UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 SCHEDULE 14C
REVISED
AMENDMENT NO. 1
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY PARTY OTHER THAN THE REGISTRANT [_]
CHECK THE APPROPRIATE BOX:
[X] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[_] Definitive Information Statement
GATEWAY DISTRIBUTORS, LTD.
(Name of Registrant as specified in its charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to exchange act rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by exchange act rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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GATEWAY DISTRIBUTORS, LTD.
3035 E. PATRICK LANE, SUITE 14
LAS VEGAS, NEVADA 89120
TELEPHONE (702) 938-9316
June 7, 2004
To Our Stockholders:
The purpose of this information statement is to inform the holders of
record of shares of our common stock and preferred stock as of the close of
business on the record date, April 30, 2004 that our board of directors has
recommended, and that a majority of our stockholders intend to vote in favor of
a resolution which will amend our articles of incorporation to:
- Increase the authorized shares of our preferred stock from 1,000,000 to
200,000,000 shares; and
- Effect a reverse split of our common stock on the basis of up to one
post-consolidation share for each 1,000 pre-consolidation shares to occur
at some time within 12 months of the date of this Information Statement,
with the exact time of the reverse split to be determined by the board of
directors.
Our board of directors believes that our current capital structure is
inadequate for our present and future needs. The board of directors believes
that the higher share price that might initially result from the reverse stock
split could help generate interest in Gateway Distributors, Ltd. among investors
and thereby assist us in raising future capital to fund our operations or make
acquisitions. Moreover, our directors believe that the adjustments to our
capital structure will create additional benefits to us, including enabling us
to package more attractive securities offerings through the use of common and
preferred classes and providing us with the opportunity to finance selected
commercial transactions without having to deplete working capital.
If the amendment is approved by a majority of the total number of shares of
common stock and preferred stock issued and outstanding and entitled to vote on
the matter, an amendment to our articles of incorporation will be filed by our
proper officers.
We have two consenting stockholders, Richard A. Bailey, our founder,
president, and a director, who holds 3,278,345,006 shares of our common stock
and 498,000 shares of our preferred stock, and Florian Ternes, our director and
secretary who holds 3,278,341,672 shares of our common stock and 498,000 shares
of our preferred stock. Both Mr. Bailey and Mr. Ternes will vote in favor of
the proposed amendment to our articles of incorporation. Messrs. Bailey and
Ternes have the power to pass the proposed amendment without the concurrence of
any of our other stockholders.
Pursuant to our Amended Certificate of Designation Establishing Series A
Preferred Stock, each share of our currently issued and outstanding preferred
stock may be converted into 1,000 fully paid and nonassessable shares of our
common stock. On all matters submitted to a vote of the holders of the common
stock, including, without limitation, the election of directors, a holder of
shares of the preferred stock shall be entitled to the number of votes on such
matters equal to the number of shares of the preferred stock held by such holder
multiplied by the number of shares of the common stock each such share of the
preferred stock shall then be convertible. Therefore, Mr. Bailey will have the
power to vote 3,776,345,006 shares of the common stock, and Mr. Ternes will have
the power to vote 3,776,341,672 shares of the common stock. Together, Messrs.
Bailey and Ternes will have the power to vote 7,552,686,678 shares of our common
stock, which number exceeds the majority of the issued and outstanding shares of
our common stock on the record date required to pass the proposed amendment. In
addition to common stock, each of Mr. Bailey and Mr. Ternes also own 498,000
shares of our preferred stock. We currently have 996,125 shares of our
preferred stock issued and outstanding. The remaining 125 shares of our
preferred stock are owned by Neptune Communications, Inc., a Nevada corporation,
which is controlled by Mr. Ternes. As such, Messrs. Bailey and Ternes will have
the power to vote all of the issued and outstanding shares of our preferred
stock.
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The May 2002 Amendment. This information statement is also being sent in
connection with the previous approval by our board of directors of the corporate
actions referred to below and their subsequent adoption by our majority
stockholders. Accordingly, all necessary corporate approvals in connection with
the matters referred to herein have been obtained, and the discussion of the May
2002 Amendment in this information statement is furnished solely for the purpose
of informing stockholders of these corporate actions in the manner required
under the Securities Exchange Act of 1934, as amended.
On May 31, 2002, as authorized by the necessary approvals of our board of
directors and our majority stockholder, as of the record date of May 10, 2002,
we approved the adoption of an amendment (the "May 2002 Amendment") to our
articles of incorporation in the form of Attachment A hereto, which increased
------------
our authorized common stock from 1,000,000 to 25,000,000,000 shares.
The May 2002 Amendment was adopted because our board of directors believed
that our then existing capital structure was inadequate for our corporate needs.
