30, 1998 and
1997 (unaudited), and years ended December 31, 1997 and 1996, as well
as results since inception to September 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>
August 24,
1989
Nine Months 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 (224,692) 80,832 84,512 92,749 2,002,191
Professional fees 78,891 31,625 58,625 77,817 2,063,836
FAA certification
costs 206,633 0 0 0 206,633
Service 0 0 0 0 1,352,516
Training expenses 0 0 0 0 225,637
Abandoned fixed 0 0 0 0 205,162
Total expenses 60,832 112,457 143,137 170,566 6,055,975
Interest expense -
amortization of $ 850,000 850,000
Interest expense - 14,931 0 0 68,120 407,294
Net loss $ (925,763)$ (112,457)$ (143,137)$ (238,686)$ (7,313,269)
Net loss per common
share - basic and $
diluted (0.77)$ (0.06)$ (0.07)$ (0.13) $ (6.08)
September 30, 1998
Stockholders' per
share equity 0.05
Common Shares $ 1,202,083
</TABLE>
BALANCE SHEET DATA:
(Development Stage)
September 30, 1998
Working capital (deficit) ............ $(148,802)
Total assets .................. 242,422
Total liabilities ................ 176,568
Stockholders' equity .............. 65,854
(1) Stockholders' deficit attributes zero value to $396,090 of prepaid
media placements.
<PAGE>
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 U.S. airline on August 24, 1989 in
the State of New York. The Company's objective is to provide
scheduled air transportation from the U.S. 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 U.S.S.R.
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, political and
economic ties expanding between the U.S. and Russia, which were
reflected in the increased airline passenger traffic and airfreight,
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
U.S. air carrier. In September 1997, and upon another examination of
the Company's operating plan and fitness as a U.S. air carrier, the
DOT renewed the Company's JFK-St. Petersburg route authority, and
renewed it again in February 1998.
In August 1998, the Company requested an additional extension of
authority to complete the IPO, and to complete FAA certification and
commence revenue flights. The DOT is waiting for the IPO to close
before granting an extension. A failure by the Company to close the
IPO would have a material adverse effect upon the Company's route
authority extension and its proposed operations.
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 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 U.S. 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 U.S.-Russia travellers would arrive in,
or depart from, St. Petersburg, the Company conservatively projected
St. Petersburg traffic for 1996 for use in its business plan. A
subsequent 1995 survey by CIC Research (DOC contractor) reports that
U.S.-St. Petersburg traffic more than doubled that which the Company
projected. 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 U.S.-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 U.S. 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 U.S. 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
U.S.-Russia air cargo traffic was 5.8 times greater than the IATA
forecast. The B747 aircraft offers wide-body palletized and
containerized cargo capacities to meet the needs of U.S.-Russia
passenger and cargo traffic growth. The Company will offer non-stop,
B747 air service from 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 U.S. mail is channeled through Moscow because non-stop
U.S. service to St. Petersburg is not available. The U.S. 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 U.S. mail
to Russia, 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 for twelve months
will be $9.9 million assuming that, after commencing revenue
operations, the Company operates one B747 aircraft between NY and St.
Petersburg, Russia once a week. This estimate is comprised of three
months pre-operating expenses at $1.4 million ($2.2 million budgeted
less $825,000 purchases prior to Closing) ("Use of Proceeds"), nine
months operating expenses at $8.3 million, and the Company's total
liabilities at $.2 million. (DOT Order 97-9-11, p.5. Nine months
operating expenses based upon DOT average three months expenses of
$2.7 million). The pre-operating and operating expenses include, but
are not limited to, aircraft leasing costs of $3 million, aircraft
insurance in the amount of $.6 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 payments are expected to be paid from
operating revenue. Nevertheless, 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 meeting the following conditions: (i) opening an account
including registering a subsidiary in Latvia, (ii) providing two weeks
advance notice of its borrowing need, and (iii) agreeing to pay a
floating 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 U.S. and would subject the Company
to legal process in Latvia.
At Closing, the Company expects to receive Net Proceeds in the
amount of $4,267,500, which, together with the $6.2 million LOC and
advertising credits in the amount of $.4 million, will make available
resources totaling $10.8 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 six 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 U.S. to Russia. The Company has
invested $7.8 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 $7.3 million as
developmental costs during the periods in which they occurred. During
six years of development, the Company has accumulated $176,568 total
liabilities (includes current liabilities).
FAA Certification.
In August 1998, the Company completed Gate One requirements of the
FAA certification process, a procedure which consists of document
approval, crew training, and flight demonstration. 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 the
aforementioned 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.
There were no criticisms or comments from the FAA, the industry or the
Air Transport Association, and thus none were recited in the DOT Order
that was issued at the closing of the comment period, but there were
none. The 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 working capital at September 30, 1998, of $7,313,269 and $65,854
respectively, which results in a per share loss of $6.08 and
stockholders' per share equity of $.05. 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 nine months ended September 30, 1998
and 1997 and years ended December 31, 1997, and 1996 totaled $21,109,
$17,132, $17,215 and $18,592 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 million LOC from
the LainBanka of Riga, Latvia. For details, see "Twelve Months'
Operating Plan", supra.
As of September 30, 1998, the Company has current liabilities of
$176,568 which it expects to pay within two years. Management
believes it unlikely that liabilities will be called earlier than
their scheduled repayment because the 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 vendors to whom the Company owes $48,250 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 not preclude use of
the LOC to repay liabilities called early. As of September 30, 1998,
total liabilities were $176,568, of which all are current liabilities.
Use of LOC funds is conditioned on their not being used for long-term
investments, thus permitting their use should early calls be made on
outstanding current liabilities.
The DOT has the power to withdraw U.S. airline authority from any
U.S. airline should it find that non-U.S. 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, LainBanka would have certain legal
remedies, the enforcement of which could have a materially adverse
effect on the Company's operations in the event the Company defaults.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Offering, assuming Net Proceeds in
addition to cash as of September 30, 1998, the Company will have cash
and cash equivalents of $4,270,266, total assets of $5,509,922 and
total liabilities of $176,568. Accordingly, the Company's debt to
total capitalization ratio will be 1:31.
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 $116,568 (net of $60,000 remaining 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. As of September 30,
1998, $48,250 in accounts payable is owed to 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"). 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 Option of $763,875(after deducting Underwriting
discounts and the 3% allowance), (ii) up to $10,350,000 from the
exercise of Warrants, (iii) up to $1,552,500 from the exercise of
Representative's Warrant (including the exercise of the Underwriter's
Warrant), and (iii) up to $5,999,976 from the exercise of 5,999,976.
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 Russian 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 U.S. dollars.
The Company's traffic is primarily U.S. travelers but the Company does
expect to 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 U.S. 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 U.S. 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-U.S. 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 1998, the value of the ruble fell significantly.
INSURANCE COVERAGE AND EXPENSE
In 1998, AON Risk Services, Inc. of Virginia informed the Company
that current insurance costs associated with the Company's operating a
B747 aircraft would total $600,000. This estimate includes hull
insurance, comprehensive airline liability coverage up to $1.1 billion
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 guarantee that claims would not exceed the insurance coverage
purchased.
