10QSB

                     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 June 30, 2003

   / /      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.)


                         590 Madison Avenue, 32nd Floor
                               New York, NY 10022
                               ------------------
           (Address of Principal Executive Offices Including Zip Code)

                                  212-758-3232
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


Shares of Issuer's Common Stock Outstanding at July 15, 2003:  4,192,105

Transitional Small Business Disclosure Format:  Yes / /   No  /X/







                                      INDEX


Part I - Financial Information                                       Page Number
- ------------------------------

Item 1.   Condensed Consolidated Financial Statements (Unaudited):

          Condensed Consolidated Balance Sheets
          June 30, 2003 and December 31, 2002..........................     2

          Condensed Consolidated Statements
          of Operations - Three Months Ended
          June 30, 2003 and 2002.......................................     3

          Condensed Consolidated Statements
          of Operations - Six Months Ended
          June 30, 2003 and 2002.......................................     4

          Condensed Consolidated Statements
          of Cash Flows - Six Months Ended
          June 30, 2003 and 2002.......................................     5

          Notes to Condensed Consolidated Financial Statements.........     6

Item 2.   Management's Discussion and Analysis or Plan of Operation....    10

Item 3.   Controls and Procedures......................................    15


Part II - Other Information
- ---------------------------

Item 2.   Changes in Securities and Use of Proceeds....................    16

Item 6.   Exhibits and Reports on Form 8-K.............................    17

          Signatures...................................................    18

                                       1





PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                      CONDENSED CONSOLIDATED BALANCE SHEETS


                    ASSETS                                              June 30, 2003     December 31, 2002
                                                                         (Unaudited)

     Cash and cash equivalents                                           $  1,363,119      $  1,844,512
     Investments                                                               25,517              --
     Accounts receivable, net                                               1,012,925           800,766
     Prepaid expenses                                                         162,299            94,652
     Other current assets                                                      53,798            45,584
                                                                         ------------      ------------

            Total current assets                                            2,617,658         2,785,514

     Fixed assets, net                                                        403,328           379,050

     Software, net                                                            182,091           165,066
     Goodwill, net                                                          2,751,288         2,751,288
     Security deposits                                                         25,154            18,857
                                                                         ------------      ------------

             Total assets                                                $  5,979,519      $  6,099,775
                                                                         ============      ============

          LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
     Accounts payable and accrued expenses                               $    445,206      $    278,308
     Deferred income                                                          226,682           227,537
     Customer deposits                                                         40,788            40,958
     Current portion, capital lease                                            45,759            10,010
                                                                         ------------      ------------

            Total current liabilities                                         758,435           556,813

     Capital lease obligation                                                  85,793            16,165
                                                                         ------------      ------------

            Total liabilities                                                 844,228           572,978
                                                                         ------------      ------------

Shareholders' equity
     Preferred stock, $.10 par value; 1,000,000 shares
         authorized; no shares issued and outstanding                            --                --
     Common stock, $.001 par value; 10,000,000 shares
         authorized; 4,192,105 shares issued and outstanding at June
         30, 2003 and 4,192,000 shares issued and outstanding at
         December 31, 2002                                                      4,192             4,192
     Capital in excess of par value                                        10,999,746        10,999,746
     Accumulated deficit                                                   (5,868,647)       (5,477,141)
                                                                         ------------      ------------

            Total shareholders' equity                                      5,135,291         5,526,797
                                                                         ------------      ------------

            Total liabilities and shareholders' equity                   $  5,979,519      $  6,099,775
                                                                         ============      ============

        The accompanying notes are an integral part of these statements.