The May 2002 Amendment was implemented as part of our planned strategy of
acquisitions during the summer of 2002, however, our board of directors
ultimately decided that only one acquisition was in the best interests of our
stockholders. On August 15, 2002, we acquired all equity interest in Los Cabos
Freedom Movement, a Wisconsin LLC, d/b/a Grandma Hammans Specialty Foods. As
consideration for the acquisition of Grandma Hammans, we agreed to assume the
liabilities of Grandma Hammans, which totaled approximately $217,000.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This information statement is being mailed on or about June 7, 2004 to all
stockholders of record as of April 30, 2004.
We appreciate your continued interest in Gateway Distributors, Ltd.
Very truly yours,
/s/ Richard A. Bailey
Richard A. Bailey
President
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GATEWAY DISTRIBUTORS, LTD.
3035 E. PATRICK LANE, SUITE 14
LAS VEGAS, NEVADA 89120
TELEPHONE (702) 938-9316
INFORMATION STATEMENT
This information statement is furnished to the holders of record at the
close of business on April 30, 2004, the record date, of the outstanding common
stock and preferred stock of Gateway Distributors, Ltd., pursuant to Rule 14c-2
promulgated under the Securities Exchange Act of 1934, as amended, in connection
with an action that holders of the majority of the votes of our stock intend to
take by written consent on June 28, 2004, to vote in favor of articles of
amendment to our articles of incorporation which will:
- Increase the authorized shares of our preferred stock from 1,000,000 to
200,000,000 shares; and
- Effect a reverse split of our common stock on the basis of up to one
post-consolidation share for each 1,000 pre-consolidation shares to occur
at some time within 12 months of the date of this Information Statement,
with the exact time of the reverse split to be determined by the board of
directors.
We are also furnishing this information statement in connection with the
previous approval by our board of directors of the May 2002 Amendment and its
subsequent adoption by our stockholders. Accordingly, all necessary corporate
approvals in connection with the May 2002 Amendment have been obtained, and the
discussion of the May 2002 Amendment is furnished solely for the purpose of
informing our stockholders, in the manner required under the Securities Exchange
Act of 1934, as amended, of these corporate actions. On May 31, 2002, as
authorized by the necessary approvals of our board of directors and our majority
stockholders, as of the record date of March 15 we approved the adoption of an
amendment to our articles of incorporation in the form of Attachment A hereto,
------------
which increased our authorized common stock to 25,000,000,000 shares.
The May 2002 Amendment was adopted because our board of directors believed
that our then existing capital structure was inadequate for our corporate needs.
This information statement will be sent on or about June 7, 2004 to our
stockholders of record who do not sign the majority written consent described
herein.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A
PROXY.
VOTING SECURITIES
In accordance with our bylaws, our board of directors has fixed the close
of business on April 30, 2004 as the record date for determining the
stockholders entitled to notice of the above noted action. The approval of the
proposed amendment to our articles of incorporation requires the affirmative
vote of a majority of the shares of our common stock and preferred stock issued
and outstanding as of the record date at the time the vote is taken. As of the
record date, 13,232,344,200 shares of the common stock were issued and
outstanding and 996,125 shares of our preferred stock were issued and
outstanding. Each share of the common stock outstanding entitles the holder to
one vote on all matters brought before the common stockholders. Each share of
the preferred stock outstanding, which is designated as the Series A preferred
stock, entitles the holder to one vote on all matters brought before the
preferred stockholders and also entitles the preferred stockholder to 1,000
votes of the common stock on all matters brought before all of the stockholders.
The quorum necessary to conduct business of the stockholders consists of a
majority of the outstanding shares of the common stock and preferred stock
issued and outstanding as of the record date.
We have two consenting stockholders, Richard A. Bailey, our founder,
president, and a director, who holds 3,278,345,006 shares of our common stock
and 498,000 shares of our preferred stock, and Florian Ternes, our director and
secretary who holds 3,278,341,672 shares of our common stock. Both Mr. Bailey
and Mr. Ternes will
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vote in favor of the proposed amendment to our articles of incorporation.
Messrs. Bailey and Ternes have the power to pass the proposed amendment without
the concurrence of any of our other stockholdersIn addition to common stock,
each of Mr. Bailey and Mr. Ternes also own 498,000 shares of our preferred
stock. We currently have 996,125 shares of our preferred stock issued and
outstanding. The remaining 125 shares of our preferred stock are owned by
Neptune Communications, Inc., a Nevada corporation, which is controlled by Mr.
Ternes. As such, Messrs. Bailey and Ternes will have the power to vote all of
the issued and outstanding shares of our preferred stock.