BUSINESS
The Company was incorporated under the laws of the State of New
York on August 24, 1989, as a U.S. airline, with the objective to
provide full-service commercial, passenger, cargo and mail
transportation from the U.S. to the republics of the former Soviet
Union. Since 1989, the Company's management has traveled extensively
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 business. In 1991, the Company's Chief
Executive Officer, Mr. Dmitrowsky, testified before the House Aviation
Subcommittee on the implementation of the new U.S.-former U.S.S.R.
bilateral agreement by U.S. airlines. The Company's senior management
team has been approved by the DOT to operate a U.S. 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
U.S. and U.S.S.R.. 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. 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. 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. 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
U.S., 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 U.S. 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
U.S. 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 U.S.-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 U.S.-Russia traffic, the Company
projected U.S.-St Petersburg traffic to be 20% of 1994 U.S.-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 acknowledges that, particularly since August 1998,
Russia has been experiencing economic transition difficulties.
Although statistics on such recent traffic is not available, these
difficulties do not seem to affect the demand for airline seats. As
recently as December 1998, the Company had difficulty obtaining
immediate bookings. Only advance purchase seats were available
between New York and Russia. The Company expects the U.S. government
involvement with Russia to continue and government traffic between the
U.S. and Russia to maintain. Commercial traffic is expected to
increase with stabilization of the Russian economy. The devaluation
of the Russian ruble is an incentive for American tourists to visit
Russia and reason to expect tourist traffic to maintain.
The Company surveyed fares of the leading foreign airlines that are
serving the U.S.-Russia market. Over the past several years, fares in
the U.S.-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 U.S. and
Russia. Additionally, no U.S. airline offers non-stop service between
the U.S. and St. Petersburg, and only Aeroflot offers non-stop
Russian service between the U.S. and St. Petersburg. The most
recent Bilateral Agreement limits the aggregate number of round
trips U.S. carriers may make to Russian cities (frequencies).
All frequencies available under that Bilateral Agreement
have been allocated by the DOT for use by U.S. carriers to
serve Russian cities other than St. Petersburg. Thus, the Company
anticipates that it will offer the only U.S. 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 U.S.-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 U.S. 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 U.S. 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
U.S.-Russia Market: (i) Business Travelers, (ii) General Tourism,
(iii) Ethnic Travelers, (iv) Special Interest Groups, (v) Professional
Exchanges, and (vi) Government and Diplomatic Travel.
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. (U.S. 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 U.S.-bound emigrants and family visitors originating in
Russia with tickets pre-paid in the U.S.. (U.S. Census Data on
Distribution of Ethnic Populations in the U.S.)
Special Interest Groups
Special interest groups represent a relatively new and
substantial category of travelers which is generated by the U.S.
government, sister cities, educational institutions, and cultural
exchange programs. Passengers typically originate in the U.S., but
many also originate in Russia using tickets pre-paid in the U.S..
These exchange programs choose coach and business fares. In 1993,
16,612 U.S.-originating passengers attended conventions in Russia, and
10,520 U.S.-originating passengers studied in Russia. (U.S. DOC,
BISNIS, Government Programs to Russia)
Professional Exchanges
American-Russian professional exchanges are sponsored by trade
associations, the U.S. government, cities, hospitals, colleges,
corporations, and performing arts institutions. Example: In December
1993, Columbia University, NY, contacted the Company regarding
transportation needs of a Consortium consisting of 82 U.S. and Russian
universities. (Also, DOC, BISNIS, Internships and Professional
Exchanges)
Government and Diplomatic Travel
The Fly America Act (41CFR301.3-6) requires U.S. government and
diplomatic travelers to fly on a U.S. carrier where one is available.
They generally originate in Washington, DC and New York. The State
Department and the U.S. 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 passengers 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 U.S. 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 U.S. 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 U.S.. In
June 1997, the Company issued 27,083 shares to Kent 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 U.S. 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 Chief of Marketing and V.P. of
Marketing maintain 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
U.S.. 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 U.S. pre-paid
ticket arrangements. In the U.S. 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 U.S. pre-paid ticket arrangements for Russian travelers are
planned. The Company plans to sponsor selected cultural and ethnic
events in the U.S. and in Russia. In December 1993, the Company
initiated contact with Columbia University which oversees a
U.S.-Russian university consortium consisting of 82 U.S. and Russian
colleges. Coordination with Columbia University and the other 82 U.S.
universities and colleges in the U.S.-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 U.S. universities. For the 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
U.S. airlines are currently either making a profit or decreasing their
annual loss. (See generally Bureau of Transportation Statistics, U.S.
DOT)
History demonstrates that the industry is not uniform. While
most small new carriers went out of business, and while some major
U.S. airlines had been losing money in operations as a result of price
wars, Southwest Airlines has consistently offered prices which are
substantially below the discount 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.)
COMPETITION
While the Company recognizes that it will commence revenue
operations with the only U.S. 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. 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 U.S. -
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
NY-St. Petersburg service survey was done in January 1999.
Finnair
Finnair flew between Helsinki and St. Petersburg daily. Five
days a week, to connect with its flights from U.S. 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 U.S. 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 U.S. 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 U.S. 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 (U.S. carrier)
Delta Air Lines provided non-stop service to Moscow. In 1996
Delta ceased providing service to St. Petersburg and has applied to
the DOT for authority to market St. Petersburg through code sharing
with foreign carriers.
Aeroflot (Russian carrier)
Aeroflot provided non-stop service from St. Petersburg to New
York and return twice weekly (on Friday and Sunday) and via Moscow
on Saturday. Service from New York to St. Petersburg through Moscow
was available only in one direction four times a week (Monday-Thursday).
Aeroflot listed no service from St. Petersburg to New York four days
a week (Monday through Thursday). Aeroflot operated the Boeing 767
on the non-stop flights between New York and St. Petersburg. On
flights from New York to St. Petersburg via Moscow, Aeroflot operated
the Russian-built Tupolev on the leg between Moscow and St. Petersburg.
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 U.S.-Russia market. Finnair and SAS have fleets of
airplanes capable of trans Atlantic flight, offer service quality
acceptable to Western travelers, and have 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 and 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 Airways, American and 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
U.S..
The Company's proposed schedule assuming one round trip per week
is:
Depart JFK at 17:00 Monday
Arrive LED at 9:34 +1 Tuesday
Depart LED at 12:00 Thursday
Arrive JFK at 13:31 Thursday
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 has held interline discussions with 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 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, at their local travel agent through the CRS, passengers will
be able to purchase a multi-leg ticket where the Company is one of the
air carriers without interline discount, but it may be more expensive
that a multi-leg ticket on a competitive airline that has interline
agreements in place.
PRICING
The Company's calculation of year one results is based on: (i)
the number of passengers (93,431) multiplied by the Weighted Average
Fare After Dilution, plus (ii) the pounds of freight (2,800,000)
multiplied by the rate per pound. Thus, along with the passenger and
cargo volume transported, fares and cargo rates have a direct impact
on revenues. In general, traffic volume is driven by the intensity of
commerce between two countries, depending on the underlying economic,
social and political factors. In general, fares are market driven,
depending on demand for and supply of the transportation in the
particular market. Fares may also be influenced by tradition and
marketing objectives of airlines. All fares and cargo rates are
subject to change over time. For discussion on passenger and cargo
volume, see "Management Discussion and Analysis - Forecast Results of
Year One Operation."
