UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION ------------------------
Washington, D.C. 20549 OMB Number:3235-0416
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FORM 10-QSB Expires: April 30,2003
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Estimated average burden
hours per response: 32.0
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______.
Commission file number: 0-17978
Gala Hospitality Corporation
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(Exact name of small business issuer as specified in its charter)
FLORIDA 59-2720096
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1717 N. Bayshore Drive, Suite 321, Miami, FL 33132
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(Address of principal executive offices)
305-530-0046
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(Issuer's telephone number)
6230 Fairview Road, Suite 102
Xpedian, Inc. Charlotte, North Carolina 28210
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(Former name) (Former address) (Former fiscal year)
8,497,543 shares of common stock, par value $.0001 per share, were outstanding
on February 19, 2002, subsequent to a reverse split of 1 to 10 effective January
31, 2002.
Transitional Small Business Disclosure Format (Check one): Yes[__] No[__]
INDEX
PAGE
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PART I-FINANCIAL INFORMATION
Item 1-Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet - December 31, 2001 (Unaudited) 1
Consolidated Statements of Operations for the Six Months
ended December 31, 2001 and 2000 (Unaudited) 2
Consolidated Statements of Operations for the Three Months
ended December 31, 2001 and 2000 (Unaudited) 2
Consolidated Statements of Cash Flows for the Six Months
ended December 31, 2001 and 2000 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2-Management's Discussion and Analysis or Plan of Operation 14
PART II-OTHER INFORMATION
Item 1 -Legal Proceedings 21
Item 2 -Changes in Securities 23
Item 3 -Defaults Upon Senior Securities 24
Item 4 -Submission of Matters to a Vote of Securities Holders 24
Item 5 -Other Information 26
Item 6 -Exhibits and Reports on Form 8-K 26
PART I-FINANCIAL INFORMATION
Item 1-Consolidated Financial Statements (Unaudited)
GALA HOSPITALITY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,927
Advances, non-interest bearing 11,153
-----------
TOTAL CURRENT ASSETS 22,080
-----------
PROPERTY AND EQUIPMENT,
less accumulated depreciation of $79,555 577,402
OTHER ASSETS
Goodwill 500,000
Organization expenses 8,403
Security deposits 1,838
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TOTAL OTHER ASSETS 510,241
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TOTAL ASSETS $ 1,109,723
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 212,521
Credit cards payable 48,011
Accrued liabilities 121,062
Payroll tax liabilities 144,097
Notes payable - banks 118,314
Notes payable - related parties 148,543
Other payables to related parties 31,679
Other current liabilities 9,081
-----------
TOTAL CURRENT LIABILITIES $ 833,308
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STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000,000 shares authorized;
600,000 shares issued and outstanding 600,000
Common stock, $.0001 par value, 200,000,000 shares authorized;
8,497,543 shares issued and outstanding 849
Additional paid-in capital 1,596,129
Accumulated deficit ( 1,920,503)
Treasury stock, at cost ( 60)
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TOTAL STOCKHOLDERS' EQUITY 276,415
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,109,723
===========
See accompanying notes.
1
GALA HOSPITALITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months Ended December 31,
2001 2000
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SALES $ 215,610 $ 365,542
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COSTS AND EXPENSES
Cost of sales 42,111 97,261
Bad debts - 667
Credit card fees 3,530 3,966
Consulting, professional fees 245,697 19,784
Equipment lease 4,441 7,958
Depreciation and amortization 20,419 18,442
General and administrative 14,062 14,491
Insurance 2,638 15,783
Marketing and promotion 22,573 65,772
Labor expenses 98,539 135,566
Rent 40,625 39,272
Repairs and maintenance 10,373 7,985
Security 142 9,235
Supplies 6,269 17,493
Travel and Entertainment 7,661 25,275
Utilities 20,337 16,457
Other operating expenses 1,006 -
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TOTAL COSTS AND EXPENSES 540,423 495,407
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OTHER INCOME (EXPENSE)
Interest Income 181 -
Interest expense (5,410) (2,225)
Reduction on debt 67,255 -
Loss on disposition of equipment - (1,078)
Impairment of goodwill (128,951) -
----------- ---------
TOTAL OTHER INCOME (EXPENSE) (66,925) (3,303)
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LOSS FROM CONTINUING OPERATIONS,
BEFORE INCOME TAX BENEFIT (391,738) (133,168)
----------- ---------
Provision for income taxes (15,599) -
Income tax benefit for net
operating loss 15,599 -
----------- ---------
Net income taxes - -
----------- ---------
LOSS FROM CONTINUING OPERATIONS,
LESS INCOME TAX BENEFIT (391,738) (133,168)
DISCONTINUED OPERATIONS
Reduction on debt 184,830 -
Impairment loss on valuation of
territorial license (750,000) -
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LOSS FROM DISCONTINUED OPERATIONS,
LESS INCOME TAX BENEFIT (565,170) -
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NET LOSS $ (956,908) $(133,168)
=========== =========
NET LOSS PER SHARE, (basic and diluted,
giving retroactive effect to 1-for-10
reverse split effective
February 1, 2002) $ (0.11) $ (.02)
========== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted 8,448,543 6,182,104
========== =========
See accompanying notes.
2
GALA HOSPITALITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31,
2001 2000
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SALES $ 110,845 $ 129,109
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COSTS AND EXPENSES
Cost of sales 12,301 33,347
Credit card fees 1,255 2,177
Consulting, professional fees 119,497 12,423
Equipment lease 4,441 3,965
Depreciation and amortization 9,500 9,361
General and administrative 11,879 10,678
Insurance 503 11,117
Marketing and promotion 11,234 30,944
Labor expenses 50,839 62,360
Rent 18,450 19,636
Repairs and maintenance 203 8,792
Supplies 1,349 9,179
Travel and entertainment 6,273 1,000
Telephone and utilities 11,216 8,320
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TOTAL COSTS AND EXPENSES 258,940 223,299
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OTHER INCOME (EXPENSE)
Interest expense - (197)
Reduction on debt 67,255 31,565
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TOTAL OTHER INCOME 67,255 31,368
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LOSS FROM CONTINUING OPERATIONS,
BEFORE INCOME TAX BENEFIT (80,840) (62,822)
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Provision for income taxes (15,599) -
Income tax benefit for net operating
loss 15,599 -
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Net income taxes - -
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DISCONTINUED OPERATIONS
Reduction on debt 184,830 -
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NET INCOME (LOSS) $ 103,990 $ (62,822)
=========== =========
NET INCOME (LOSS) PER SHARE, (basic
and diluted, giving retroactive
effect to 1-for-10 reverse
split effective February 1, 2002) $ 0.01 $ (0.01)
=========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted 8,497,543 5,136,249
=========== ==========
See accompanying notes.