                                       2




                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                       For the Three Months
                                                          Ended June 30,
                                                      2003               2002
                                                      ----               ----
Revenues                                           $ 1,577,196      $ 1,399,439
                                                   -----------      -----------

Costs and expenses
      Fulfillment and materials                        247,383          179,828
      Personnel costs                                1,059,900          891,632
      Selling, general and administrative              494,779          326,075
                                                   -----------      -----------

               Total costs and expenses              1,802,062        1,397,535
                                                   -----------      -----------

Operating (loss) income                               (224,866)           1,904
                                                   -----------      -----------

Other income (expense)
     Interest                                            2,510            7,773
     Other expense, net                                 (4,385)          (3,988)
                                                   -----------      -----------

     Total other (expense) income                       (1,875)           3,785
                                                   -----------      -----------


Net (loss) income                                  $  (226,741)     $     5,689
                                                   ===========      ===========

Net (loss) income per share - basic                $      (.05)     $       .00
                                                   ===========      ===========

Net (loss) income per share - diluted              $      (.05)     $       .00
                                                   ===========      ===========


Weighted average shares outstanding  - basic         4,192,105        4,192,024
                                                   ===========      ===========


Weighted average shares outstanding  - diluted       4,192,105        4,192,024
                                                   ===========      ===========

        The accompanying notes are an integral part of these statements.

                                       3




                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                        For the Six Months
                                                          Ended June 30,
                                                      2003             2002
                                                      ----             ----
Revenues                                          $ 3,066,519      $ 2,823,618
                                                  -----------      -----------

Costs and expenses
      Fulfillment and materials                       413,933          308,912
      Personnel costs                               2,120,568        1,744,637
      Selling, general and administrative             921,198          755,715
                                                  -----------      -----------

               Total costs and expenses             3,455,699        2,809,264
                                                  -----------      -----------

Operating (loss) income                              (389,180)          14,354
                                                  -----------      -----------

Other income (expense)
     Interest                                           5,156           15,172
     Other expense ,net                                (7,482)          (7,227)
                                                  -----------      -----------

     Total other (expense) income                      (2,326)           7,945
                                                  -----------      -----------


Net (loss) income                                 $  (391,506)     $    22,299
                                                  ===========      ===========

Net (loss) income per share - basic               $      (.09)     $       .01
                                                  ===========      ===========

Net (loss) income per share - diluted             $      (.09)     $       .01
                                                  ===========      ===========


Weighted average shares outstanding - basic         4,192,105        4,192,024
                                                  ===========      ===========


Weighted average shares outstanding - diluted       4,192,105        4,192,024
                                                  ===========      ===========

        The accompanying notes are an integral part of these statements.

                                       4





                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                                                                         For the Six Months
                                                                                           Ended June 30,
                                                                                      2003              2002
                                                                                      ----              ----
Cash flows from operating activities:
      Net (loss) income                                                         $  (391,506)     $    22,299
            Adjustments to reconcile net (loss) income to
            net cash used in operating activities:
      Depreciation                                                                   74,486           57,590
      Amortization of software costs                                                 45,031           35,460
            Changes in assets and liabilities net of assets and liabilities
              acquired:
            Accounts receivable                                                    (212,159)         (26,264)
            Prepaid expenses and other                                              (62,916)          (6,996)
            Security deposit                                                         (6,297)            --
            Accounts payable                                                        166,898         (278,839)
            Deferred income                                                            (855)         (42,198)
            Customer deposits                                                          (170)         (32,233)
                                                                                -----------      -----------

                  Net cash used in operating activities                            (387,488)        (271,181)
                                                                                -----------      -----------

Cash flows from investing activities:
            Purchase of property, plant, and equipment                              (58,033)         (50,428)
            Purchase of investments                                                 (25,517)            --
                                                                                -----------      -----------

            Net cash used in investing activities                                   (83,550)         (50,428)
                                                                                -----------      -----------

Cash flows from financing activities:

            Payments of obligation on capital lease                                 (10,355)          (5,027)
                                                                                -----------      -----------

      Net cash used in financing activities                                         (10,355)          (5,027)
                                                                                -----------      -----------

      Net decrease in cash and cash equivalents                                    (481,393)        (326,636)
      Cash and cash equivalents at beginning of period                            1,844,512        2,041,315
                                                                                -----------      -----------
      Cash and cash equivalents at end of period                                $ 1,363,119      $ 1,714,679
                                                                                ===========      ===========

Supplemental cash flow information:
Cash paid during the year for
      Income taxes                                                              $    19,860      $    14,182
      Interest expense                                                          $     5,364      $     4,855

Supplemental information:
Oaktree acquired $101,749 of assets under capital leases in 2003 and $4,770 in
2002.