Pursuant to our Amended Certificate of Designation Establishing Series A
Preferred Stock, each share of our currently issued and outstanding preferred
stock may be converted into 1,000 fully paid and nonassessable shares of our
common stock. On all matters submitted to a vote of the holders of the common
stock, including, without limitation, the election of directors, a holder of
shares of the preferred stock shall be entitled to the number of votes on such
matters equal to the number of shares of the preferred stock held by such holder
multiplied by the number of shares of the common stock each such share of the
preferred stock shall then be convertible. Therefore, Mr. Bailey will have the
power to vote 3,776,345,006 shares of the common stock, and Mr. Ternes will have
the power to vote 3,776,341,672 shares of the common stock. Together, Messrs.
Bailey and Ternes will have the power to vote 7,552,686,678 shares of our common
stock, which number exceeds the majority of the issued and outstanding shares of
our common stock on the record date required to pass the proposed amendment.
The May 2002 Amendment. On May 31, 2002, as authorized by the necessary
approvals of our board of directors and our majority stockholder, as of the
record date of May 10, 2002, we approved the adoption of an amendment to our
articles of incorporation in the form of Attachment A hereto, which increased
------------
our authorized common stock from 1,000,000 to 25,000,000,000 shares. The May
2002 Amendment was adopted because our board of directors believed that our then
existing capital structure was inadequate for our corporate needs. The previous
approval of the resolutions in connection with the May 2002 Amendment required
the affirmative vote of a majority of the total number of shares of our issued
and outstanding capital stock as of the record date at the time the vote was
taken. At the time of adoption of the May 2002 Amendment, there were 654,312,044
shares of the common stock issued and outstanding.
At the time of the May 2002 Amendment, our consenting stockholder, Neptune
Communications, Inc., a Nevada corporation held, in the aggregate, approximately
72.59 percent of our issued and outstanding common stock. The consenting
stockholder voted in favor of the May 2002 Amendment to our articles of
incorporation. The consenting stockholders had the power to pass the May 2002
Amendment without the concurrence of any of our other stockholders because it
held the majority of the total shares of our stock issued and outstanding on the
record date with respect to the vote on the May 2002 Amendment.
The May 2002 Amendment was implemented as part of our planned strategy of
acquisitions during the summer of 2002, however, our board of directors
ultimately decided that only one acquisition was in the best interests of our
stockholders. On August 15, 2002, we acquired all equity interest in Los Cabos
Freedom Movement, a Wisconsin LLC, d/b/a Grandma Hammans Specialty Foods. As
consideration for the acquisition of Grandma Hammans, we agreed to assume the
liabilities of Grandma Hammans, which totaled approximately $217,000.
ACCORDINGLY, WE ARE NOT ASKING OUR STOCKHOLDERS FOR A PROXY AND
STOCKHOLDERS ARE REQUESTED NOT TO SEND A PROXY.
DISTRIBUTION AND COSTS
We will pay all costs associated with the distribution of this information
statement, including the costs of printing and mailing. In addition, we will
only deliver one information statement to multiple security holders sharing an
address, unless we have received contrary instructions from one or more of the
security holders. Also, we will promptly deliver a separate copy of this
information statement and future stockholder communication documents to any
security holder at a shared address to which a single copy of this information
statement was delivered, or deliver a single copy of this information statement
and future stockholder communication documents to any security holder or holders
sharing an address to which multiple copies are now delivered, upon written
request to us at our address noted above.
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Security holders may also address future requests regarding delivery of
information statements and/or annual reports by contacting us at the address
noted above.
DISSENTERS' RIGHT OF APPRAISAL
No action will be taken in connection with the proposed amendment to our
articles of incorporation by our board of directors or the voting stockholders
for which Nevada law, our articles of incorporation or bylaws provide a right of
a stockholder to dissent and obtain appraisal of or payment for such
stockholder's shares.
BACKGROUND
We were incorporated under the laws of the State of Nevada on May 26, 1993
under the name of Gateway Distributors, Ltd. We are a network marketing company
that sells nutritional, health and dietary supplements and products throughout
North America and Japan.
SUMMARY OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION
Our board of directors has adopted, subject to the approval of our
stockholders, an amendment to our articles of incorporation, a copy of which is
attached hereto as Attachment B. The following description of the amendment is
------------
qualified by reference to the full text of the amendment.
THE INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF OUR PREFERRED STOCK
Our board of directors believes that our current capital structure is
inadequate for our present and future needs. Therefore, the board has approved
the amendment of our articles of incorporation to increase the authorized number
of shares of preferred stock from 1,000,000 shares to 200,000,000 shares. The
board believes this capital structure more appropriately reflects our present
and future needs and recommends the amendment to our stockholders for adoption.
The May 2002 Amendment. Prior to the adoption of the May 2002 Amendment,
our capital structure authorized 1,000,000,000 shares of common stock and
1,000,000 shares of preferred stock. The board of directors believed this
capital structure was inadequate at that time for our corporate needs.