3
GALA HOSPITALITY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended December 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (956,908) $ (133,168)
Adjustments to reconcile net loss
to net cash provided (used)
by operating activities:
Common stock issued for services 121,200 -
Depreciation 20,419 18,442
Impairment loss on revaluation of
goodwill 128,951 -
Common stock issued for territorial rights 750,000 -
Gain on extinguishment of debt (252,085) -
Excess of liabilities assumed over assets
purchased in share exchange (36,544) (286,412)
(Increase) decrease in assets:
Inventories 5,469 6,172
Prepaid expenses 3,063 (64,850)
Security deposits 170 (995)
Proceeds from sales of trading securities - 294,888
Increase (decrease) in liabilities:
Bank overdraft - 490
Accounts payable (105,350) 90,378
Credit cards payable 5,428 (1,449)
Accrued payroll and delinquent payroll taxes 26,155 34,130
Decrease in margin loan to purchase
trading securities - (98,094)
Sales tax payable 5,585 -
Accrued liabilities 69,372 62,988
Deferred income (2,256) (2,133)
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Net cash used by operating activities (217,331) (79,613)
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CASH FLOWS FROM FINANCING ACTIVITIES
Contribution to capital 100,000 87,000
Proceeds from note payable 65,453 52,861
Proceeds from loans from related parties 73,975 -
Payments to related parties - (77,550)
Advances from officer - 57,109
Advances to related parties - (90,570)
Notes receivable to consultant - (3,750)
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Net cash provided by financing activities 239,428 25,100
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (37,981) (17,060)
Advances to employees and
other receivables, net (666) (1,225)
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Net cash used in investing activities (38,647) (18,285)
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NET DECREASE IN CASH AND EQUIVALENTS (16,550) (72,798)
CASH AND EQUIVALENTS - BEGINNING 27,477 82,364
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CASH AND EQUIVALENTS - ENDING $ 10,927 $ 9,566
=========== =============
SUPPLEMENTAL DISCLOSURES:
Interest received $ 181 $ -
Interest paid $ 5,410 $ 197
Income taxes paid $ $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH
TRANSACTIONS:
Common stock issued for services $ 121,200 $ -
Common stock issued for software license
additional territories $ 750,000 $ -
=========== =============
See accompanying notes.
4
GALA HOSPITALITY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2001 AND 2000
NOTE 1. GENERAL
The accompanying unaudited consolidated financial statements include the
accounts of Gala Hospitality Corporation (referred to as the "Company" or in the
first person notations "we", "us" and "our") and our wholly-owned subsidiary
(Gala Entertainment, Inc. and its wholly-owned subsidiary Hospitality
Adventures, Ltd.). These financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-QSB of Regulation SB established by the U.S. Securities and Exchange
Commission. These financial statements have not been audited by independent
public accountants. In the opinion of our management, we have made all
adjustments necessary for a fair presentation of the results of the interim
periods, and such adjustments consist of only normal recurring adjustments. The
results of operations for these interim periods are not necessarily indicative
of results of operations for a full year.
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure 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 results could differ from these estimates.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted in accordance with the requirements of the U.S. Securities and Exchange
Commission. We believe the disclosures included in these accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the financial statements and
related footnotes included in our Form 10-KSB for the fiscal year ended June 30,
2001, Form 10-QSB for quarter ended September 30, 2001, and Form 8-K/A filed
January 10, 2002.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
OPERATING HISTORY Gala Hospitality Corporation (the Company), was incorporated
in Florida in August 1986, as Triumph Capital, Inc. (Triumph). Triumph was
originally engaged in the stock transfer business. In 1992, Triumph changed its
name to IRT Industries, Inc. (IRT) as part of a reorganization in which it
exchanged 2,900,000 of its common stock for all of the issued and outstanding
shares of IRT Industries, Inc., a company incorporated in California on December
13, 1990, pursuing environmental business opportunities. Triumph then merged
into IRT and reincorporated in the State of Florida. By the end of the fiscal
year ended June 30, 1996, IRT had discontinued most of its prior business
activities. In March 1996, the management of IRT changed as a result of the sale
of a majority of its outstanding shares of common stock. Under its new
management, IRT sought international casino acquisition opportunities throughout
Latin America.
During the fiscal year ended June 30, 1996, IRT acquired a casino interest and
licenses in San Jose, Costa Rica, including a facility leased by a recently
formed wholly-owned subsidiary, Juegos Ruro, S.A. (Juegos). Additionally, IRT
acquired, by agreements in September 1996, another operating casino, the Casino
Bahia Ballena, located in a "Five Star" beach hotel on the west coast of Costa
Rica, through its wholly-owned subsidiaries Casino Bahia Ballena, S.A. (Ballena)
and Inmobiliaria la J Tres S.R.L. (Inmobiliaria), both of which were sold in
April 1998.
In April 1998, IRT decided to discontinue its entire casino operations and in
February 1999, sold Juegos Ruro, S.A., its last casino operation.
On August 2, 1999, prior management consummated a licensing arrangement (the
"License") with Commerce Capital Group, L.L.C., a South Carolina limited
liability company ("CCG") to market and sell CCG's proprietary "Personal Estate
Plan (tm)" (the "PEP")(tm), which was intended to allow professionals and
individual users to conduct estate planning and financial planning through use
of the Internet.
5
On January 25, 2000, we changed our name to Xpedian, Inc. We also changed the
name because of an exchange of a majority of our common stock. The new
management then changed our focus to domestic opportunities in the Internet area
and other business areas.
On September 25, 2001, we completed a share exchange agreement with Gala
Entertainment, Inc. (Gala), a Florida corporation. As a result of this share
exchange, we acquired a subsidiary, Gala, with employees who have a significant
amount of experience in the adult entertainment industry. All matters of the
share exchange agreement were approved by our Board of Directors.
As of September 30, 2001, more than two years after entering into the License,
none of the products or software technology included within the License
Agreement with Commerce Capital Group, LLC, had been delivered or shown to be
functional. Current management believed that the financial planning software
licensed from Commerce Capital Group would neither be delivered nor performs in
the foreseeable future in a manner that will benefit us. Therefore, we decided
to discontinue our efforts in this marketplace.
In September 2001, subsequent to the Share Exchange Agreement described below,
our Directors voted to change our name to Gala Hospitality Corporation. We
believe our name change to Gala Hospitality Corporation better reflects our
pursuit of business opportunities in the entertainment market.
BUSINESS Our business is acquiring existing and profitable adult night club
businesses and complementary businesses. Our adult club business plan calls
for the acquisition of twelve clubs per year over the next two years for
preferred stock convertible into common stock at a later date to minimize
the need for substantial cash to fund our acquisitions.