        The accompanying notes are an integral part of these statements.

                                       5




              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2003
                                   (Unaudited)
NOTE  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  include all adjustments
(consisting only of normal recurring accruals)  considered  necessary for a fair
presentation. Results for the six months ended June 30, 2003 are not necessarily
indicative  of the results that may be expected  either for any other quarter in
the year ending  December  31, 2003 or for the entire year ending  December  31,
2003. 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, 2002.

NOTE  2.    OPERATIONS

      Gateway  Industries,  Inc. (the "Company") was incorporated in Delaware in
July 1994 and acquired all of the outstanding  common stock of Oaktree  Systems,
Inc.  ("Oaktree") in March 2000. Oaktree provides real-time database development
consolidation  and  management  services,  such as database  marketing,  product
fulfillment,  subscription  fulfillment,  web site  design  and  maintenance  to
customers.  Such customers are principally  not-for-profit entities, health care
providers and publishers throughout the United States.

      The  Company  had no full time  employees  from  December  1996  until the
acquisition of Oaktree. The Company's officers and Steel Partners Services, Ltd.
(an entity controlled by the Company's  Chairman) devote significant time to the
Company's administration and exploring potential acquisitions and other business
opportunities.

NOTE 3.     NET INCOME (LOSS) PER SHARE

      Net income  (loss) per share was  calculated  using the  weighted  average
number of common shares outstanding.  For the six months ended June 30, 2003 and
2002, stock options excluded from the calculation of diluted loss per share were
1,069,000   and  592,500,   respectively,   as  their  effect  would  have  been
antidilutive.  For the three months ended June 30, 2003 and 2002,  stock options
excluded  from the  calculation  of diluted  loss per share were  1,069,000  and
592,500,   respectively,   as  their  effect   would  have  been   antidilutive.
Accordingly,  basic  and  diluted  income  per share is the same for each of the
three month and six month periods ended June 30, 2003 and 2002.

NOTE 4.     RECENT ACCOUNTING PRONOUNCEMENTS

      In April 2002, the Financial  Accounting  Standards  Board ("FASB") issued
Statement  of  Financial   Accounting  Standards  No.  145  RESCISSION  OF  FASB
STATEMENTS NO. 4, 44, AND 64,  AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS  SFAS 145. This  Statement  rescinds FASB Statement No. 4, REPORTING
GAINS  AND  LOSSES  FROM  EXTINGUISHMENT  OF  DEBT,  and an  amendment  of  that
Statement,  FASB  Statement  No.  64,  EXTINGUISHMENTS  OF DEBT MADE TO  SATISFY
SINKING-FUND  REQUIREMENTS.  This Statement also rescinds FASB Statement No. 44,
ACCOUNTING FOR INTANGIBLE  ASSETS OF MOTOR CARRIERS.  This Statement amends FASB
Statement No.

                                       6





13,  ACCOUNTING FOR LEASES,  to eliminate an inconsistency  between the required
accounting  for  sale-leaseback  transactions  and the required  accounting  for
certain  lease  modifications  that have  economic  effects  that are similar to
sale-leaseback   transactions.   This   Statement  also  amends  other  existing
authoritative  pronouncements  to make various  technical  corrections,  clarify
meanings,  or describe their applicability  under changed conditions.  Effective
January 1, 2003,  the Company  adopted the  provisions of SFAS 145 which did not
have a material impact on the results of operations or financial position of the
Company for the six months ended June 30, 2003.