Therefore, the board approved an amendment of our articles of incorporation to
increase the authorized number of shares of common stock to 25,000,000,000
shares. The board believed this capital structure more appropriately reflected
our corporate needs at the time of the May 2002 Amendment, and recommended the
May 2002 Amendment to our stockholders for adoption.
The May 2002 Amendment was implemented as part of our planned strategy of
acquisitions during the summer of 2002. We considered entering into several
acquisitions during the summer of 2002. However, our board of directors
ultimately decided that only one acquisition was in the best interests of our
stockholders. On August 15, 2002, we acquired all equity interest in Los Cabos
Freedom Movement, a Wisconsin LLC, d/b/a Grandma Hammans Specialty Foods. As
consideration for the acquisition of Grandma Hammans, we agreed to assume the
liabilities of Grandma Hammans, which totaled approximately $217,000.
Neither our existing articles of incorporation nor our bylaws contain any
provisions which have a material anti-takeover effect, nor do we have plans to
subsequently implement any measure which would have an anti-takeover effect.
However, pursuant to our Amended Certificate of Designation Establishing Series
A Preferred Stock, each share of our currently issued and outstanding Series A
preferred stock may be converted into 1,000 fully paid and nonassessable shares
of our common stock. On all matters submitted to a vote of the holders of the
common stock, including, without limitation, the election of directors, a holder
of shares of our Series A preferred stock shall be entitled to the number of
votes on such matters equal to the number of shares of the Series A preferred
stock held by such holder multiplied by the number of shares of the common stock
each such share of the Series A preferred stock shall then be convertible. The
existence of the super voting rights with respect to the Series A preferred
stock could be deemed to have an anti-takeover effect.
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The following is a summary of the material matters relating to our common
stock, our preferred stock, and other matters after the adoption of the
amendment to our articles of incorporation, which is attached to this
information statement.
COMMON STOCK
Presently, the holders of our common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of our
stockholders, including the election of directors. Our common stockholders do
not have cumulative voting rights. Subject to preferences that may be
applicable to any then outstanding series of our preferred stock, holders of our
common stock are entitled to receive ratably such dividends, if any, as may be
declared by our board of directors out of legally available funds. In the event
of the liquidation, dissolution, or winding up of Gateway Distributors, Ltd.,
the holders of our common stock will be entitled to share ratably in the net
assets legally available for distribution to our stockholders after the payment
of all our debts and other liabilities, subject to the prior rights of any
series of our preferred stock then outstanding.
The holders of our common stock have no preemptive or conversion rights or
other subscription rights and there are no redemption or sinking fund provisions
applicable to our common stock. The amendment would not alter or modify any
preemptive right of holders of our common stock to acquire our shares, which is
denied, or effect any change in our common stock, other than the number of
authorized shares.
As of the date of this information statement, our board has no plans to
issue or use any shares of common stock with respect to any merger or business
combination.
PREFERRED STOCK
Pursuant to our Amended Certificate of Designation Establishing Series A
Preferred Stock, each share of our currently issued and outstanding Series A
preferred stock may be converted into 1,000 fully paid and nonassessable shares
of our common stock. Moreover, on all matters submitted to a vote of the
holders of our common stock, including, without limitation, the election of
directors, a holder of shares of the Series A preferred stock shall be entitled
to the number of votes on such matters equal to the number of shares of the
Series A preferred stock held by such holder multiplied by the number of shares
of the common stock each such share of the Series A preferred stock shall then
be convertible. Our preferred stockholders do not have cumulative voting
rights.
The issuance of additional shares of our preferred stock could decrease the
amount of earnings and assets available for distribution to holders of our
common stock or affect adversely the rights and powers, including voting rights,
of the holders of our common stock. Likewise, any such issuance may have the
effect of delaying, deferring or preventing a change in control of Gateway
Distributors, Ltd. The holders of our Series A preferred stock have no
preemptive rights or other subscription rights and there are no sinking fund
provisions applicable to our Series A preferred stock. However, the Series A
preferred stock does have redemption rights as specified in our Amended
Certificate of Designation Establishing Series A Preferred Stock. The amendment
would not alter or modify any preemptive right of holders of our preferred stock
to acquire our shares, which is denied, or effect any change in our preferred
stock, other than the number of authorized shares.
As of the date of this information statement, our board has no plans to
issue or use any of our newly authorized shares of preferred stock with respect
to any merger or business combination.
PURPOSE OF AUTHORIZING ADDITIONAL PREFERRED STOCK
Authorizing the issuance of an additional 199,000,000 shares of preferred
stock would give our board of directors the express authority, without further
action of our stockholders, to issue preferred stock from time to time as the
board deems necessary. The board of directors believes it is necessary to have
the ability to issue such shares of preferred stock for general corporate
purposes. Potential uses of the authorized shares may include equity
financings, issuance of options, acquisition transactions, stock dividends or
distributions, without further action by the stockholders, unless such action
were specifically required by applicable law or rules of any stock exchange or
similar system on which our securities may then be listed.