The first acquisition was The Clubhouse in Kansas City, Missouri, acquired in
September 2001.
Our management dedicated the ensuing three months to working with our
accountants and legal counsel to investigate and, where possible, rectify a
variety of issues that had arisen or been created over the past few years.
LONG-LIVED ASSETS Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment losses on
assets to be held and used are recognized based on the fair value of the asset.
Long-lived assets to be disposed of, if any, are reported at the lower of
carrying amount or fair value less cost to sell.
6
NOTE 3. BUSINESS COMBINATION
On September 25, 2001, we entered into a Share Exchange Agreement to
acquire, pursuant to the Florida corporations statutes. The exchange provided
that:
1. The shareholders of the acquired Company exchange 100% of the issued and
outstanding shares for 4,080,000 shares (40,800,000 shares prior to the
1 to 10 reverse split of January 31, 2002) of our Company's common stock.
2. Our company will be the surviving corporation with the acquired company
being our subsidiary.
3. The acquired company had already purchased a club using its convertible
preferred stock and under the terms of that purchase, if they were
subsequently acquired by and become a subsidiary of another company,
as happened, the new parent company would exchange its preferred stock
in the acquired company for its preferred stock.
The exchange is expected to benefit us by allowing us to tap the equity
markets. The future acquisitions are intended to represent high cash flow,
independently managed and operated, high net margin businesses that seek the
unity of a parent corporation that offers the liquidity of our publicly
traded stock.
In July 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 141 (SFAS 141), "Business Combinations" and Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets".
SFAS 141 requires that all business combinations be accounted for using the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS 141 is effective
for all business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001.
The standard further requires that the reporting entity, pursuant to a business
combination, be determined based on certain criteria, including relative voting
rights, composition of the governing body of the combined entity, and the
composition of senior management. According to those criterias, the financial
statements have been presented based on the acquired company being the
reporting entity. For accounting purposes, the business combination has
resulted in a recapitalization of the acquired company. The historical
financial statements prior to September 25, 2001, are those of the acquired
company and its wholly-owned subsidiary.
7
At the date of the business combination, we valued our Company in the
aggregate at $648,000, using the average market price of our
freely-tradable common stock held by non-affiliates over the two-day period
before and after the terms of the acquisition were agreed to and announced.
The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition:
At September 25, 2001
CURRENT ASSETS.................................. $ 30,344
PROPERTY AND EQUIPMENT ......................... 562,458
GOODWILL........................................ 628,951
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TOTAL ASSETS ACQUIRED........................... 1,221,753
LIABILITIES ASSUMED - ALL CURRENT............... (573,753)
---------
TOTAL ASSETS ACQUIRED........................... $ 648,000
=========
The Share Exchange Agreement also included events that gave the acquired company
the option, but not the obligation, to rescind the exchange. These events were
generally related to funding of the Company by defined dates. Such events were
promised by certain shareholders and have not occurred in accordance with the
agreement. While these existing events give rise to the rescission rights, the
acquired company has not elected to rescind the transaction and has expressed
its strong desire and intent to work with us and our shareholders in obtaining
the required funding and in addressing issues relating to the our debts and
litigation matters for the benefit of our cCmpany and its shareholders.
SFAS 142 requires that ratable amortization of goodwill be replaced with
periodic test of the goodwill impairment and that intangible assets other than
goodwill and other indefinite lived intangible assets, be amortized over their
useful lives. The provisions of SFAS 142 will be effective for fiscal years
beginning after December 15, 2001, however, early applications are permitted for
entities with fiscal years beginning after March 15, 2001. We have elected to
apply the statement early and as a result have reflected an impairment loss of
$128,951 in the measurement of the fair value of the goodwill purchased.
8
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107. The fair value amounts have been determined based on
available market information and appropriate valuation methodology. The carrying
amounts and estimated fair values of our financial assets and liabilities
approximate fair value due to the short maturity of the instruments.
Fair value estimates are subjective in nature and involve uncertainties and
matters of significant judgment; therefore, fair value cannot be determined with
precision.
NOTE 5. MANAGEMENT CHANGES
In September 2001, Clyde Aycock resigned as President and accepted a position
with us as Vice President. Mr. Aycock remained as a Director. Jeffrey
Stoller, Michael Heilman and Don Golden were elected to the Board of Directors.
Subsequently, the Board of Directors appointed Jeffrey Stoller President and
Chief Operating Officer, and Michael Heilman Executive Vice President and
Secretary/Treasurer.
Effective December 1, 2001, Jerold H. Bailey joined our Company as Vice
President. Mr. Bailey's focus is working with Mr. Stoller to identify and
promote appropriate acquisition targets within the adult entertainment field, as
well as to develop and produce special projects including a pay-per-view cable
special proposed to our Company and contracted personally by a principal
shareholder, Mr. Robert Evan (Van) Hughes. Time-Warner had contracted to
broadcast the pay-per-view special. (The special was not produced at that time
because Mr. Robert Evan (Van) Hughes was in default of his agreement and failed
to perform as he had promised in a written contract.)
Effective February 14, 2002, Mr. Aycock resigned as both Vice President and
Director of Gala Hospitality Corporation.
9
NOTE 6. STOCKHOLDERS' EQUITY
In July 2001, we issued 1,500,000 shares (15,000,000 shares prior to the 1 to 10
reverse split of January 31, 2002) of our common stock to Commerce Capital
Group, LLC under the explicit direction of a principal shareholder, Mr. Robert
Evan (Van) Hughes, for additional territory rights pursuant to the software
license. There was no Board of Directors resolution for this issuance. We have
since changed our focus and has abandoned the License Agreement. Current
management disputes the issuance of these shares and all other previously issued
shares to Commerce Capital Group for non-deliverance of the Internet and
financial software per the License Agreement as well as failure to obtain proper
Board of Directors authorization for the issuance of the specifically mentioned
1,500,000 shares (15,000,000 shares prior to the 1 to 10 reverse split of
January 31, 2002) issued in July 2001. Upon advice of corporate and SEC counsel,
in November 2001, the Board of Directors voided the 1,500,000 shares (15,000,000
shares prior to the 1 to 10 reverse split of January 31, 2002) issued illegally
to Commerce Capital Group.
In October 2001, the Company initiated litigation against Commerce Capital
Group and its managing partner, Mr. Robert Evan (Van) Hughes, as well as several
other ancillary entities alleging breach of contract and fraud, and requesting
rescission, injunctive relief and declaratory relief against Commerce Capital
Group, Mr. Hughes and the other defendants. The case has been filed in the
Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida,
case number CIV-# 01-016931. Despite repeated efforts by numerous independent
parties, as of this date the Company has been unable to serve Commerce Capital
Group (of which Mr. Hughes is the only agent) and Mr. Hughes due to Mr. Hughes'
evasive tactics and failure to up-date the statement of registered agent for
Commerce Capital Group.