In 1997, the Company surveyed the price structures of Finnair,
SAS, Lufthansa, Delta and Swissair to compare the published market
fares of one-and two-stop connection to St. Petersburg, involving a
change of gauge, with the Company's non-stop, wide-body service from
JFK to St. Petersburg. The following table summarizes the 1996
published one-way fares (source: Official Airline Guide,1997):
<TABLE>
<CAPTION>
PUBLISHED MARKET FARES (ONE-STOP, CHANGE OF GAUGE)
First Business Economy Discount
<S> <C> <C> <C> <C>
Finnair N/A $2,177 $ 850 $ 570
SAS N/A 2,302 1,227 594
Lufthansa 3,223 2,302 1,269 420
Swissair 3,223 2,302 850 670
Average stop-over fare $3,223 $2,270 $1,049 $563
Company's non-stop fare $2,715 $1,595 $1,193 $555
</TABLE>
For marketing reasons to reflect the Company's exclusive non-stop
service, 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>
THE COMPANY'S INTENDED B747 SEATING CONFIGURATION AND AVERAGE
OCCUPANCY
<CAPTION>
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 U.S.
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 promotion/discount
programs . . . . . . . . . . . . . . . . . . . $ 342.76
<FN2>
Weighted Average Fare - After Dilution. . . . . . $ 514.15
</TABLE>
[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>
PERSONNEL
(3) 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 twenty staff members are actively
working on the Company's financing, aircraft acquisition, and
FAA certification. Upon receipt of financing from this Offering,
more than twenty 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 approximating $170,000. 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 leases facilities on a month-to-month basis
in the East Wing of the International Arrivals Terminal ("IAT"), JFK
International Airport, New York, at a rate of $1,200 per month. As
the U.S. carrier providing international service, the Company is
eligible for required gate space and other facilities at JFK and at
Pulkovo airport in St. Petersburg. In addition to leasing space in
the IAT, the Company leases office space from the Company's president
at his residence at a rate of $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.
U.S. CARRIER OPERATIONS UNDER BILATERAL RIGHTS
Prior to the conclusion of the 1990 Bilateral Agreement, only
PanAm and Aeroflot were authorized to operate between their respective
countries. All flights between the U.S. 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 U.S. and the former U.S.S.R. concluded a new
expanded bilateral air transportation agreement, the DOT invited U.S.
airlines to compete for the limited route rights under the new
bilateral agreement. A total of 12 U.S. 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.
After the U.S.S.R. broke up, the Bilateral Agreement of 1994
was signed reinforcing and expanding the former U.S.-U.S.S.R.
Bilateral Agreement of 1990. Under the Bilateral Agreements the
designated U.S. airlines enjoy certain rights backed by the U.S.
Government. Russia has granted certain rights to the U.S. and
reciprocal rights were granted by the U.S. 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 to 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 U.S. and Russia,
including exemption from 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 U.S. 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
U.S.-Russia commerce, i.e. it might slow the future growth in traffic
for the Company.
PENDING AIRCRAFT ACQUISITION
The Company is negotiating an agreement with Cathay Pacific
Airways Ltd to lease a Boeing 747 aircraft. An aircraft is presently
available for delivery in 1999. 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 $250,000 per month. The Company
has budgeted $1,225,000 for internal acquisition costs of, and initial
deposit on, the aircraft.
MANAGEMENT
The management of a U.S. 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 U.S. 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 Underwriter' designee for a
period of three years, at the option of the Underwriter.
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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. citizen, is V.P. of Marketing. He joined the
Company in 1990. Mr. Glynn has a 25 year 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 Marketing of American Kefir Corporation and was
responsible for the introduction and distribution of the Company's
product in the New York market.
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 U.S. 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 U.S. 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.
Lawrence M. Hecker, a U.S. 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.
Robert S. Volpe, a U.S. 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 U.S. 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 U.S. 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.
Hans G. Wolf, a U.S. 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.
Edward Miceli, a U.S. 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 U.S.. In 1993 she organized a lecture tour for Mikhail
Gorbachev in England.
Captain Glen Johnmeyer, 40 years of age, a U.S. citizen, will serve
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. 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 10(H.) 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>
The following table sets forth, as of the date of this
Prospectus, the ownership of the Company's Common Stock by (i) each
director and officers of the Company, (ii) all executive officers and
directors of the Company as a group, and (iii) all other persons known
to the Company to own more than 5% of the Company's Common Stock.
Each person named in the table has sole voting and investment power
with respect to all shares shown as beneficially owned by such person.
The percentage owned after the Offering reflects the sale of 1,000,000
Shares and the exercise of 1,000,000 Warrants <FN1>.
<CAPTION>
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 .......... 430,917 37.3% 19.6%
63-25 Saunders St., Suite 7I
Rego Park, NY 11374
Walter Kaplinsky ......... 61,042 5.3% 2.8%
2000 Quentin Rd.
Brooklyn, NY 11229
Brian Glynn ........... 41,667 3.6% 1.9%
148 Claremont Rd.
Bernardsville, NJ 07924
Andris Rukmanis .......... 21,250 1.8% 1.0%
Kundzinsala, 8 Linija 9.
Riga, Latvia LV-1005
Anita Schiff-Spielman ....... 1,875 0.2% 0.1%
1149 Kensington Rd.
Teaneck, NJ 07666
COUNSEL
Steffanie J. Lewis ........ 158,333 13.7% 7.2%
3511 North 13th St.
Arlington, VA 22201
5% SHAREHOLDER
William Shephard ......... 88,227 7.6% 4.0%
30 South Wacker Dr.
Chicago, Ill 60606
All Directors, Officers, Counsel
and 5% Shareholders ........ 803,311 66.8% 36.5%
<FN1>
(1) Does not reflect the exercise of Warrants, Outstanding Warrants,
Over-Allotment Option or Representative's Warrant.
</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, one of which is independent, plus one independent
additional directorship position to be added at the IPO Closing and
reserved for the Underwriter' designee. 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 125,000 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
500,000 shares of Preferred Stock, $.01 par value. At the Effective
Date, a total of 1,202,083 shares of Common Stock are issued and
outstanding and held by over 100 shareholders, and 80,000 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 voting, dividend, liquidation and other rights,
and have no preference, exchange or appraisal rights.
LACK OF CONTROL BY MINORITY SHAREHOLDERS
Holders of shares of Common Stock are entitled to one vote per
Share on all matters requiring a vote of stockholders. Since the
Common Stock does not have cumulative voting rights in electing
directors, the holders of a majority of the outstanding shares of
Common Stock voting for the election of directors can elect all of the
directors, excepting one board seat reserved for the Underwriter's
nominee for three years.
STOCK TRANSFER AGENT
The Transfer Agent and Registrar for the shares of Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY
10004, telephone: (212) 509-4000.
WARRANTS
In this Offering the Company will issue 1,000,000 Warrants. Each
Warrant entitles the holder to purchase 1.5 shares of Common Stock at
$9.00 per Warrant ($6.00 per share) 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
$.25 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 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 $6.00 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 U.S. 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
Underwriter. 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 received
the Nasdaq listing symbol BALTW and the Boston Stock Exchange symbol
BLAW 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.
