-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CmnABhFKHi+mk5dXwHf7Lqtvg21CP06j/bRq/hY80cWb3HNwLerC8rbBnZ9LZRKl A9lD9uJwcBJZ5GWruziyDw== 0000725876-00-000005.txt : 20000516 0000725876-00-000005.hdr.sgml : 20000516 ACCESSION NUMBER: 0000725876-00-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GATEWAY INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000725876 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 330637631 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13803 FILM NUMBER: 634830 BUSINESS ADDRESS: STREET 1: 150 EAST 52ND ST 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 8774312942 MAIL ADDRESS: STREET 1: 150 EAST 52ND ST 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 10QSB 1 GATEWAY INDUSTRIES, INC. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000. [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _______ to ________. Commission file number 0-13803 GATEWAY INDUSTRIES, INC. (Exact name of Small Business Issuer as Specified in Its Charter) DELAWARE 33-0637631 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 150 East 52nd Street, 21st Floor New York, NY 10022 (Address of Principal Executive Offices) 877-431-2942 (Issuer's Telephone Number, Including Area Code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Shares of Issuer's Common Stock Outstanding at May 15, 2000: 4,192,024 Transitional small business disclosure format: Yes [ ] No [X] GATEWAY INDUSTRIES, INC. AND SUBSIDIARY INDEX PART I - FINANCIAL INFORMATION Page Number Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited): Condensed Consolidated Balance Sheet March 31, 2000............................................... 3 Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2000 and 1999 ..................................... 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999...................................... 5 Notes to Condensed Consolidated Financial Statements......... 6 Item 2. Management's Discussion and Analysis or Plan of Operations........................................ 7 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K............................. 8 Signatures................................................... 9 CONDENSED CONSOLIDATED BALANCE SHEET March 31, 2000 (Unaudited) ASSETS Current assets: Cash and cash equivalents................................... $ 2,809,000 Accounts receivable......................................... 308,000 Prepaid expenses and other.................................. 34,000 ------------ Total current assets.................................... 3,151,000 Other assets: Security deposits........................................... 53,000 Property, plant and equipment, net.......................... 321,000 Goodwill and other intangibles, net......................... 3,481,000 ------------ Total other assets...................................... 3,855,000 ------------ Total assets ................................................... $ 7,006,000 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses....................... $ 260,000 Capital lease obligation.................................... 22,000 ------------ Total current liabilities............................... $ 282,000 Shareholders' equity Preferred stock, $.10 par value, 1,000,000 shares authorized, no shares issued or outstanding......................... -- Common stock, $.001 par value, 10,000,000 shares authorized, 4,192,024 shares issued (including treasury shares)...... 4,000 Capital in excess of par value............................... 11,047,000 Accumulated deficit.......................................... (4,281,000) Treasury stock, 11,513 shares of common stock................ (46,000) ------------ Total shareholders' equity.............................. 6,724,000 ------------ Total liabilities & shareholders' equity......................... $ 7,006,000 ============= See accompanying notes. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31, 2000 1999 ---- ---- Sales................................................................ $ 63,000 -- Cost of sales ....................................................... 15,000 -- ------------ ------------ Gross profit ....................................................... 48,000 -- Costs and expenses: Professional fees................................................ 76,000 13,000 General and administrative....................................... 173,000 53,000 Depreciation and amortization.................................... 6,000 -- ------------ ------------ Total costs and expenses..................................... 255,000 66,000 Operating loss................................................... (207,000) (66,000) Other income Interest income.............................................. 65,000 68,000 Other income:................................................ 18,000 -- ------------ ------------ Total other income........................................... 83,000 68,000 Net income (loss)..................................................... $ (124,000) 2,000 ============ ============ Net income (loss) per share - basic and diluted....................... $ (.03) -- Weighted average number of shares..................................... 3,657,958 3,592,024