In July 2001, we issued 700,000 shares (7,000,000 shares prior to the 1 to 10
reverse split of January 31, 2002) of our common stock to various individuals as
compensation for services in connection with management services, brokerage
services and investor relations, under the explicit direction of Mr. Robert Evan
(Van) Hughes. Current management disputes the issuance of these shares based on
a lack of consideration to the Company, and we have already recovered 350,000
shares (3,500,000 shares prior to the 1 to 10 reverse split of January 31,
2002). Current management has verified that 120,000 shares (1,200,000 shares
prior to the 1 to 10 reverse split of January 31, 2002) were issued properly.
The balance of 230,000 shares (2,300,000 shares prior to the 1 to 10 reverse
split of January 31, 2002) issued to Patrick Davis, Glenn Evans, Sumner Strout
and John Williams are currently under investigation.
In July 2001, we issued 40,000 shares (400,000 shares prior to the 1 to
10 reverse split of January 31, 2002) of our common stock to three
directors of the Company for their past services.
In October 2001, we entered into an Investors Relations Agreement with
21st Equity Partners LLC ("21st EP"), 15800 John J. Delaney Drive, Suite 325,
Charlotte, NC 28277, 800-437-3551. our management believes that 21st EP did
not perform as agreed and we have requested the return of 250,000 shares
(2.5 million shares prior to the 1 to 10 reverse split of January 31, 2002)
issued to 21st EP. At this time, 21st EP has refused to comply with our
return request.
10
On January 31, 2002, we effected a 1 for 10 reverse split in that each
ten (10) shares of previously authorized common stock of the corporation, par
value $.0001 per share, issued and outstanding immediately prior to the time of
the filing and recording of our Amended Articles of Incorporation (the
"Amendment") with the Office of the Secretary of State of the State of Florida
shall automatically be combined without any further action
into one (1) validly issued, fully paid and non assessable share of common stock
of the corporation, par value $.0001 per share. Each holder of record of a
certificate for ten (10) or more shares of our common stock at a
January 31, 2002 shall be entitled to receive, as soon as practicable, and upon
surrender of their certificate, a certificate or certificates representing one
(1) share of common stock for each ten (10) shares of common stock represented
by their certificate, with the next higher number of shares being
issued in lieu of fractional shares. Further, every right, option and warrant to
acquire one (1) share of our common stock, outstanding
immediately prior to the time of filing and recording of this Amendment in the
Office of the Secretary of State of the State of Florida, shall automatically
be converted without any further action into the right
to acquire one-tenth (1/10) of a share of our common stock, upon
the terms of the right, option or warrant, except that the purchase price of the
common stock, upon exercising the right, option or warrant, shall be
proportionately increased. We will not issue fractional shares
with respect to the combination or conversion. To the extent that a shareholder
holds a number of shares of common stock immediately after the filing and
recording of the Amendment that is not a whole number, that shareholder shall
receive the additional fraction of a share to provide the shareholder a whole
share. The number of shares we shall have authority to issue is Two
Hundred Two Million (202,000,000) shares. Of such shares, Two Hundred Million
(200,000,000) shares, with a par value of $.0001, shall be common shares. Two
Million (2,000,000) shares, with a par value of $.0001, shall be preferred
shares. The voting powers, designations, preferences and relative participating
optional and other rights, if any, and the qualifications, limitations or
restrictions, if any, of the preferred stock in one or more series, shall be
fixed by one or more resolutions providing for the issuance of such stock
adopted by our Board of Directors in accordance with the
provisions of the Florida Business Corporation Act
This Amendment for the 1 to 10 reverse split to the Articles of Incorporation of
the Corporation, was duly adopted in accordance with the provisions of the
Florida Business Corporation Act. A majority of the shares entitled to vote
executed a Statement of Consent to Action by the Shareholders of the Company in
accordance with the provisions of the Florida Business Corporation Act. The date
of adoption of this amendment by our shareholders is January 10, 2002, and
became effective upon filing with the Secretary of State of Florida.
11
NOTE 7. COMMITMENTS AND CONTINGENCIES
INVESTOR RELATIONS We are committed to a consistent and on-going program
of investor relations to adequately communicate our objectives and our
achievements to the investment community. To that end, in January 2002, we
retained National Financial Communications (www.nationalfc.com)
(Needham, Ma.), specifically its subsidiary that focuses on Over-the-Counter
stocks (www.otcfn.com), as our lead Investor Relations firm. NFC has a long and
successful track record, with an excellent client roster. Their services include
strategy, creative web design, distribution and consultation. This agreement
provides for payment of $5,000 per month in the form of cash or stock, at our
management's discretion.
OFFICE FACILITIES We closed our executive offices located in Charlotte,
North Carolina. Our two year operating lease expired on September 30,
2001, and was not renewed. Rent expense for the six months ending December 31,
2001, was $1,980.
Currently, we operate in temporary office space for which we pay no rent in
Miami, Florida. Permanent space will be leased in the Miami area when we have
completed our funding.
We lease our subsidiaries' facilities under a five-year operating lease expiring
September 2004, from a company which was previously affiliated through common
ownership, at rental rates that management believes are comparable to those
obtainable from other unrelated parties. The lease provides for monthly payments
of $6,150 plus maintenance, insurance, and property taxes. The lease contains
five renewal option periods on the same terms. Rent expense under these leases
totaled $36,900 for the six months ended December 31, 2001 and 2000. As part of
the Share Exchange Agreement on September 26, 2001, the lessor is no longer an
affiliate of our Company.
REGISTRATION RIGHTS As part of a private placement completed in February 2000,
certain Florida shareholders have alleged that the Company granted registration
rights and further committed to the registration of those shares no later than
July 31, 2000. The Company's corporate and SEC counsel is unaware of any
executed document(s) evidencing such rights and the alleging shareholders have
not provided any such evidence in response to our repeated requests.
In addition, a draft of a document for a private placement at approximately that
same time included a clause requiring that all disputes be arbitrated in North
Carolina. While these shareholders could assert claims for damages caused by the
failure to register the shares at the originally agreed-upon date, given the
absence of any evidence supporting such allegations, management is confident
that such claims cannot be substantiated in a court of law; and , further, that
if such alleging shareholders elected to base their action on the unexecuted
draft private placement memorandum, they would be compelled to arbitrate in
North Carolina. Current management initiated correspondence with these
shareholders in October 2001, in an effort to address their concerns and offered
a settlement that management believed to be fair considering the
circumstances. This offer expired on January 11, 2002. There has been no
response to this offer as of the date of this filing. Management considers this
matter closed.