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The issuance of the shares of preferred stock could have a number of
effects on our stockholders depending upon the exact nature and circumstances of
any actual issuance of authorized but unissued shares. The increase could have
an anti-takeover effect, in that the additional shares could be issued (within
the limits imposed by applicable law) in one or more transactions that could
make a change in control or takeover of Gateway Distributors, Ltd. more
difficult. For example, additional shares could be issued by us so as to dilute
the stock ownership or voting rights of persons seeking to obtain control of
Gateway Distributors, Ltd.
In some instances, each share of the preferred stock may be convertible
into multiple shares of our common stock. Likewise, shares of our preferred
stock could have voting rights equal to their converted status as common stock,
with the effect being that the stockholders of the preferred stock would have
the ability to control the vote of our stockholders, even though they may own
less than a majority of our issued and outstanding common stock.
Similarly, the issuance of shares of preferred stock to certain persons
allied with our management could have the effect of making it more difficult to
remove our current management by diluting the stock ownership or voting rights
of persons seeking to cause such removal. In addition, an issuance of shares of
preferred stock by us could have an effect on the potential realizable value of
a stockholder's investment.
In the absence of a proportionate increase in our earnings and book value,
an increase in the aggregate number of our outstanding shares caused by the
issuance, upon the conversion of our preferred stock into shares of our common
stock, would dilute the earnings per share and book value per share of all
outstanding shares of our common stock. If such factors were reflected in the
price per share of common stock, the potential realizable value of the
stockholder's investment could be adversely affected.
The proposal with respect to our preferred stock is not being made by us in
response to any known accumulation of shares or threatened takeover.
THE REVERSE SPLIT
Our board of directors has recommended that we implement a reverse split of
our common stock for the purpose of increasing the market price of our common
stock. The reverse split exchange ratio that the board of directors approved
and deemed advisable and for which it is seeking stockholder approval is up to
one post-consolidation share for each 1,000 pre-consolidation shares to occur at
some time within 12 months of the date of this Information Statement, with the
exact time and ratio of the reverse split to be determined by the board of
directors. Approval of this proposal would give the board authority to implement
the reverse split immediately after our stockholders approve the reverse split.
In addition, approval of this proposal would also give the board authority to
decline to implement a reverse split.
Our present capital structure authorizes 25,000,000,000 shares of common
stock, par value $0.001 per share and 1,000,000 shares of preferred stock, par
value $0.001 per share. The board of directors believes this capital structure
is inadequate for our present and future needs. Therefore, the board has
approved the amendment of our articles of incorporation to effect a reverse
split of our common stock. The board believes this capital structure more
appropriately reflects our present and future needs and recommends the amendment
to our stockholders for adoption.
Our board of directors believes that stockholder approval of a range for
the exchange ratio of the reverse split (as contrasted with approval of a
specified ratio of the split) provides the board of directors with maximum
flexibility to achieve the purposes of a stock split and, therefore, is in our
best interests and our stockholders. The actual ratio for implementation of the
reverse split would be determined by our board of directors based upon its
evaluation as to what ratio of pre-consolidation shares to post-consolidation
shares would be most advantageous to us and our stockholders.
Our board of directors also believes that stockholder approval of a
twelve-months range for the effectuation of the reverse split (as contrasted
with approval of a specified time of the split) provides the board of directors
with maximum flexibility to achieve the purposes of a stock split and,
therefore, is in our best interests and our stockholders. The actual timing for
implementation of the reverse split would be determined by our board of
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directors based upon its evaluation as to when and whether such action would be
most advantageous to us and our stockholders.
If you approve the grant of discretionary authority to our board of
directors to implement a reverse split and the board of directors decides to
implement the reverse split, we will file a certificate of amendment to our
articles of incorporation with the Secretary of State of Nevada which will
effect a reverse split of our then issued and outstanding common stock at the
specific ratio set by the board.
The board of directors believes that the higher share price that might
initially result from the reverse stock split could help generate interest in
Gateway Distributors, Ltd. among investors and thereby assist us in raising
future capital to fund its operations or make acquisitions.
Stockholders should note that the effect of the reverse split upon the
market price for our common stock cannot be accurately predicted. In
particular, there is no assurance that prices for shares of our common stock
after a reverse split will be 1,000 times greater than the price for shares of
our common stock immediately prior to the reverse split. Furthermore, there can
be no assurance that the market price of our common stock immediately after a
reverse split will be maintained for any period of time. Moreover, because some
investors may view the reverse split negatively, there can be no assurance that
the reverse split will not adversely impact the market price of our common stock
or, alternatively, that the market price following the reverse split will either
exceed or remain in excess of the current market price.