UNDERWRITER'S WARRANTS
At the Closing of this Offering, the Company will sell to the
Manager, for a total purchase price of $100.00, the Representative's
Warrant entitling the Underwriter to purchase up to 100,000 shares of
Common Stock at $5.50 per Share (110% of initial public offering price)
and 100,000 Underwriter's Warrants at $.28 per warrant (110% of initial
public offering price). The Underwriter's Warrants differ from the
Warrants offered to the public hereunder to the extent that the
Warrants are non-redeemable by the Company, and are exercised at 130%
of the price offered to the public. The exercise prices of the
Representative's Warrant and underlying Underwriter's Warrants are
subject to anti-dilution adjustment under certain conditions. The
Underwriter's Warrants are exercisable during the four-year period
commencing one year form the date of this Prospectus, and are
non-transferable for one year except to the officers of the
Underwriter, members of the underwriting group and their respective
officers or partners. The Securities issuable upon the exercise of the
Representative's Warrant 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 500,000 Preferred Shares of which
80,000 are issued and outstanding. The remaining 420,000 Preferred
Shares may be issued from time to time, as authorized by the board of
directors upon approval of a Shareholders' vote or approval of the
independent directors. Preferred Shares have $.01 par value and no
voting rights.
SELLING SECURITYHOLDERS AND COMMON STOCK
ELIGIBLE FOR FUTURE SALE
The Company and more than 93% of its present shareholders,
representing 1,061,639 shares, have entered into a 24-month lock up
written agreement with the Underwriter preventing the sale of insider
held common stock for two years without written permission from the
Underwriter. Whether to grant permission lies within the sole
discretion of the Underwriter. At Closing there will be 2,202,083
shares of Common Stock, with the Over-Allotment Option contributing up
to 150,000 additional Shares and 150,000 additional Warrants
(equivalent to 250,000 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). However, Outstanding Warrants, having identical terms and
issued prior to the IPO closing, are locked up for one year from the
Effective Date by agreement with the Underwriter. The Company has
issued Warrants to the Underwriter to purchase up to 100,000 Shares and
up to 100,000 Underwriter' Warrants totaling 250,000 Shares assuming
full exercise of all Underwriter' Warrants. If all Warrants and
Outstanding Warrants are exercised, up to an additional 1,710,000
Shares of Common Stock will be freely tradable.
In February 1992, the Company issued an option to purchase 43,583
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 208,333 warrants in
connection with bridge funding of $250,000 ("Outstanding Warrants").
The Outstanding Warrants are immediately tradeable and identical to
Warrants offered to the public in the Offering. The holders of the
Outstanding Warrants are being registered as Selling Securityholders
simultaneously with the Offering. All Selling Securityholders and the
Underwriter have agreed to a twelve-month lock-up of the Outstanding
Warrants and their underlying common shares.
In June 1998, the Company issued 458,331 warrants in connection
with bridge funding of $575,000 ("Outstanding Warrants"). The
Outstanding Warrants are immediately tradeable and identical to
Warrants offered to the public in the Offering. The holders of the
Outstanding Warrants are being registered as Selling Securityholders
simultaneously with the Offering. All Selling Securityholders and the
Underwriter have agreed to a twelve-month lock-up of the Outstanding
Warrants and their underlying common shares.(See "Notes to Financial
Statements")
Following the Underwriter's two-year lock up,1,202,083 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 Underwriter have discretion to waive the Underwriter's
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 100,000 shares of
Common Stock underlying the Underwriter's Warrants (assuming full
exercise). 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 Underwriter named below has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company
a total of 1,000,000 shares of Common Stock and 1,000,000 Warrants at
the public offering price, less the underwriting discounts and
commissions, set forth on the cover page of this Prospectus. The
number of Securities such Underwriter has agreed to purchase is set
forth opposite its name:
Underwriter Number of Shares Number of Warrants
Hornblower & Weeks, Inc. 1,000,000 1,000,000
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to approval of certain legal matters by counsel
and certain other conditions precedent, and that the Underwriter 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 Underwriter have advised the Company that they 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 $.25 per share of Common
Stock and $.06 per Warrant. After the IPO, the public offering price,
concessions, and other selling terms may be changed by the Underwriter.
The Underwriter does 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
Underwriter 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 Underwriter' expenses in excess of the
expense allowance will be borne by the Underwriter. To date, the
Company has advanced the Underwriter $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 Underwriter may
designate.
The Company has granted to the Underwriter an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase
up to an aggregate of 150,000 additional shares of Common Stock and
150,000 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 Manager, for a total purchase price of $100, the
Representative's Warrant to purchase up to an aggregate 100,000 shares
of Common Stock and/or 100,000 Underwriter's Warrants". The
Underwriter's 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 Underwriter's Warrants are
identical to those offered hereby, except for the exercise price and
non-redeemability. The Underwriter's Warrants cannot be transferred,
sold, assigned or hypothecated during the one-year period following the
date of this Prospectus, except to officers of the Underwriter and to
selected dealers and their officers and partners. The number of Shares
and Underwriter's Warrants covered by the Representative's Warrant are
subject to adjustment upon certain events to prevent dilution.
In connection with the Offering, the Underwriter 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 Underwriter may also create a short position for the
account of the Underwriter by selling more Securities in connection
with the Offering than they are committed to purchase from 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 Underwriter may also cover all or a portion of such
short position, up to 150,000 additional Shares and 150,000 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 Underwriter 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
SmallCap 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 Underwriter 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 Underwriter 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 Underwriter. 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, 93% 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 Underwriter' prior written consent for a period of 24
months from the Prospectus date. Whether to grant permission lies
within the discretion of the Underwriter. 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
Underwriter.