      In July 2002,  the FASB  Issued  Statement  No. 146  ACCOUNTING  FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL  ACTIVITIES SFAS 146. This Statement  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities  and  nullifies  Emerging  Issues Task Force  (EITF)  Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."  The
principal  difference  between  this  Statement  and Issue  94-3  relates to its
requirements  for  recognition of a liability for a cost associated with an exit
or disposal  activity.  This  Statement  requires  that a  liability  for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred.  Under  Issue 94-3,  a liability  for an exit cost as defined in Issue
94-3 was  recognized at the date of an entity's  commitment to an exit plan. The
provisions  of this  Statement  are  effective  for exit or disposal  activities
initiated  after  December  31,  2002.  Effective  January 1, 2003,  the Company
adopted the  provisions of SFAS 146 which did not have a material  impact on the
results of  operations  or financial  position of the Company for the six months
ended June 30, 2003.

      In November  2002,  the FASB  issued  Interpretation  No. 45,  "GUARANTORS
ACCOUNTING  AND  DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,  INCLUDING  INDIRECT
GUARANTEES OF  INDEBTEDNESS  OF OTHERS" ("FIN 45"). FIN 45 requires that certain
guarantees  be initially  recorded at fair value,  which is  different  from the
general  current  practice of recording a liability only when a loss is probable
and reasonably  estimable.  FIN 45 also requires a guarantor to make significant
new disclosures for virtually all guarantees. The Company adopted the disclosure
requirements  under FIN 45 for the quarter  ended March 31, 2003 and has adopted
the initial  recognition and initial  measurement  provisions for any guarantees
issued or modified  after March 31, 2003.  The adoption of FIN 45 did not have a
material  impact on the  results of  operations  or  financial  position  of the
Company for the six months ended June 30, 2003.

      On December 31, 2002, the FASB issued SFAS No. 148,  "ACCOUNTING FOR STOCK
BASED COMPENSATION TRANSITION AND DISCLOSURE, SFAS 148 AMENDS FASB STATEMENT NO.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION", to provide alternative methods of
transition  to SFAS  123's  fair  value  method of  accounting  for  stock-based
employee  compensation.  SFAS 148 also amends the disclosure  provisions of SFAS
123 and APB Opinion No. 28, INTERIM FINANCIAL  REPORTING,  to require disclosure
in the summary of significant  accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee  compensation on reported
net income and  earnings per share in annual and interim  financial  statements.
While  SFAS 148 does not amend  SFAS 123 to require  companies  to  account  for
employee stock options using the fair value method, the disclosure provisions of
SFAS 148 are applicable to all companies with stock-based employee compensation,
regardless  of whether  they account for the  compensation  using the fair value
method of SFAS 123 or the intrinsic  value method of APB Opinion 25. The Company
adopted the required disclosure provisions of SFAS 148. See Note 5.

      In January 2003, the FASB issued  interpretation No. 46, "CONSOLIDATION OF
VARIABLE  INTEREST ENTITIES - AN INTERPRETATION OF ARB No. 51" ("FIN 46"), which
addresses  consolidation  of  variable  interest  entities.  FIN 46 expands  the
criteria for  consideration  in determining  whether a variable  interest entity

                                       7





should  be   consolidated   by  a  business   entity,   and  requires   existing
unconsolidated  variable interest  entities (which include,  but are not limited
to, Special  Purpose  Entities,  or SPE's) to be  consolidated  by their primary
beneficiaries  if the entities do not  effectively  disburse risks among parties
involved.  This interpretation applies immediately to variable interest entities
created  after  January 31,  2003,  and variable  interest  entities in which an
enterprise  obtains an interest  after that date. It applies in the first fiscal
year or interim  period  beginning  after June 15,  2003,  to variable  interest
entities  in which an  enterprise  holds a variable  interest  that it  acquired
before  February  1, 2003.  The  adoption  of FIN 46 is not  expected  to have a
material  impact on the  results of  operations  or  financial  position  of the
Company.