12
NOTE 8. GOING CONCERN AND MANAGEMENT'S PLANS
The financial statements for the periods ended December 31, 2001, have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. We have suffered recurring losses. This factor raises doubt
about our ability to continue as a going concern without achieving
profitable operations or an infusion of capital or additional financing. The
financial statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
Management recognizes that our Company must generate additional resources in
order to continue. Management's plans will focus in future acquisitions that are
intended to represent high cash flow, independently managed and operated, high
net margin businesses which will include our new focus of the entertainment
industry. Management will also focus on expanding the corporate core businesses
that will support the total corporate structure and that will be revenue
producing.
Management has initiated two phases of financing: (1) immediate funding of
$500,000 raised in the private sale to a limited number of investors of common
stock (at the price of $.05 and $.10 per share) made available after its 1 to 10
reverse split of January 31, 2002; and, (2) subsequent funding of $2,500,000 in
the form of a 1 year 10% debenture, convertible by the holder or the Company
after 6 months, at a discount of up to 25% off the then current market price. Of
Phase (1), $100,000 has been raised to date.
13
ITEM 2 - Management's Discussion and Analysis or Plan of Operation
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information set forth under
this Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute 'forward-looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995 (the Act). We
desire to avail ourselves of certain 'safe harbor' provisions of the Act and are
therefore including this special note to enable us to do so.
Forward-looking statements in this Form 10-QSB or later included in other
publicly available documents filed with the Securities and Exchange Commission,
reports to our stockholders and other publicly available statements issued or
released by us involve known and unknown risks, uncertainties and other factors
which could cause our actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. These forward-looking statements are identified by the use of terms
and phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intent," "may," "will," "plan," "predict," "potential," and similar terms and
phrases, including references to assumptions. These statements are contained in
each part of this report and any documents incorporated by reference. Such
future results are based upon management's best estimates based upon current
conditions and most recent results of operations. These forward-looking
statements represent our expectations, but actual results could differ
materially from those anticipated by the forward looking statements due to a
number of factors, including;
(i) limited operating history;
(ii) need for financing;
(ii) lack of sales;
(iv) reliance of revenue growth upon economic conditions;
(v) competition;
(vi) absence of dividends; and
(vii) the other risks and uncertainties described elsewhere in this report and
in our Annual Report on Form 10-KSB for the fiscal year ended June 30,
2001, under the caption, "Factors Affecting Future Operating Results"
under Item 2. - "Management's Discussion and Analysis or Plan of
Operation."
14
We are under no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission ("SEC").
The following discussion and analysis provides information, which our management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. This discussion should be read in
conjunction with financial statements and notes appearing elsewhere in this
report.
Our Business
Gala Hospitality Corporation, a Florida corporation, was engaged in acquiring
businesses focused on Internet and wireless technologies. We have ceased
operations in these markets to seek opportunities in the entertainment market.
Management Changes and Direction
We are redirecting our efforts to the acquisition of profitable businesses in
the entertainment market. On September 25, 2001, we entered into a Share
Exchange Agreement with Gala Entertainment, Inc., reflecting the Board's beliefs
that the technology licensed from Commerce Capital Group would not generate
revenues in the foreseeable future, and that the plan of operations of Gala
Entertainment, Inc. would be a positive step in making us profitable.
Subsequently, we changed our name to Gala Hospitality Corporation.
On August 2, 1999, prior management consummated a licensing arrangement (the
"License") with Commerce Capital Group, L.L.C., a South Carolina limited
liability company ("CCG") to market and sell CCG's proprietary "Personal Estate
Plan (tm)" (the "PEP")(tm), which was intended to allow professionals and
individual users to conduct estate planning and financial planning through use
of the Internet. Under the License, our initial geographic territory was limited
to Florida. CCG was paid a license fee of 2.1 million shares (21 million shares
prior to the 1 to 10 reverse split of January 31, 2002) of unregistered common
stock. In July 2001, CCG unilaterally assigned additional territory under the
License to us and demanded 1,500,000 shares (15,000,000 shares prior to the 1 to
10 reverse split of January 31, 2002) for such territory, which issuance was not
approved by the Board of Directors but which shares were mistakenly issued by
the Company's transfer agent.
15
As of September 30, 2001, none of the products or software technology included
within the License Agreement with Commerce Capital Group, LLC, had been
delivered or shown to be functional. Current management believes that the
financial planning software licensed from Commerce Capital Group will neither be
delivered nor perform in the foreseeable future in a manner that will benefit
us. Therefore, we decided to discontinue our efforts in this marketplace.
In October 2001, we initiated litigation against CCG and its managing partner,
Mr. Robert Evan (Van) Hughes, as well as several other ancillary entities
alleging breach of contract and fraud, and requesting rescission, injunctive
relief and declaratory relief against CCG, Mr. Hughes and the other defendants.
The case has been filed in the Circuit Court of the 17th Judicial Circuit in and
for Broward County, Florida, case number CIV-# 01-016931. Despite repeated
efforts by numerous independent parties, as of this date the Company has been
unable to serve Commerce Capital Group (of which Mr. Hughes is the only agent)
and Mr. Hughes due to Mr. Hughes' evasive tactics and failure to up-date the
statement registered agent for Commerce Capital Group. Upon advice of SEC and
corporate counsel, in November 2001 the Board of Directors voided the 15,000,000
shares issued illegally to Commerce Capital Group.
On September 25, 2001, we completed a share exchange agreement with Gala
Entertainment, Inc. (Gala), a Florida corporation. As a result of this share
exchange agreement, we acquired a subsidiary, Gala, with employees who have a
significant amount of experience in the adult entertainment industry. All
matters of the share exchange agreement were approved by our Board of Directors.
The essential terms of the Share Exchange Agreement are:
a. We will be the surviving corporation with Gala being our subsidiary; and
b. Gala shareholders will exchange 100% of issued and outstanding shares of Gala
Entertainment, Inc. for 4,080,000 of our shares (40,800,000 shares prior to the
1 to 10 reverse split of January 31, 2002), on a pro rata basis.
c. Gala, a Florida corporation, will continue as a corporation in Florida after
the share exchange; and
d. We are not subject to the control share requirements of the Florida Business
Corporation Act, Section 607.0902 as this transaction is exempt pursuant to
Section 607.0902(2)(d)5 and Section 607.0902(2)(d)6; and
e. Gala shareholders voted in favor of the Share Exchange Agreement; and
f. Our Board of Directors voted in favor of the Share Exchange Agreement; and
g. We elected additional members to our Board of Directors.
16
A copy of the Plan of Share Exchange Agreement is attached to our Form 8-K filed
on October 8, 2001.