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 158,333 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 Underwriter 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 1997, 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.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Contents Page
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets - December 31, 1997 and
(Unaudited) September 30, 1998 F-3
Statement of Operations - Years ended
December 31, 1997 and 1996 and (Unaudited)
the nine months ended September 30, 1998 and
1997 and August 24, 1989 (Inception) through
September 30, 1998 F-4
Statement of Cash Flows - Years ended
December 31, 1997 and 1996 and (Unaudited)
the nine months ended September 30, 1998 and
1997 and August 24, 1989 (Inception) through
September 30, 1998 F-5 - F-6
Statement of Changes in Stockholders' Equity
(Deficit) - Years ended December 31, 1997
and 1996 and (Unaudited) the nine months
ended September 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-9
Notes to the Financial Statements F-10 - F-24
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'
equity (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 substantial
excess of current liabilities over current assets.(See Note 6) 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
(January 6, 1999 as to Notes 2,4,6,8,10 and 11)
F-2
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
Assets
Current Assets:
Cash $ 2,766 $ 3,135
Property & Equipment (net) 89,656 0
Other Assets:
Deferred offering costs 50,000 0
Security deposits 100,000 0
Total other assets 150,000 0
Total Assets $ 242,422 $ 3,135
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 48,250 $ 571,154
Accounts payable to
stockholders 11,318 65,318
Notes payable 25,000 0
Notes payable to stockholders 92,000 303,572
Total current liabilities 176,568 940,044
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock - $.01 par value;
500,000 shares authorized, 80,000
and 0 shares issued at September 30,
1998 and December 31, 1997,
respectively 800 0
Common stock - $.0001 par value;
100,000,000 shares authorized,
2,035,416 shares issued, 1,202,083
and 2,035,416 shares outstanding at
September 30, 1998 and December 31,
1997, respectively 203 203
Common treasury stock - at cost -
833,333 shares at September 30, 1998 ( 100)
Additional paid-in capital 7,774,310 5,846,484
Prepaid media costs ( 396,090) ( 396,090)
Deficit accumulated during
development stage (7,313,269) (6,387,506)
Total stockholders'
equity 65,854 ( 936,909)
Total liabilities and
stockholders' equity (deficit) $ 242,422 $ 3,135
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<CAPTION>
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1998 1997 December 31, September 30, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Expenses
General and
Administrative
(credit) (224,692) 80,832 84,512 92,749 2,002,191
Professional
fees 78,891 31,625 58,625 77,817 2,063,836
FAA Certification
costs 206,633 0 0 0 206,633
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 60,832 112,457 143,137 170,566 6,055,975
Interest expense
Amortization
of deferred
financing costs 850,000 0 0 0 850,000
Other 14,931 0 0 68,120 407,294
Net loss $(925,763) $(112,457) $(143,137) $(238,686) $(7,313,269)
Net loss per
common share -
basic and
diluted $(0.77) (0.06) $(0.07) $(0.13) $(6.08)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1998 1997 December 31, September 30, 1998
(Unaudited) 1997 1996 (Unaudited)
Cash flows from
operating activities:
<S> <C> <C> <C> <C> <C>
Net loss $( 925,763) $(112,457) $(143,137) $(238,686) $(7,313,269)
Adjustment to
reconcile net
loss to net cash
provided by oper-
ations:
Depreciation 6,976 0 0 0 226,386
Amortization of
deferred financing
costs 850,000 0 0 0 850,000
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 in Security
Deposits ( 100,000) 0 0 0 ( 100,000)
Increase(Decrease) in
accounts payable ( 576,904) ( 14,250) 17,749 24,407 1,798,694
Net cash
(used) for
operating
activities ( 795,691) (126,707) (125,388) (214,279) (3,172,173)
Cash flows from investing activities:
Purchase of
equipment ( 96,632) 0 0 0 ( 316,042)
Net cash (used)
for investing
activities ( 96,632) ( 0) ( 0) 0 ( 316,042)
Cash flows from
financing activities:
Proceeds from
shareholder
loans (net) 67,054 128,949 128,183 207,706 1,418,627
Proceeds from
notes payable 825,000 0 0 0 825,000
Proceeds from
issuance of
common stock 0 0 0 0 633,214
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>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<CAPTION>
Nine Months Ended August 24, 1989
September 30, Years Ended (Inception) to
1998 1997 December 31, September 30, 1998
(Unaudited) 1997 1996 (Unaudited)
<S> <C> <C> <C> <C> <C>
Acquisition of
treasury
stock $( 100) $ 0 $ 0 $ 0 $( 100)
Net cash
provided from
financing
activities 891,954 128,949 128,183 207,706 3,490,981
Net increase (decrease)
in cash ( 369) 2,242 2,795 ( 6,573) 2,766
Cash at begin-
ning of period 3,135 340 340 6,913 0
Cash at end
of period $ 2,766 $ 2,582 $ 3,135 $ 340 $ 2,766
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 $ 0 $ 396,090 $ 396,090 $ 0 $ 396,090
Conversion of
liabilities
to equity $1,077,826 $3,130,437 $3,130,437 $ 0 $ 4,208,263
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>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Deficit
Preferred Common Common Accumulated
Stock Stock Treasury Additional During the Prepaid Total
Par Par Stock Paid-in Development Media Stockholders'
Shares Value Shares Value Shares Cost Capital Stage Costs Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 24,1989
(Inception)
through
December 31,1992
(Unaudited) 0 $ 0 465,167 $ 46 0 $ 0 $ 978,494 $(4,190,584) $ 0 $(3,212,044)
1993 *;
Issuance
of Common
Stock 0 0 1,140,562 114 0 0 42,222 0 0 42,336
Net Loss 0 0 0 0 0 0 0 ( 266,889) 0 ( 266,889)
1994 *;
Issuance
of Common
Stock 0 0 79,208 8 0 0 1,894 0 0 1,902
Contributed
Capital 0 0 0 0 0 0 457,250 0 0 457,250
Net Loss 0 0 0 0 0 0 0 ( 638,160) 0 ( 638,160)
1995 *;
Issuance
of Common
Stock 0 0 117,146 12 0 0 107,836 0 0 107,848
</TABLE>
* - Not covered by accompanying Auditors' Report.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Deficit
Preferred Common Common Accumulated
Stock Stock Treasury Additional During the Prepaid Total
Par Par Stock Paid-in Development Media Stockholders'
Shares Value Shares Value Shares Cost Capital Stage Costs Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance
of Common
Stock as
non-refundable
prepaid
interest 0 $ 0 10,417 $ 1 0 $ 0 $ 63,499 $ 0 $ 0 $ 63,500
Reclassification
of redeemable
Common Stock 0 0 0 0 0 0 ( 400,000) 0 0 ( 400,000)
Contributed
Capital 0 0 0 0 0 397,856 0 0 397,856
Net Loss 0 0 0 0 0 0 0 ( 910,050) 0 ( 910,050)
Balance at
December
31, 1995 0 $ 0 1,812,500 $ 181 0 $ 0 $1,649,051 $(6,005,683) $ 0 $(4,356,451)
Net Loss 0 $ 0 0 $ 0 0 $ 0 $ 0 $( 238,686) $ 0 $( 238,686)
Balance at
December
31, 1996 0 $ 0 1,812,500 $ 181 0 $ $1,649,051 $(6,244,369) $ 0 $(4,595,137)
Net Loss 0 $ 0 0 $ 0 0 $ 0 $ 0 $( 143,137) $ 0 $( 143,137)
Acquisition of
prepaid
media costs 0 0 27,083 3 0 0 396,087 0 (396,090) 0
</TABLE>
* - Not covered by accompanying Auditors' Report.
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
<TABLE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Deficit
Preferred Common Common Accumulated
Stock Stock Treasury Additional During the Prepaid Total
Par Par Stock Paid-in Development Media Stockholders'
Shares Value Shares Value Shares Cost Capital Stage Costs Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of
liabilities 0 $ 0 195,833 $ 19 0 $ 0 $3,130,418 $ 0 $ 0 $ 3,130,437
Contributed
capital 0 0 0 0 0 0 270,928 0 0 270,928
Surrender of
rights to
redeem common
Stock 80,000 0 0 $ 0 0 0 400,000 0 0 400,000
Balance at
December 31,
1997 0 $ 0 2,035,416 $203 0 $ $ 5,846,484 $(6,387,506)$(396,090)$( 936,909)
(Unaudited)*
Net Loss 0 $ 0 0 $ 0 0 $ 0$ 0 $( 925,763)$ 0 $( 925,763)
Deferred
financing
costs 0 0 0 0 0 0 850,000 0 0 850,000
Acquisition of
treasury stock 0 0 0 0 833,333 100 0 0 0 ( 100)
Conversion of
liabilities 80,000 800 0 0 0 100 1,077,826 0 0 1,078,626
Balance at
September
30, 1998* 80,000 $ 800 2,035,416 $203 833,333 $ 100$ 7,774,310 $(7,313,269)$(396,090)$ 65,854
</TABLE>
* - Not covered by accompanying Auditors' Report.