See accompanying notes. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) $ (124,000) 2,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of goodwill 6,000 -- Changes in assets and liabilities: Accounts receivable 68,000 -- Prepaid expenses and other 74,000 (26,000) Security deposit 20,000 -- Accounts payable (40,000) (37,000) ------------- -------------- Net cash provided by (used in) operating activities 4,000 (61,000) Cash flows from investing activities: Purchase of property, plant, and equipment (1,000) -- Purchase of Oaktree Systems Inc., net of cash acquired (2,659,000) -- Note receivable -- 566,000 ------------- -------------- Net cash provided by (used in) investing activities (2,660,000) 566,000 Net increase/(decrease) in cash and cash equivalents (2,656,000) 505,000 Cash and cash equivalents at beginning of period 5,465,000 5,140,000 ------------- -------------- Cash and cash equivalents at end of period $ 2,809,000 5,645,000 ============= ==============
On March 21, 2000, the Company acquired 100% of the common stock of Oaktree Systems, Inc. for $4,090,000 which included the issuance of 600,000 shares of common stock of Gateway Industries, Inc. (see Note 3). NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (Unaudited) 1. GENERAL The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instruction to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to make such financial statements not misleading. Results for the three months ended March 31, 2000, are not necessarily indicative of the results that may be expected either for any other quarter in the year ending December 31, 2000 or for the entire year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. 2. OPERATIONS Gateway Industries, Inc. (the "Company") was incorporated in Delaware in July 1994. The Company had no operating business from December 1996 to March 2000, when it acquired all of the outstanding common stock of Oaktree Systems Inc. ("Oaktree"). Oaktree provides database development consolidation and management services, and web site design and maintenance to customers throughout the United States: such customers are principally not-for-profit entities, health care providers and publishers. The Company had no full time employees from December 1996 until the acquisition of Oaktree in March 2000. The Company's Chairman, Acting President and Steel Partners Services, Ltd. (an entity controlled by the Company's Chairman) devote time to the Company's administration and in exploring potential acquisitions and other business opportunities. 3. PURCHASE OF SUBSIDIARY During 2000 the Company acquired 100% of the outstanding stock of Oaktree for a purchase price of $4,090,000, consisting of $2,000,000 in cash, the issuance of 600,000 shares of common stock of Gateway, the repayment of existing Oaktree bank debt of $640,000 and expenses of $82,000. The acquisition was accounted for as a purchase, and, accordingly include the results of operations since the date of acquisition. The following is a summary of the effect of this transaction in the Company's consolidated balance sheet: The excess of purchase price over the fair value of net assets acquired was recorded as goodwill and other intangible assets, which will be amortized over 15 and 5 years, respectively. The following consolidated condensed unaudited proforma statement of operations, as if the Oaktree acquisition had been in effect in each of the quarters ending March 31, 2000 and 1999 are as follows: March 31, 2000 1999 ---- ---- Sales $ 721,000 745,000 Cost of expenses 1,103,000 872,000 Other (income) expense (68,000) (59,000) ------------ ------------- Net loss $ (314,000) (68,000) ============ ============= Net loss per share $ (.09) (.02) Assets acquired and liabilities acquired at estimated fair value at March 21, 2000 are as follows: Cash $ 8,000 Accounts receivable 376,000 Other current assets 99,000 Fixed assets, net 320,000 Security deposits 13,000 Accounts payable and accrued expense (191,000) Capital leases (22,000) ---------- $ 603,000 4. LEASE COMMITMENTS The Company entered into a three-year operating lease for office space in New York, NY which began April 1, 1998. The Company has sublet a portion of its office space to affiliated companies. Oaktree leases 2,500 square feet of office space in Calverton, New York. The lease expires on February 1, 2003. The space is rented from a partnership in which two of the senior managers of Oaktree each own a material interest. During 1999, Oaktree entered into a lease for 806 square feet in St. Paul, Minnesota expiring on Dec 31, 2000. Future minimum lease payments under these leases are as follows: Deduct Net Sublease Rental Commitments Rentals Commitments ----------- ------- ----------- 2000 199,000 65,000 134,000 2001 117,000 16,000 101,000 2002 96,000 -- 96,000 -------- -------- -------- $412,000 $ 81,000 $331,000 5. NET INCOME PER SHARE Net income (loss) per share was calculated using the weighted average number of common shares outstanding. The effect of all common stock equivalents is not included in the per share computation for the quarters ended March 31, 2000 and 1999, as such items are anti-dilutive in these quarters; accordingly, basic and diluted income per share are the same for the quarters ended March 31, 2000 and 1999. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Company acquired Oaktree on March 21, 2000 pursuant to a Stock Purchase Agreement. The purchase price of Oaktree was approximately $4.1 million, consisting of $2 million in cash, the issuance of 600,000 restricted shares of common stock of the Company and the assumption of approximately $640,000 of debt (which was repaid in full at closing), plus certain fees and expenses. Oaktree had revenues of approximately $3.0 million in 1999 and was marginally profitable. Operating income in 1999 was adversely impacted by expenses related to Year 2000 preparedness, unusually large software and system upgrades and web design development projects which are not expected to recur annually to the extent incurred in 1999. The Company believes that these expenditures will enable Oaktree to significantly enhance the services provided to its customers. The Company intends to continue to enhance Oaktree's internal growth opportunities and efforts, and explore acquisitions of established products and service providers that will provide opportunities to present customers an integrated, full-service product offering. The Company's ability to make further product acquisitions will depend, among other things, on the availability of appropriate acquisition opportunities, the ability to obtain appropriate financing and the Company's ability to consummate acquisitions on acceptable terms. There can be no assurance that the Company will be able to consummate any such acquisition on acceptable terms. Oaktree competes in a highly fragmented industry with many national and local competitors. Competition comes from many sources including database development companies, service bureaus, and mailhouses. Many of the competitors of Oaktree possess substantially greater financial, technical, marketing and other resources than Oaktree. As of March 25, 2000, Oaktree employed 50 full time employees. None of the employees are subject to any collective bargaining agreements and the Company believes that the relationship with its employees is good. REVENUES AND EXPENSES The Company's newly acquired subsidiary, Oaktree had $63,000 revenues during the nine day period of March 22, 2000 to March 31, 2000. Gateway's expenses for the quarter ended March 31, 2000 aggregated $153,000, consisting of professional fees of $76,000 ($48,000 were legal fees for the resolution of the Marsel case and $28,000 other legal and accounting expenses, most of which were greater than in the comparable 1999 period). General and administrative expense of Oaktree for the nine day period of March 22 to 31, 2000 were $102,000. INTEREST INCOME, NET During the first quarter of 2000, the Company recognized $65,000 of net interest income compared with $68,000 in the comparable period of 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents totaled $2,809,000 at March 31, 2000 and $5,645,000 at December 31, 1999. $2,643,000 cash was expended March 21, 2000 for the acquisition of Oaktree. Collection of the note receivable owed by Only Multimedia Network, Inc. ("OMNI") during the first quarter of 1999 accounted for $581,000 of the increased cash position in 1999. At March 31, 2000, the Company's working capital balance was $2,869,000. While the Company seeks an acquisition or other business combination, management believes its cash position is sufficient to cover administrative expenses and current obligations for the foreseeable future. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule (filed as part of the electronic filing only) (b) Reports on Form 8-K The Registrant filed the following current report on Form 8-K during the period covered by this report: (i) Report on Form 8-K dated March 31, 2000, reporting the acquisition of Oaktree. 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. GATEWAY INDUSTRIES, INC. By /s/Jack Howard -------------------- Jack Howard, Acting President Date: May 15, 2000 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000725876 GATEWAY INDUSTRIES, INC. 1,000 DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 2,809 0 308 0 0 53 321 6 7,006 282 0 0 0 4 6,720 7,006 63 63 15 15 255 0 0 (124) 0 (124) 0 0 0 (124) (.03) (.03)
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