EFFECT OF THE REVERSE SPLIT
The reverse split would not affect the registration of our common stock
under the Securities Exchange Act of 1934, as amended, nor will it change our
periodic reporting and other obligations thereunder.
The voting and other rights of the holders of our common stock would not be
affected by the reverse split (other than as a result of the payment of cash in
lieu of fractional shares as described below). For example, a holder of 0.5
percent of the voting power of the outstanding shares of our common stock
immediately prior to the effective time of the reverse split would continue to
hold 0.5 percent of the voting power of the outstanding shares of our common
stock after the reverse split. The number of stockholders of record would not
be affected by the reverse split (except to the extent that any stockholder
holds only a fractional share interest and receives cash for such interest).
The authorized number of shares of our common stock and the par value of
our common stock under our articles of incorporation would remain the same
following the effective time of the reverse split.
The number of shares of our common stock issued and outstanding would be
reduced following the effective time of the reverse split in accordance with the
following formula: every 1,000 shares of our common stock owned by a stockholder
will automatically be changed into and become one new share of our common stock,
with 1,000 being equal to the exchange ratio as determined by our board of
directors.
The number of issued and outstanding shares of our common stock effectively
will be decreased significantly by the reverse split of our common stock. For
example, based on the 13,232,344,200 shares of our common stock outstanding on
the record date, a one for 1,000 reverse split would have the effect of
decreasing the number of outstanding shares of our common stock from
13,232,344,200 to 13,232,344.2 shares. This may have the effect of increasing
the earnings per share and book value per share, as well as the stock ownership
and voting rights, of the currently outstanding shares of our common stock.
We currently have no intention of going private, and this proposed reverse
stock split is not intended to be a first step in a going private transaction
and will not have the effect of a going private transaction covered by Rule
13e-3 under the Exchange Act. Moreover, the proposed reverse stock split does
not increase the risk of us becoming a private company in the future. We will
continue to be subject to the periodic reporting requirements of the Exchange
Act following the reverse split of our common stock.
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CASH PAYMENT IN LIEU OF FRACTIONAL SHARES
In lieu of any fractional shares to which a holder of our common stock
would otherwise be entitled as a result of the reverse split, we shall pay cash
equal to such fraction multiplied by the average of the high and low trading
prices of the our common stock on the OTCBB during regular trading hours for the
five trading days immediately preceding the effectiveness of the reverse split.
FEDERAL INCOME TAX CONSEQUENCES
We will not recognize any gain or loss as a result of the reverse split.
The following description of the material federal income tax consequences
of the reverse split to our stockholders is based on the Internal Revenue Code
of 1986, as amended, applicable Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practices as in effect
on the date of this information statement. Changes to the laws could alter the
tax consequences described below, possibly with retroactive effect. We have not
sought and will not seek an opinion of counsel or a ruling from the Internal
Revenue Service regarding the federal income tax consequences of the reverse
split. This discussion is for general information only and does not discuss the
tax consequences that may apply to special classes of taxpayers (e.g.,
non-residents of the United States, broker/dealers or insurance companies). The
state and local tax consequences of the reverse split may vary significantly as
to each stockholder, depending upon the jurisdiction in which such stockholder
resides. You are urged to consult your own tax advisors to determine the
particular consequences to you.
In general, the federal income tax consequences of the reverse split will
vary among stockholders depending upon whether they receive cash for fractional
shares or solely a reduced number of shares of our common stock in exchange for
their old shares of our common stock. We believe that the likely federal income
tax effects of the reverse split will be that a stockholder who receives solely
a reduced number of shares of our common stock will not recognize gain or loss.
With respect to a reverse split, such a stockholder's basis in the reduced
number of shares of our common stock will equal the stockholder's basis in its
old shares of our common stock. A stockholder who receives cash in lieu of a
fractional share as a result of the reverse stock split will generally be
treated as having received the payment as a distribution in redemption of the
fractional share, as provided in Section 302(a) of the Code, which distribution
will be taxed as either a distribution under Section 301 of the Code or an
exchange to such stockholder, depending on that stockholder's particular facts
and circumstances. Generally, a stockholder receiving such a payment should
recognize gain or loss equal to the difference, if any, between the amount of
cash received and the stockholder's basis in the fractional share. In the
aggregate, such a stockholder's basis in the reduced number of shares of our
common stock will equal the stockholder's basis in its old shares of our common
stock decreased by the basis allocated to the fractional share for which such
stockholder is entitled to receive cash, and the holding period of the
post-effective reverse split shares received will include the holding period of
the pre-effective reverse split shares exchanged.