The accompanying notes are an integral part of the financial statements.
F-9
<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. In addition, the Company has
a capital deficit and substantial excess of current liabilities over
current assets.
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 10 (f), 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 January 6, 1999 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.
F-10
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(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
27,083 restricted 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
use-ful lives of the related assets. Leasehold improvements are
depreciated over the lesser of the term of the related lease or the
estimated lives of the assets. Depreciation is computed on the straight
line method for financial reporting purposes and modified accelerated
recovery method for tax purposes.
(D) START-UP ACTIVITIES
On July 5, 1990, the Company filed 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.
F-11
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES (Continued)
(D) START-UP ACTIVITIES (Continued)
On January 22, 1996, the U.S. Department of Transportation issued an
Order of Show Cause, whereby, they tentatively concluded that the
Company is fit, willing and able to provide scheduled air
transportation between New York And Russia and, should be issued a
Certificate of Public Convenience and Necessity authorizing such
operations.
On February 26, 1996, the U.S. Department of Transportation issued a
Final Order thereby, authorizing the Company to engage in foreign
scheduled air transportation between New York and St. Petersburg, Russia.
On February 6, 1997, the U.S. Department of Transportation granted the
Company an extension of time to commence operations, through August 7,
1997.
On September 10, 1997, the U.S. Department of Transportation granted
the Company an extension of time to commence operations, through
February 7, 1998.
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-12
<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.
(H) 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 11 {A} {2})
(I) Loss Per Share
Loss per share amounts are based on the weighted average number of
shares outstanding.
No effect has been given to the options and warrants since the effect
has been anti-dilutive. Such options include the option to the
Company's president to purchase 1,000,000 common stock shares for a
total consideration of $100.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1998 (Unaudited) consisted of
the following;
Office equipment . . . . . . . . $ 53,409
Furniture & Fixtures . . . . . . . 6,782
Automobiles . . . . . . . . . . . 36,441
Total. . . . . . . . . . . . . . . 96,632
Less, accumulated depreciation . . . ( 6,976)
Total Property and Equipment . . . .$ 89,656
Depreciation expense charged to operations for the (Unaudited) nine
months ended September 30, 1998 and 1997 and the years ended December
31, 1997 and 1996 was $6,976, $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 8 {A}) and in consideration issued two-hundred eight thousand
three hundred twenty-five (208,325) 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 the period the loan will be
outstanding.
F-13
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. DEFERRED FINANCING COSTS (Continued)
(A) BRIDGE LOAN (Continued)
For the nine months ended September 30, 1998 (Unaudited) the Company
charged $250,000 to interest expense, the amount of deferred financing
costs as amortized over the estimated term the loan is outstanding.
(B) ADDITIONAL BRIDGE LOAN
In June and July 1998, the Company borrowed $550,000,and $25,000,
respectively, in "additional" Bridge Loans (See Note 8 {B}) and in
consideration issued five-hundred fifty eight thousand three hundred
thirty-one (458,331) and twenty thousand eight hundred thirty-three
(20,833) Warrants, respectively, to be designated as "Class A Bridge
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 the period the loan will be outstanding.
For the nine months ended September 30, 1998 (Unaudited) the Company
charged $600,000 to interest expense, the amount of deferred financing
costs as amortized over the estimated term the loan is outstanding.
5. RELATED PARTY TRANSACTIONS
The Company's legal counsel, Steffanie Lewis, of the International
Business Law Firm, P.C. owns 158,333 shares of restricted common stock
at December 31, 1997 or approximately 7.78% of the Company's issued and
outstanding common stock. Ms. Lewis was issued 125,000 restricted
common shares in June 1997 in exchange for legal work performed in
connection with various certifications, authorities and financial
matters. She was previously issued 33,333 of restricted 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) nine months ended
September 30, 1998 and 1997 and the years ended December 31, 1997 and
1996 total $32,250 $2,800, $4,875, $2,100, respectively.
At September 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 125,000 restricted 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 11 (F) 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.
F-14
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (Continued)
Additionally, other current accounts payable to shareholders at
September 30, 1998, (unaudited) and December 31, 1997, total $11,318
and $65,318, respectively.
Airline Economics International, Inc. owns 28,750 restricted common
shares at December 31, 1997. On June 23, 1997, Airline Economics
International, Inc., was issued 8,333 restricted 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 7 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 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.
On September 29, 1998, Igor Dmitrowsky, President of the Company and a
shareholder, relinquished the amount due to him totaling $45,711.
Accordingly, the Company has recorded Contributed Capital in the amount
of $45,711.
On September 29, 1998, Leonard Becker,a shareholder, relinquished the
amount due to him totaling $57,000. Accordingly, the Company has
recorded Contributed Capital in the amount of $57,000.
6. ACCOUNTS PAYABLE
In September 1998, the Company wrote off $538,654 of trade accounts
payable, which were incurred in or prior to calendar year 1992.
Management's decision to write off the payables was based on the age of
the payables, lack of vendor verification and/or confirmation and the
Company's legal counsel opinion where- by the statute of limitation has
run.
7. 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 62,500 restricted
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) nine
months ended September 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 $321,168
and $321,168, respectively.
In 1997 and 1996 the Company borrowed net $128,183 and $207,706,
respectively,
F-15
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. NOTES PAYABLE - STOCKHOLDERS (Continued)
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, 10,417 shares of restricted 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 $6.10.
8. NOTES PAYABLE
(A) BRIDGE LOAN
On February 27, 1998 the Company borrowed $250,000, a Bridge Loan. The
Note was 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 issued
two-hundred eight thousand three hundred twenty-five (208,325)
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 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 {A})
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, the due date of June 30, 1998 was waived and the term
of the Note for repayment was extended until closing of the proposed
public offering.
In December 1998, the Bridge Loan in the amount of $250,000 was
converted to 25,000 preferred stock shares at the rate of $10 per
preferred stock share. Each preferred stock share carries a 10%
dividend, payable at the time of redemption and may be converted into
three (3) common stock shares after 90 days after the closing of the
Initial Public Offering. The Company has the option to redeem preferred
stock shares at $12 per preferred stock share prior to the conversion
into common stock shares. Warrants previously issued in connection with
the Bridge Loan have been converted to reflect the exercise option of
one (1) warrant for one and one-half (1.5) common stock shares at $9.00
per Warrant ($6.00 per share).
Retroactive effect of the bridge loan conversion to equity has been
given to the accompanying financial statements.
F-16
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
8. NOTES PAYABLE (Continued)
(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 were 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 eight thousand
three hundred thirty-one (458,331) and twenty thousand eight hundred
thirty-three (20,833) 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 {B})
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.