As a result of these changes we changed our name and symbol effective November
6, 2001, to Gala Hospitality Corporation with a new symbol of GHCP. The symbol
was again changed to GLAH with the January 31, 2001 reverse split.
At the time of the Share Exchange for all practical purposes, we were not a
"going concern." We had no remaining customers for our services, had no
revenues, and no account receivables.
In September, 2001, Clyde Aycock resigned as President and accepted a position
with us as Vice President. Mr. Aycock remained a director. Jeffrey Stoller,
Michael Heilman and Don Golden were elected to the Board of Directors.
Subsequently, the Board of Directors appointed Jeffrey Stoller President
and Chief Operating Officer, and Michael Heilman Executive Vice President
and Secretary/Treasurer.
Effective December 1, 2001, Jerold H. Bailey joined the Company as Vice
President. Mr. Bailey's focus is working with Mr. Stoller to identify and
promote appropriate acquisition targets within the adult entertainment field, as
well as to develop and produce special projects including a pay-per-view cable
special proposed to Xpedian and contracted to personally by its principal
shareholder, Robert Evan (Van) Hughes. Time-Warner had contracted to broadcast
the pay-per-view special. (The special was not produced at that time because Mr.
Hughes was in default of his agreement and failed to perform as he had promised
in a written contract.)
Sales and Marketing
With the discontinuance of the License Agreement for the financial market, we
are not in need of a sale and marketing program for this application.
We are in the process of developing the necessary marketing program for our new
business. This is taking shape in two efforts: (1) To present our acquisition
opportunity to prospective club owners, and (2) To present our new investment
opportunity to our present shareholders, prospective new investors and the
brokerage community. As noted above, this marketing program is producing
results.
17
Competition
Competition can be described on 3 levels:
1. Competition between one club and another within a marketplace.
2. Competition between Gala and another firm to acquire the same specific club.
3. Competition between Gala and another firm to attract the same investor.
As for the first type of competition, the fact that we look for existing
profitable clubs means that competition on a local level, between the club to be
acquired and its local competitors, has already been taken into account in the
performance of the club to be acquired. One of the issues that we examine prior
to completing an acquisition is the possibility of new competition. Most of the
clubs and markets we will approach are mature markets and the opportunity for
completely new competition (as opposed to someone buying an existing property
and making changes) is less than in an immature market.
With respect to the second and third levels of competition, there are
approximately 2500 adult nightclubs in the United States, including numerous
chains of 3 or more clubs. However, to the best of our knowledger, there are no
other firms at this time attempting our plan of acquiring existing profitable
adult clubs and complementary businesses through a public vehicle for stock of
that vehicle.
There are at least two public companies (other than Gala Hospitality
Corporation) in the U.S. presently engaged in the adult nightclub business:
Rick's Cabaret and Boystoys.com. Internet Advisory Corporation has made an
announcement of a possible acquisition of Scores in New York City.
Rick's appears to be focusing on their Internet businesses, while limited
expansion of Rick's club business, principally in Houston, TX., has historically
entailed start-ups or turn-arounds. Rick's is not a competitor for clubs,
although they may be a competitor for investors.
Boystoys.com operates one club in San Francisco, California. Although the club
appears to be profitable, the company is in bankruptcy with many millions of
dollars of start-up debt, and allegations of extensive mismanagement and fraud.
This company is not a viable competitor for clubs or investors at this time.
On January 10, 2002, Internet Advisory Corp. announced it is "in talks" for the
acquisition of "Scores" in New York. Internet Advisory Corporation is a public
shell that recently emerged from bankruptcy. Scores was a successful New York
City adult club that must move its location due to the expiration and
non-renewal of its lease. If Internet Advisory and/or Scores were, at some time
in the future, to attempt to establish a chain of clubs called "Scores," Gala
Hospitality Corporation and they would likely not be competing for the same
clubs, although there may be some competition for investors.
There are two private chains that are actively soliciting acquisitions. In
addition to not being public companies and not being competitors for investors,
these firms are also pursuing very different strategies than is Gala Hospitality
Corporation. Neither firm has indicated a desire to be public; and they have
historically acquired clubs in a turn-around situation which they can manage
back to profitability. At this time, neither firm is a competitor for the same
clubs or for investors.
18
There are two main reasons for the absence of competition in the public arena:
1. The unwillingness of independent cabaret owners to go through the process
and expense of going public for themselves.
2. The absence of qualified corporate management with experience and
professional skills in both adult entertainment and the financial community.
Employees
We have three executives employed: Jeffrey
Stoller, Michael Heilman and Jerry Bailey.
The Clubhouse, Kansas City, Missouri, operation employs three full-time and
twenty part-time (principally the wait staff) personnel while we also staffed
our facility with approximately sixty independently contracted entertainers.
Description of Property
We are no longer providing office space for Mr. Aycock. The Gala Entertainment,
Inc. subsidiary will provide office space for Mr. Stoller until suitable space
can be found in South Florida.
Liquidity and Capital Resources
As of December 31, 2001, cash and cash equivalents were $10,297 compared with
$150 at December 31, 2000. We had a deficit in working capital of $811,228 at
December 31, 2001, as compared to $127,521 at December 31, 2000. The difference
is the result of the substantial costs associated with the Company's SEC
filings and audits, as well as the acquisition of the Kansas City operation.
19
Results of Operations
Six months and three months ended and December 31, 2001 compared to the Six
and three months Ended December 31, 2000:
o Revenues decreased by 41% to $215,610 for the six months ending December
31, 2001, from $365,542 for the same period ending December 31, 2000. The
decrease in revenue was related to the economic downturn from the tragedy
of September 11.
o Net income increased by $166,812 for the three months ended December 31,
2001 as compared to December 31, 2000, because of the reduction of debt of
approximately $252,000.
o Net loss per share (basic and diluted) decreased to $0.11 per share during
the six months ended December 31, 2001, as compared to a loss of $.02 per
share during the six months ended December 31, 2000. Both numbers were
adjusted for the 1-for-10 reverse split on January 31, 2002. The decrease
is caused by the impairment loss of $750,000 of the territorial license
acquired from CCG.
o We reported net income for the quarter ended December 31, 2001, of $103,990
due principally to income attributable to cancellation of debt in the
amount of $252,085, which management either negotiated down or determined
was booked improperly.
In general, the September 11, 2001, terrorist attacks and the subsequent war on
terrorism has negatively impacted the entire United States economy and like many
businesses our business was affected also. Additional attacks could have a
material adverse affect to our revenues and our bottom line. It is very
difficult, if not impossible to predict the long-term implications on our
business of the attacks and our country's responses.
Need for Financing
We will have to raise funds in order to facilitate our new business strategy,
and to fund our developmental and working capital needs. In addition, as we
experience rapid growth, we will require additional funds to expand our
operations, to enlarge our organization and to increase our personnel. Our
current Business Plan requires that we raise $3 million.