EFFECTIVE DATE
If the proposed reverse split of our common stock is approved and the board
of directors elects to proceed with a reverse split, the split would become
effective as of 5:00 p.m. Las Vegas, Nevada time on the date of filing of a
certificate of amendment to our articles of incorporation with the office of the
Secretary of State of Nevada. Except as explained below with respect to
fractional shares, on such date, all shares of our common stock that were issued
and outstanding immediately prior thereto will be, automatically and without any
action on the part of the stockholders, converted into new shares of our common
stock in accordance with the up to one for 1,000 exchange ratio as set forth in
this Proposal.
RISKS ASSOCIATED WITH THE REVERSE SPLIT
This information statement includes forward-looking statements including
statements regarding our intent to solicit approval of a reverse split, the
timing of the proposed reverse split and the potential benefits of a reverse
split, including, but not limited to, increase investor interest and the
potential for a higher stock price. The words
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<PAGE>
"believe," "expect," "will," "may" and similar phrases are intended to identify
such forward-looking statements. Such statements reflect our current views and
assumptions, and are subject to various risks and uncertainties that could cause
actual results to differ materially from expectations. These risks include: we
may not have sufficient resources to continue as a going concern; any
significant downturn in our industry or in general business conditions would
likely result in a reduction of demand for our products and would be detrimental
to our business; we will be unable to achieve profitable operations unless we
increase quarterly revenues or make further cost reductions, a loss of or
decrease in purchases by one of our significant customers could materially and
adversely affect our revenues and profitability, the loss of key personnel could
have a material adverse effect on our business; the large number of shares
available for future sale could adversely affect the price of our common stock;
and the volatility of our stock price. For a discussion of these and other risk
factors, see our annual report on Form 10-KSB for the year ended December 31,
2003 and our other filings with the Securities and Exchange Commission.
VOTE REQUIRED
The affirmative vote of a majority of the total number of shares of our
issued and outstanding capital stock is required to approve the resolution to
amend our articles of incorporation.
The board of directors recommends a vote FOR approval of the resolution to
amend our articles of incorporation. The proposed amendment of our articles of
incorporation was approved by a vote of our directors on May 26, 2004.
Information regarding the beneficial ownership of our common stock and
preferred stock by management and the board of directors is noted below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial ownership
of all shares of our common stock and preferred stock as of the record date, by:
- Each person who beneficially owns more than five percent of the outstanding
shares of our common stock;
- Each person who beneficially owns outstanding shares of our preferred
stock;
- Each of our directors;
- Each named executive officer; and
- All directors and officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY PREFERRED STOCK BENEFICIALLY
OWNED (2) OWNED (2)
---------------------------- -------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
-------------------------------------------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Richard A. Bailey (3) . . . . . . . . . . . . . . 3,278,345,006 24.77 498,000 49.99
Florian Ternes (4) . . . . . . . . . . . . . . . . 3,278,341,672 24.77 498,000 49.99
All directors and officers as a group ( 2 persons) 6,556,686,678 49.54 996,000 99.99
============= ============= ============= ================
Neptune Communications (5) . . . . . . . . . . . . 0 0 125 0.01
<FN>
_______________
(1) Unless otherwise indicated, the address for each of these stockholders is
c/o Gateway Distributors, Ltd., 3035 E. Patrick Lane, Suite 14 Las Vegas,
Nevada 89120. Also, unless otherwise indicated, each person named in the
table above has the sole voting and investment power with respect to the
shares of our common stock which he beneficially owns.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
The total number of outstanding shares of the common stock on the record
date is 13,232,344,200, and the total number of outstanding shares of the
preferred stock on the record date is 996,125.
(3) Mr. Bailey is our president, director and a founder. He owns 3,278,345,006
shares of our common stock and 498,000 shares of our preferred stock. Each
share of our currently issued and outstanding preferred stock may be
converted into 1,000 fully paid and nonassessable shares of our common
stock. Moreover, on all matters submitted to a vote of the holders of the
common stock, including, without limitation, the election of directors, a
holder of shares of the preferred stock shall be entitled to the number of
votes on such matters equal to the number of shares of the preferred stock
held by such holder multiplied by the number of shares of the common stock
each such
8
<PAGE>
share of the preferred stock shall then be convertible. Therefore, Mr.
Bailey will have the power to vote 3,776,345,006 shares of the common
stock. There are no other holders of our preferred stock, other than Mr.
Bailey, Mr. Ternes and Neptune Communications, Inc., which is controlled by
Mr. Ternes.