In December 1998, $550,000 of the original $575,000 "additional" Bridge
Loan was converted to 55,000 preferred stock shares at the rate of $10
per preferred stock share. Each preferred stock share carries a 10%
dividend, payable at the time of redemption and may be converted into
three (3) common stock shares after 90 days after the closing of the
Initial Public Offering. The Company has the option to redeem preferred
stock shares at $12 per preferred stock share prior to the conversion
into common stock shares. Warrants previously issued in connection with
the Bridge Loan have been converted to reflect the exercise option of
one (1) warrant for one and one-half (1.5) common stock shares at $9.00
per Warrant ($6.00 per share).
Retroactive effect of the bridge loan conversion to equity has been
given to the accompanying financial statements.
F-17
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
9. 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 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 recoverability.
10. STOCKHOLDERS' DEFICIT
(A) STOCK OPTIONS
In 1992, the Company granted options to purchase 43,583 shares of
restricted common stock, at $80.00 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 September 30, 1998, no options have been exercised.
(B) RETIREMENT OF STOCK
On November 4, 1992, the Company issued 10,416 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) ACQUISITION OF COMMON TREASURY STOCK
On September 28, 1998 the Company purchased from Igor Dmitrowsky,
President of the Company, 833,333 common stock shares for $100 and has
granted him an option to repurchase 1,000,000 common stock shares from
the Company at $100 upon completion of the Company's inaugural flight
or upon exercise of any warrants, which ever occurs first.
(D) 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 September 29, 1998, the Board of Directors authorized and the
majority of the current shareholders ratified a one and two tenths
(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, warrants and per share amounts have been restated to
reflect the reverse stock splits.
F-18
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. STOCKHOLDERS' DEFICIT (Continued)
(E) PREFERRED STOCK
On December 7, 1998, the Company amended its Articles of Incorporation
thereby, increasing the authorized aggregate number of preferred stock
shares from 15,000 preferred stock shares at no par value to 500,000
preferred stock shares at $.01 par value.
(F) 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, 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 11 (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 one and one-half (1.5) common
stock Shares for $9.00 per Warrant ($6.00 per Share) 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 1,202,083 common stock shares.
(G) STOCK BUY-BACK REQUIREMENTS
As of December 31, 1997 the Company was required to buy-back 20,833
shares at $19.20 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.
(H) 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.
F-19
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. STOCKHOLDERS' DEFICIT (Continued)
(H) CONTRIBUTED CAPITAL (Continued)
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.
(I) STOCK ISSUANCE
The following schedule summarizes common shares issued for cash;
Year Number Range of
Issued of Shares Amounts Per Share
1989 208,334 $ 0.2400 to $ 0.2400
1990 113,583 $ 1.1719 to $ 24.0000
1991 36,250 $ 2.4000 to $ 24.0000
1992 107,000 $ 2.4000 to $ 24.0000
1993 1,140,562 $ 0.0048 to $ 24.0000
1994 79,208 $ 2.4000 to $ 24.0000
1995 117,146 $ 0.2400 to $ 18.9139
The following schedule summarizes common stock shares issued in non-cash
exchanges (See Notes 2 (F), 5 and 7).;
Year Number Range of
Issued of Shares Amounts Per Share
1995 10,417 $ 6.0960 to $ 6.0960
1997 222,916 $ 13.0274 to $ 21.9067
In September 1998, 80,000 preferred stock shares were issued in a non-cash
exchange at $10 per share. (See Note 8 {A} and {B})
11. COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS
(1) LEASE OBLIGATIONS
In October, 1995 the Company entered into a lease with Iceland Air,
J.F. Kennedy Airport, New York, to occupy space. The lease term is on a
month to month basis.
Currently, the Company is leasing space from Iceland Air for $1,200 per
month at J.F. Kennedy Airport, New York. Rent expense charged to
operations for the (Unaudited) nine months ended September 30, 1998 and
1997 and years ended December 31, 1997 and 1996 totaled $15,850,
$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, 1999. 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 $5,259, $5,132, $5,215 and
$5,392, respectively.
F-20
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (Continued)
(A) COMMITMENTS (Continued)
(2) UNDERWRITER - PROPOSED PUBLIC OFFERING
In June 1998, the Company entered into an agreement with Hornblower &
Weeks, Inc. to act as the Managing Underwriter, in connection with a
proposed Public Offering of securities.
The Agreement sets forth the following terms and conditions;
(a) The Managing Underwriter shall receive a dealer's concession of ten
percent (10%) of the proposed Public Offering price.
(b) The Managing Underwriter shall receive at closing of the proposed
Public Offering a non-accountable expense allowance of three percent
(3%) of the total offering. 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
130% 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, 1999, 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.
F-21
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (Continued)
(A) COMMITMENTS (Continued)
(4) AIRCRAFT LEASE
In August 1998 the Company paid $100,000 to Cathay Pacific Airways,
Limited as a non-refundable "Initial" Lease Security Deposit to lease
one (1) Boeing 747-267 aircraft.
Upon signing of the Lease, the Company shall pay a refundable security
deposit of $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 $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 $250,000 per month for an aggregate total of
$1,500,000. Lease costs under the optional six (6) month period shall
be $300,000 per month for an aggregate total $1,800,000.
Under the terms of the Lease, the Company shall be required to pay
$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 $250,000 shall at no time be permitted to fall below
$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 $114,000.
F-22
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11. 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) 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-23
<PAGE>
BALTIA AIR LINES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (Continued)
(B) CONTINGENCIES (Continued)
(3) 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'
agreement for the temporarily reduced salaries was documented.
F-24
<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 Underwriter. This
Prospectus does not constitute an offer to buy any security other than
the Securities offered by this Prospectus, or an offer to sell or a
solicitation of an offer to buy any securities by any person in any
jurisdiction in which such offer or solicitation is not authorized or
is unlawful. The delivery of this Prospectus shall not, under any
circumstances, create any implication that the information herein
contained is correct as of any time subsequent to the date of this
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Use of Proceeds
Capitalization
Dilution
Dividend Policy
Selected Financial Data
Management s Discussion and Analysis
of Financial Condition and Plan of Operations
Business
Management
Principal Stockholders
Certain Transactions
Description of Securities
Selling Securityholders and
Common Stock Eligible for Future Sale
Underwriting
Subscriber's Flight Coupon
Legal Matters
Experts
Available Information
Index to Financial Statements
Until , 1999 (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 Underwriter and with respect to their unsold
allotments or subscriptions.
BALTIA AIR LINES
The New Way to Europe (TM)
1,000,000 Shares of Common Stock
and
1,000,000 Redeemable Common Stock Purchase Warrants
PROSPECTUS
Hornblower & Weeks, Inc.
_________________________________________
February , 1999
<PAGE>
================================================
PROSPECTUS SUPPLEMENT - ALTERNATIVE COVER PAGE
================================================
(c) BALTIA AIR LINES - U.S. INTERNATIONAL AIR CARRIER
The New Way to Europe(tm)
Eighteen Selling Securityholders
of 666,664 Warrants
___________________
Baltia Air Lines, Inc. ("Baltia" or "Company"), a New York
corporation, hereby identifies eighteen Selling Securityholders, holding
unregistered Warrants of the Company, entitling the holders to purchase up to
999,996 unregistered 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 February 12, 1999, ("Prospectus")also relates
to these eighteen Selling Securityholders of 666,664 warrants. The
warrants were issued in connection with money, identified as "Bridge
Funds" in the Prospectus under "Use of Proceeds," the Company borrowed
in order to purchase goods and services which otherwise would be
purchased with proceeds of the offering described in the
Prospectus.("Offering")
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
are exercised, the unregistered 999,996 underlying shares may only be
resold pursuant to a valid registration under the Securities Act of
1988, as amended, or a valid exemption from such registration.