Management has initiated two phases in securing this capital: (1) immediate
funding of $500,000 raised in the private sale to a limited number of people of
common stock (at the price of $.05 and $.10 per share) made available after its
1 to 10 reverse split of January 31, 2002; and, (2) subsequent funding of
$2,500,000 in the form of a 1 year 10% debenture convertible after 6 months at a
discount of up to 25% off the then current market price.
20
For Phase 1, we have received $100,000. There can be no assurance that we will
be able to obtain the balance of our financing on favorable terms or that
additional financing will be available, if at all. If adequate funds are not
available or are not available on favorable terms, we may not be able to support
our developmental and day-to-day corporate activities. Such inability to obtain
financing could have a material adverse effect on our business, financial
condition or results of operations and could require us to materially reduce,
suspend or cease operations.
Compliance with Law
We will comply with laws and regulations applicable to our planned future
business. These laws are well documented and tested.
Absence of Dividends
Given that our Business Plan calls for growth through stock acquisitions, once
cash flow from acquisitions equals corporate overhead and basic reserves for
operations and special revenue generating projects, we would anticipate that
dividends would be declared and issued, although we do not foresee this
happening in 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, we (plaintiff) filed a complaint against International
Corporation, K&Z, S.A. and others. In the complaint, we alleged that the
defendants had breached an agreement to sell a license to operate a casino in
San Jose, Costa Rica. As consideration for the license, the defendants issued a
promissory note in the amount of $595,000 while simultaneously purchasing
240,000 shares (2,400,000 shares prior to the 1 to 10 reverse split of January
31, 2002)of the Company's common stock. As security for the validity of the
license, the defendants pledged a certain number of shares of our common stock
and agreed not to transfer the shares until the validity of the license could be
confirmed. However, one of the co-defendants attempted to transfer his shares.
We then placed a stop-transfer order on the defendant's shares. The co-defendant
subsequently filed a counterclaim against us alleging that we had
improperly caused a stop-transfer order to be placed on his shares of our
common stock, and is seeking damages in excess of $300,000. We believe
that the counter-claim has no merit. The court required us to post a $10,000
bond and 3,000 (30,000 shares prior the January 31, 2002 reverse split)
shares in escrow to settle the matter in payment in full to the defendant
should the judgment go against us; which we did. This is, therefor,
the limit of our exposure. A pretrial conference is set for May 10, 2002.
21
On August 2, 1999, prior management consummated a licensing arrangement (the
"License") with Commerce Capital Group, L.L.C., a South Carolina limited
liability company ("CCG") to market and sell CCG's proprietary "Personal Estate
Plan (tm)" (the "PEP")(tm), which was intended to allow professionals and
individual users to conduct estate planning and financial planning through use
of the Internet. Under the License, our initial geographic territory was limited
to Florida. CCG was paid a license fee of 2,100,000 shares (21,000,000 shares
prior to the 1 to 10 reverse split of January 31, 2002) of unregistered common
stock. In July 2001, CCG unilaterally assigned additional territory under the
License to us and demanded 1,500,000 shares (15,000,000 shares prior to the 1 to
10 reverse split of January 31, 2002)for such territory, which shares the Board
did not authorize but which stock or transfer agent mistakenly issued. We have
initiated litigation against CCG and its managing partner, Mr. Robert Evan (Van)
Hughes as well as several other ancillary entities alleging breach of contract
and fraud, and requesting rescission, injunctive relief and declaratory relief
against CCG, Mr. Hughes and the other defendants. The case has been filed in the
Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida,
case number CIV-# 01-016931. Despite repeated efforts by numerous independent
parties, as of this date the Company has been unable to serve Commerce Capital
Group (of which Mr. Hughes is the only agent) and Mr. Hughes due to Mr. Hughes'
evasive tactics and failure to up-date the statement registered agent for
Commerce Capital Group. Upon advice of SEC and corporate counsel, in November
2001, the Board of Directors voided the 1,500,000 shares (15,000,000 shares
prior to the 1 to 10 reverse split of January 31, 2002) issued illegally to
Commerce Capital Group.
In March 2000, prior management offered for sale to qualified investors up to
87,000 shares (870,000 shares prior to the 1 to 10 reverse split of January 31,
2002) of our common stock, under a private placement, to qualified investors,
pursuant to an exemption available under the Securities Act of 1933. Under this
offering, 869,117 shares were issued at a price of $.68, generating gross
proceeds of approximately $591,000, with commissions being paid of approximately
$59,000. As part of that private placement, certain Florida shareholders have
alleged that the Company granted registration rights and further committed to
the registration of those shares no later than July 31, 2000. Our corporate and
SEC counsel is unaware of any executed document(s) evidencing such rights and
the alleging shareholders have not provided any such evidence in response to the
Company's repeated requests. Moreover, a draft of a document for a private
placement at approximately that same time included a clause requiring that all
disputes be arbitrated in North Carolina. While these shareholders could assert
claims for damages caused by the failure to register the shares at the
originally agreed-upon date, given the absence of any evidence supporting
management is confident that such claims cannot be substantiated in a court of
law; and , further, that if such alleging shareholders elected to base their
action on the unexecuted draft private placement memorandum, they would be
compelled to arbitrate in North Carolina. Notwithstanding the unlikelihood of
the success of any action in this matter against us, current management
initiated correspondence with these shareholders in October 2001, in an effort
to address their concerns and offered a settlement that management believed to
be fair considering the circumstances. This offer expired on January 11, 2002.
There has been no response to this offer as of the date of this filing.
Management considers this matter closed.
22
Item 2. Changes in Securities
On September 30, 2001, there were 9,997,543 shares (99,975,430 shares prior to
the 1 to 10 reverse split of January 31, 2002) of common stock issued. There are
100,000,000 shares authorized. Between October 1, 2001 and December 31, 2001,
380,0000 (3,800,000 shares prior to the 1 to 10 reverse split of January 31,
2002) were canceled and 380,000 (3,800,000 shares prior to the 1 to 10 reverse
split of January 31, 2002) were issued as follows:
In July 2001, we issued 700,000 shares (7,000,000 shares prior the
1 to 10 reverse split of January 31, 2002) of the Company's common stock to
various individuals as compensation for services in connection with
management services, brokerage services and investor relations, under the
explicit direction of Robert Evan (Van) Hughes, one of our large
shareholders. Current management disputed the issuance of these shares based
on a lack of consideration to the company, and recovered 350,000 shares
(3,500,000 shares prior to the 1 to 10 reverse split of January 31, 2002):
On October 9, 2001, the proposed agreement between us and Mel
Jackson Financial & Tax Services was terminated. Although never
consummated, 200,000 shares (2,000,000 shares prior to the 1 to 10 reverse
split of January 31, 2002) had previously been issued to Mike Mattick at
the improper direction of Robert Evan (Van) Hughes, which stock Mr. Mattick
returned.