      In April 2003,  the FASB issued SFAS No. 149,  "AMENDMENT OF STATEMENT 133
ON DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES." SFAS 149 was issued to amend
and clarify  financial  accounting and reporting for derivative  instruments and
hedging  activities  under SFAS 133,  ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND
HEDGING   ACTIVITIES.   Specifically,   this  Standard   clarifies   under  what
circumstances a contract with an initial net investment meets the characteristic
of  a  derivative  and  when  a  derivative  contains  a  financing   component.
Additionally,  SFAS 149 amends the  definition of an underlying to conform it to
language  used  in  FASB  Interpretation  No.  45,  GUARANTOR'S  ACCOUNTING  AND
DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,   INCLUDING  INDIRECT  GUARANTEES  OF
INDEBTEDNESS OF OTHERS, and amends certain other existing  pronouncements.  SFAS
149 is effective for contracts  entered into or modified  subsequent to June 30,
2003 and hedging  relationships  designated  subsequent  to June 30,  2003.  The
provisions  of this  Standard are to be applied  prospectively.  The adoption of
SFAS 149 is not expected to have a material  impact on the results of operations
or financial position of the Company.

      In May 2003, the FASB issued SFAS 150,  "ACCOUNTING FOR CERTAIN  FINANCIAL
INSTRUMENTS  WITH  CHARACTERISTICS  OF BOTH  LIABILITIES  AND EQUITY."  SFAS 150
requires that certain financial instruments,  which under previous guidance were
accounted for as equity, must now be accounted for as liabilities.  The Standard
requires  that certain  freestanding  financial  instruments  be  classified  as
liabilities, including mandatorily redeemable financial instruments, obligations
to  repurchase  the issuer's  equity shares by  transferring  assets and certain
obligations  to issue a variable  number of shares.  SFAS 150 is  effective  for
financial  instruments  entered into or modified subsequent to May 31, 2003, and
otherwise is effective at the  beginning of the first interim  period  beginning
after June 15, 2003. It is to be implemented by reporting the cumulative  effect
of a change in an accounting principle for financial  instruments created before
the issuance date of the  Statement  and still  existing at the beginning of the
interim  period  of  adoption.   The  Company  does  not  anticipate   that  the
implementation  of  SFAS  150  will  have a  material  impact  on its  financial
position, results of operations or cash flows.

NOTE  5.    STOCK-BASED COMPENSATION

      In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK BASED
COMPENSATION-TRANSITION  AND DISCLOSURE-AN AMENDMENT OF SFAS 123, which provided
alternative  methods  for a  voluntary  change  to  the  fair  value  method  of
accounting  for  stock-based  employee  compensation  and amends the  disclosure
requirements of SFAS 123. The Company has elected to continue to account for its
stock-based  employee  compensation  plans under APB Opinion 25,  ACCOUNTING FOR
STOCK  ISSUED  TO  EMPLOYEES,   and  related   interpretations.   The  following
disclosures are provided in accordance with SFAS 148.

                                       8





      As permitted by FASB Statement of Financial  Accounting  Standards No. 123
("SFAS No. 123"),  "ACCOUNTING  FOR STOCK-BASED  COMPENSATION,"  the Company has
elected to follow  Accounting  Principles  Board  Opinion No. 25 ("APB No. 25"),
"ACCOUNTING  FOR  STOCK-ISSUED  TO EMPLOYEES,"  and related  interpretations  in
accounting  for  its  employee  stock  option  plans.   Under  APB  No.  25,  no
compensation  expense is  recognized  at the time of option  grant  because  the
exercise  price of the  Company's  employee  stock option equals the fair market
value of the underlying common stock on the date of grant.

      The  exercise  price of all other  options  equals the market price of the
Company's common stock on the date of grant.  Accordingly,  no compensation cost
has  been  recognized  for  the  Company's  employee  stock  option  plans.  Had
compensation  cost for such plans been determined based on the fair value of the
options  at the grant  dates  consistent  with the method of SFAS No.  123,  the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below.