(4) Mr. Ternes is a director and the secretary of our company. He owns
3,278,341,672 shares of our common stock and 498,000 shares of our
preferred stock. Each share of our currently issued and outstanding
preferred stock may be converted into 1,000 fully paid and nonassessable
shares of our common stock. Moreover, on all matters submitted to a vote of
the holders of the common stock, including, without limitation, the
election of directors, a holder of shares of the preferred stock shall be
entitled to the number of votes on such matters equal to the number of
shares of the preferred stock held by such holder multiplied by the number
of shares of the common stock each such share of the preferred stock shall
then be convertible. Therefore, Mr. Ternes will have the power to vote
3,776,341,672 shares of the common stock. There are no other holders of our
preferred stock, other than Mr. Bailey , Mr. Ternes and Neptune
Communications, Inc., which is controlled by Mr. Ternes.
(5) Neptune Communications, Inc. is a Nevada corporation, whose address is 3095
E. Patrick Lane, Suite 1, Las Vegas, Nevada 89120. Neptune Communications
is controlled by Florian Ternes, our director and secretary.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive
officers and persons who own more than 10 percent of a registered class of our
equity securities, file with the SEC initial reports of ownership and reports of
changes in ownership of our equity securities. Officers, directors and greater
than 10 percent stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. All such persons have filed all
required reports.
DOCUMENTS INCORPORATED BY REFERENCE
Our Annual Report on Form 10-KSB for the year ended December 31, 2003 and
financial information from our Quarterly Report for the period ended March 31,
2004 are incorporated herein by reference.
COPIES OF ANNUAL AND QUARTERLY REPORTS
We will furnish a copy of our Annual Report on Form 10-KSB for the year
ended December 31, 2003 and a copy of our Quarterly Reports for the periods
ended March 31, 2004, June 30, 2003, and September 30, 2003, and any exhibit
referred to therein without charge to each person to whom this information
statement is delivered upon written or oral request by first class mail or other
equally prompt means within one business day of receipt of such request. Any
request should be directed to our corporate secretary at 3035 E. Patrick Lane,
Suite 14 Las Vegas, Nevada 89120, telephone (702) 938-9316.
By Order of the Board of Directors,
/s/ Richard A. Bailey
Richard A. Bailey,
President
9
<PAGE>
ATTACHMENT A
CONSENT OF A MAJORITY OF STOCKHOLDERS OF
GATEWAY DISTRIBUTORS, LTD.
TO ACTION WITHOUT A MEETING
The undersigned, representing a majority of stockholders of Gateway
Distributors, Ltd. (the "Company') as of May 10, 2002 hereby consents to and
authorizes the following action effective May 31, 2002;
WHEREAS, the Company, on the date first written above, had 654,312,044
shares of $0.001 par value common stock issued and outstanding; and
WHEREAS, Neptune Communications (the "Majority Stockholder"), as set
forth below, collectively holds, 72.59% of all of the Company's $0.001 par
value common stock representing more than a majority of the Company's
issued and outstanding common stock; and
WHEREAS, the Majority Stockholder agrees that it is in the best
interest of the Company to amend its Articles of Incorporation to increase
the authorized common stock from l,000,000,000 to 25,000,000,000; and
NOW THEREFORE BE IT RESOLVED, that the undersigned Majority
Stockholder hereby approves and consents to the Company's amendment of its
Articles of Incorporation to increase the authorized shares of $0.00l par
value common voting stock ("shares") from 1,000,000,000 shares to
25,000,000,000 shares; and
FURTHER RESOLVED, that the appropriate officers of the Company are
authorized, empowered and directed, in the name and on behalf of the
Stockholder, to issue the shares on such terms and conditions as the Board
of Directors shall determine from time to time and to execute and deliver
all such other documents as may be necessary from time to time in order to
carry out the purpose and intent of these resolutions, that all of the acts
and doings of any such officers that are consistent with the purposes of
these resolutions are hereby authorized, approved, ratified and confirmed
in all respects.
Neptune Communications, Inc.
By: Flo Ternes
President
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ATTACHMENT B
RESOLUTIONS OF STOCKHOLDERS
OF
GATEWAY DISTRIBUTORS, LTD.
(THE "COMPANY")
"WHEREAS, the Directors of the Company have approved certain amendments to
the Company's Articles of Incorporation; and
WHEREAS, the Directors have recommended the amendments to the Company's
Articles of Incorporations to the Company's stockholders for their approval;
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the Company's stockholders
approve the Amendments to the Company's Articles of Incorporation to increase
its authorized shares of preferred stock from 1,000,000 shares to 200,000,000
shares; and
RESOLVED FURTHER, that the Directors are hereby granted discretionary
authority to amend the Company's Articles of Incorporation to effect an up to
one for 1,000 reverse split of the Company's common stock to occur within 12
months of the date of the Company's Information Statement on Schedule 14C, with
the exact time and ratio of the reverse split to be determined by the Directors
within their discretion; and
RESOLVED FURTHER, that the appropriate officers of the Company be, and they
hereby are, authorized to take whatever steps may be necessary to effect the
amendments to the Company's Articles of Incorporation as described herein"
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