The Company may redeem outstanding Warrants, once they become exercisable,
at a price of $.25 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 warrant entitles the holder to purchase 1.5 Shares for
$9.00 per Warrant ($6.00 per share of Common Stock).
------------------------------------
The following list identifies each Selling Securityholder and the
number of Bridge Warrants each holds.
Neil Jones ...................... 41,667 warrants
23 Tucquan Glen Road
Holtwood, PA 17532
Socrates Skiadas ................... 20,833 warrants
154-5017 Road
Whitestone, NY 11357
T.H. Holloway ..................... 41,667 warrants
16 Cloister Parkway
Amarillo, TX 79121
Ron Rust ....................... 20,833 warrants
103 Brookmeadow Road
Wilmington, DE 19807
Hart Rotenberg .................... 20,833 warrants
BT1 Computers
1789 NW 79th Avenue
Miami, FL 33126
Richard Frank ..................... 41,667 warrants
199 Brook Street
Scarsdale, NY 10538
M. S. Arden Inc. ................... 20,833 warrants
1109 Arden) Avenue
Staten Island, NY 10312
Charles Xue ...................... 41,667 warrants
1 Lincoln Plaza Apt. 24V
New York, NY 10023
Russet Development............ 20,833 warrants
39 Brighton, Avenue
Boston, MA 02134
Richard Charbit .................... 83,333 warrants
7 Rue Ste. Isaure
Paris, FRANCE 75018
David Marston .................... 12,500 warrants
119 Gand Avenue
Paonia, CO 81428
J. Walker Clerke .................... 8,333 warrants
P.O. Box 11359
Columbia, SC 29211-1359
Joseph Rotenberg ................... 20,833 warrants
BTI Computers
1789 NW 79th Avenue
Miami, FL 33 126
Harvey DeLott ..................... 20,833 warrants
c/o Qua1ity Truck Parts
2421 S. Wabash Avenue
Chicago, IL 60616
Michael Ostro ..................... 20,833 warrants
85 Glen Park Avenue
Toronto, Ontario
CANADA H6B2C3
Lonny DeWalt ..................... 20,833 warrants
10516 Spencer Hill Road
Corning, NY 14830
Ronald Ameerali ................... 166,666 warrants
38 Midway Park
Freeport, Tinidad
Hobbs Melville & Co., Inc.............. 41,667 warrants
110 Wall Street
New York, NY 10005
Total: 18 Securityholders .............. 666,664 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 February 9, 1999, this Prospectus
Supplement will be distributed setting forth the identity of each
Securityholder and the number of Warrants each holds.
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.
Warrants are tradeable on the Effective Date of the Company's
Prospectus. However each Selling Securityholder has agreed to an
Underwriter's lock-up of the Warrants and underlying shares of common
stock for a period of twelve months. 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. The Company may redeem the outstanding Warrants 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. Each Warrant entitles the holder to purchase 1.5 shares of
the Company's common stock @ $9.00 per Warrant ($6.00 per Share).
The 999,996 shares underlying the Warrants are unregistered.
The Selling Securityholders will receive the entire proceeds
from the sale of their 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'
Warrants, the Company expects to pay for all expenses of registering
the Selling Securityholders and will furnish Prospectuses to them.
=====================================================
END OF PROSPECTUS SUPPLEMENT - ALTERNATIVE COVER PAGE
=====================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company's Bylaws, Article IV(19)&(20), provide that except for
willful negligence or intentional criminal conduct, the Company shall
indemnify its Directors, Chairman & President, Secretary, Officers and
Counsel against third party liability, including shareholder and/or
regulatory actions. Additionally, Sections 722-725 of the New York
Business Corporation Law provide for indemnification by the Company or
the New York State. There are no indemnification provisions contained
in the Company's Certificate of Incorporation. 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* ............... 69,320
Legal fees and expenses* ................. 150,000
Accounting fees and expenses* ............... 45,000
Blue Sky fees and expenses* ................ 10,000
Miscellaneous expenses* ................... 6,221
Total ........................ $ 300,000
______________
* Indicates expenses that have been estimated for the purpose of filing.
Item 26. Recent Sales of Unregistered Securities
During the past six years, commencing 1/1/93, the Company sold
886,881 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 248,168 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 and purchased $400,000 in pre-paid media placements with
an accredited investor in exchange for 222,916 shares. In August 1993
the Company sold 1,302 shares to accredited investors for $25,000. From
August through December 1995, the Company sold 23,958 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 1,322,068 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 19,583 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 1,305,297 shares for $77,051 and six of
their close friends purchased 5,521 shares for $5,140.
In February 1998, the Company issued 208,333 Warrants ( in
connection with a Bridge Loan for $250,000. These warrants are
immediately exercisable and terms of these Warrants are identical to
Warrants offered to the public in the Offering. The holder of the
Warrants is being registered with the Offering as a Securityholder.
In June 1998 the Company issued 479,164. Bridge Warrants in
connection with a series of Bridge Loans in the aggregate amount of
$575,000. Of these, 458,331 were exchanged for 458,331 Warrants which
are immediately tradeable and the terms of these Warrants are the same
as the Warrants offered to the public in the Offering. The holders of
the Warrants are being registered with the Offering as Securityholders
and each has signed an agreement with the Underwriter that locks up the
Warrants and underlying shares for a period of twelve months following
the Effective Date.
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 and Subsequently
Exchanged Bridge Warrants for general Warrants under Exemption 3(a)(9).
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
Ronald Ameerali
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
<PAGE>
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-updated
3.2 Bylaws-updated
4.1 Underwriter' 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 Underwriter (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-updated
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
10.09.3 December 1998 Bridge Note Conversion Agreement
10.10 Executive agreements for three months salary reduction
10.11 Cathay Pacific Airways Limited-Initial Agreement B747
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 dispatch reliability study by Boeing
28.11 Letters on fuel availability at JFK and LED
28.12 Route Map
99.1 Supplemental Insert identifying 18 Selling
Securityholders of outstanding Warrants - updated
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 February 5, 1999
Registration No. 333-37409
___________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT NO. 10
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 - updated
3.2 Bylaws - updated
4.1 Underwriter' 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 Underwriter (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-updated
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
10.09.3 December 1998 Bridge Note Conversion Agreement
10.10 Executive agreements for three months salary reduction
10.11 Cathay Pacific Airways Limited-Initial Agreement B747
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 dispatch reliability study by Boeing
28.11 Letters on fuel availability at JFK and LED
28.12 Route Map
99.1 Supplemental Insert identifying 18 Selling
Securityholders of outstanding Warrants - updated
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, 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, and shares underlying
Mr. Dmitrowsky's option, the Company has a reserve of 96,797,917
common stock. The Company has 500,000 preferred stock authorized,
of which 80,000 have 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: February 4, 1999
[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
on form SB-2 of our opinion dated January 8, 1999 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
February 5, 1999
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
Febrary 4, 1999
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)