             Six months ended June 30,                       2003           2002
             ---------------------------------------------------------------------

             Actual net (loss) income                   $  (391,506)      $ 22,299
             Pro forma net (loss) income                $  (402,079)      $ 12,454

             Actual net (loss) income per share
             Basic                                      $     (0.09)      $   0.01
             Diluted                                    $     (0.09)      $   0.01

             Pro forma net (loss) per share
             Basic - Pro forma                          $     (0.10)      $   0.00
             Diluted - Pro forma                        $     (0.10)      $   0.00


             Three months ended June 30,                       2003         2002
             ---------------------------------------------------------------------

             Actual net (loss) income                   $   (226,741)     $  5,689
             Pro forma net (loss) income                $   (232,028)     $    766

             Actual net (loss) income per share
             Basic                                      $      (0.05)     $   0.00
             Diluted                                    $      (0.05)     $   0.00

             Pro forma net (loss) per share
             Basic - Pro forma                          $      (0.06)     $   0.00
             Diluted - Pro forma                        $      (0.06)     $   0.00


      The fair value of the above stock-based compensation costs were determined
using  the  Black-Scholes  option  valuation  model.  The Black  Scholes  option
valuation  model was developed  for use in  estimating  the fair value of traded
options,  which have no vesting restrictions,  are fully transferable and do not
include a discount for large block trades. In addition,  option valuation models
require the input of highly subjective  assumptions including the expected stock
price volatility,  expected life of the option and other estimates.  Because the
Company's employee stock options have  characteristics  significantly  different
from  those of traded  options,  and  because  changes of the  subjective  input
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

                                       9





ITEM  2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

INTRODUCTION

      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
$650,000 of debt,  which was repaid at the closing  date,  plus certain fees and
expenses.

      Oaktree  is a twenty  year-old  company  specializing  in  providing  cost
effective marketing solutions to organizations needing sophisticated information
management  tools.  In the past,  these systems were found  principally  only on
mainframe and  minicomputer  systems.  Oaktree has developed a sophisticated  PC
based relational  database that provides  unlimited  capacity and flexibility to
meet today's  demanding  informational  needs.  Oaktree has also  implemented  a
state-of-the-art Data Center that incorporates the latest Client/Server based PC
architecture.  Oaktree currently manages direct marketing  databases for clients
which  contain  over 25 million  customers  that  include a related  100 million
transactions.

      Oaktree provides a full set of database marketing solutions that cover the
full range of customer interaction. These entirely Web based solutions allow our
customers to manage their  marketing  promotions and the supporting  operational
systems from their  desktops in a real-time  mode. The Internet is the preferred
medium for providing  information and reports to our clients. All reports,  data
access and the status of  production  jobs are available to customers 24 hours a
day, seven days a week simply by accessing their desktop browsers.  With Oaktree
providing a single source  solution,  all data will reflect a real-time  status,
meaning that reports will reflect  information  that is accurate and up-to-date.
Multiple  levels  of  security  provide  a high  degree  of data  integrity  and
protection.

      Oaktree's proprietary, integrated database allows clients with e-commerce,
subscription,  product  fulfillment  and  fundraising  businesses  to  utilize a
single,  customer focused  database to do all of their marketing  promotions and
response  analysis.  Clients can track their businesses on a real time basis and
make  immediate  decisions  to adjust  marketing  promotions  and/or  production
schedules.  The Company  believes  Oaktree's  new Internet  initiatives  and the
release of its  database  product  DB-Cultivator  will allow us to offer  better
expansion   of   services   to   existing    customers   and   should   generate
quarter-to-quarter growth.

      Management  believes  that the  competitive  landscape  continues to favor
Oaktree's PC Database and Internet business model. Management also believes that
customers will pursue solutions that improve operating  efficiencies and improve
income  potential.  Oaktree's  products offer both  opportunities at lower costs
than traditional, mainframe competitors.

                                       10





REVENUES AND EXPENSES

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

      The Company had revenues of $1,577,196 for the three months ended June 30,
2003 compared to $1,399,439 for the  comparable  period in 2002. The increase is
primarily  due  to  increased   revenue  from  the  Company's  new  Subscription
Fulfillment Product released in November 2002.