On October and November 2001, with the support and permission of Jerry
Bailey and Michael Heilman, we canceled 150,000 shares (1,500,000
shares prior to the 1 to 10 reverse split of January 31, 2002) that were
issued to Mr. Bailey and Mr. Heilman at the improper direction of Mr. Robert
Evan (Van) Hughes in July 2001. Neither Mr. Bailey nor Mr. Heilman received
such certificates and were not even aware that that these shares had been
issued to them. The certificates were, in fact, delivered to Robert Evan
(Van) Hughes.
In October 2001, we entered into an Investors Relations Agreement
with 21st Equity Partners LLC ("21st EP"), 15800 John J. Delaney Drive,
Suite 325, Charlotte, NC 28277, 800-437-3551. It is our belief
that 21st EP did not perform as agreed and the Company has requested the
return of 250,000 shares (2.5 million shares prior to the 1 to 10 reverse
split of January 31, 2002) issued to 21st EP. At this time, 21st EP has
refused to comply with our return request.
On November 6, 2001, we placed a hold on 1,500,000 shares
(15,000,000 shares prior to the 1 to 10 reverse split of January 31, 2002)
that were fraudulently issued to Commerce Capital Group. These shares were
issued to Commerce Capital Group LLC. (CCG) on July 13, 2001 in violation
of the Florida Business Corporation Act, Section 607.0621. Specifically,
the Board has determined that the shares were issued to Commerce Capital
Group LLC improperly and without a determination by the Board of
appropriate consideration for such shares. The Board of Directors did not
authorize the shares, and therefore, claims that these shares are null and
void and subsequently provide no shareholder rights, including voting
rights, to Commerce Capital Group LLC.
On November 27, 2001, we canceled 30,000 shares (300,000 shares
prior to the 1 to 10 reverse split of January 31, 2002) returned to us
by IBF Consulting in consideration for the forgiveness of a note
owed by IBF Consulting to us, which we considered uncollectible in any event.
This forgiveness was effected by Dale Chapman, a prior President of the Company.
On November 30, 2001, we entered into a Financial Consulting Agreement
with Dynamic Capital for 30,000 shares (300,000 shares prior to the
1 to 10 reverse split of January 31, 2002) as compensation. Later, this
agreement was canceled and the stock returned.
23
On December 1, 2001, we entered into a Consulting Agreement with Don
Golden for 100,000 shares (after the January 31, 2002, reverse split) due on
April 1, 2002.
In January 2002, we retained National Financial Communications
(www.nationalfc.com) (Needham, Ma.), specifically its subsidiary that focuses on
over-the-counter stocks (www.otcfn.com) as its lead Investor Relations firm. NFC
has a long and successful track record, with an excellent client roster. Their
services include strategy, creative, web design, distribution and consultation.
This agreement calls for payment of $5000 per month in the form of cash or stock
at our discretion.
On December 7, 2001, stock options were issued to Ryan Bass and Michael Fox,
each for 2,500 shares at $.16, and to Daniel McElwee for 1.000 shares at the
same price, exercisable until December 6, 2003. These options are subject to
their continued employment at the Club in Kansas City, Missouri through March 1,
2002.
On January 31, 2002, we effected a reverse stock split of 1 for 10
shares. See Item 4.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On January 10, 2002, pursuant to a resolution of the Board of Directors, a
majority of our shareholders eligible to vote approved a reverse
stock split of 1 for 10 shares. This amendment for the 1 to 10 reverse split to
the Articles of Incorporation of the Corporation, has been duly adopted in
accordance with the provisions of the Florida Business Corporation Act. An
Amendment to the Company's Articles of Incorporation has been filed with the
State of Florida. In union with this reverse, we increased the
authorized shares from 100,000,000 to 200,000,000 shares and created a preferred
class of stock with 2,000,000 authorized shares. The date of adoption of this
amendment by our shareholders is January 10, 2002, and became effective
upon filing with the Secretary of State of Florida.
24
On January 31, 2002, the Company effected a 1 for 10 reverse split in that each
ten (10) shares of previously authorized common stock of the corporation, par
value $.0001 per share, issued and outstanding immediately prior to the time of
the filing and recording of our Amended Articles of Incorporation (the
"Amendment") with the Office of the Secretary of State of the State of Florida
shall thereby and thereupon automatically be combined without any further action
into one (1) validly issued, fully paid and non assessable share of common stock
of the corporation, par value $.0001 per share. Each holder of record of a
certificate for ten (10) or more shares of common stock of the corporation as of
January 31, 2002 shall be entitled to receive, as soon as practicable, and upon
surrender of such certificate, a certificate or certificates representing one
(1) share of common stock for each ten (10) shares of common stock represented
by the certificate of such holder, with the next higher number of shares being
issued in lieu of fractional shares. Further, every right, option and warrant to
acquire one (1) share of common stock of the corporation, outstanding
immediately prior to the time of filing and recording of this Amendment in the
Office of the Secretary of State of the State of Florida, shall thereby and
thereupon automatically be converted without any further action into the right
to acquire one-tenth (1/10) of a share of common stock of the corporation, upon
the terms of the right, option or warrant, except that the purchase price of the
common stock, upon exercising the right, option or warrant, shall be
proportionately increased. The corporation shall not issue fractional shares
with respect to the combination or conversion. To the extent that a shareholder
holds a number of shares of common stock immediately after the filing and
recording of the Amendment that is not a whole number, such shareholder shall
receive the additional fraction of a share to provide the shareholder a whole
share. The number of shares the corporation shall have authority to issue is Two
Hundred Two Million (202,000,000) shares. Of such shares, Two Hundred Million
(200,000,000) shares, with a par value of $.0001, shall be common shares. Two
Million (2,000,000) shares, with a par value of $.0001, shall be preferred
shares. The voting powers, designations, preferences and relative participating
optional and other rights, if any, and the qualifications, limitations or
restrictions, if any, of the preferred stock in one or more series, shall be
fixed by one or more resolutions providing for the issuance of such stock
adopted by the corporation's Board of Directors in accordance with the
provisions of the Florida Business Corporation Act.
25
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gala Hospitality Corporation
/s/ Jeffrey Stoller
By: --------------------------------------------
Name: Jeffrey Stoller
Title: President, Chief Executive Officer, Director
Gala Hospitality Corporation
/s/ Michael Heilman
By: --------------------------------------------
Name: Michael Heilman
Title: Executive VP, Secretary, Treasurer, Director
Date: February 20, 2002