      Fulfillment  and materials  costs were $247,383 for the three months ended
June 30, 2003  compared  to $179,828  for the  comparable  period in 2002.  This
increase  was due  primarily  to the cost of  operations  of the  Company's  new
Subscription Fulfillment Product, which was developed in 2002.

      Personnel  costs were  $1,059,900 for the three months ended June 30, 2003
compared to $891,632 for the  comparable  period in 2002.  This increase was due
primarily  to  costs  associated  with  the  hiring  of  new  industry  specific
management to position the Company for future growth.

      Selling,  general &  administrative  expenses  were $494,779 for the three
months  ended June 30, 2003  compared to $326,075 for the  comparable  period in
2002. This increase was due primarily to the costs  associated with the addition
of a sales department in the second quarter of 2003.

      Other  income & expenses  were  $2,510 and $4,385,  respectively,  for the
three  months ended June 30, 2003  compared to $7,773 and $3,988,  respectively,
for the  comparable  period in 2002.  The decrease in other income was primarily
due to decreasing money market rates earned on cash held by the Company.

      The Company had a net loss of $226,741 for the three months ended June 30,
2003 compared to a net profit of $5,689 for the comparable  period in 2002. This
decrease was primarily due to costs  associated  with the hiring of new industry
specific  management  and the addition of a sales  department to reposition  the
Company for future growth.


SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

      The Company had revenues of  $3,066,519  for the six months ended June 30,
2003 compared to $2,823,618 for the comparable  period in 2002. The increase was
primarily  due  to  increased   revenue  from  the  Company's  new  Subscription
Fulfillment Product released in November 2002.

      Fulfillment  and  materials  costs were  $413,933 for the six months ended
June 30, 2003  compared  to $308,912  for the  comparable  period in 2002.  This
increase  was due  primarily  to the cost of  operations  of the  Company's  new
Subscription Fulfillment Product, which was developed in 2002.

      Personnel  costs were  $2,120,568  for the six months  ended June 30, 2003
compared to $1,744,637 for the comparable  period in 2002. This increase was due
primarily  to  costs  associated  with  the  hiring  of  new  industry  specific
management and one time expenses incurred as a result of a reduction in existing
workforce.

      Selling,  general &  administrative  expenses  were  $921,198  for the six
months  ended June 30, 2003  compared to $755,715 for the  comparable  period in
2002. This increase was due primarily to the costs  associated with the addition
of a sales department in the second quarter of 2003.

                                       11





      Other income & expenses were $5,156 and $7,482, respectively,  for the six
months ended June 30, 2003 compared to $15,172 and $7,227, respectively, for the
comparable  period in 2002.  The decrease in other income was  primarily  due to
decreasing money market rates earned on cash held by the Company.

      The Company had a net loss of $391,506  for the six months  ended June 30,
2003 compared to a net profit of $22,299 for the comparable period in 2002. This
decrease was primarily due to costs  associated  with the hiring of new industry
specific  management  and the addition of a sales  department to reposition  the
Company for future growth.


LIQUIDITY AND CAPITAL RESOURCES

      The Company's  cash and cash  equivalents  totaled  $1,363,119 at June 30,
2003  and  $1,844,512  at  December  31,  2002.  The  Company's  cash  and  cash
equivalents decreased in the first six months of 2003 due primarily to the costs
associated with the hiring of new industry specific management,  the addition of
the new sales department,  one time expenses incurred as a result of a reduction
in existing  workforce and an increase in accounts  receivable of $212,159.  The
Company  continues  to  seek  an  acquisition  or  other  business  combination.
Management  believes its cash  position is  sufficient  to cover  administrative
expenses and current obligations for the foreseeable future.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

=======================================================================================================================
Contractual Cash Obligations         Payments Due by Period
                                     Total           Less than 1 year    1-3 years       4 - 5 years      After 5 years
Long Term Debt                       0
Capital Lease Obligations            $ 155,749       $ 57,769            $ 97,980
Operating Leases                     $ 516,577       $230,459            $285,664        $454
Unconditional Purchase Obligations   0
Other Long Term Obligations          0
Total Contractual Cash Obligations   $ 672,326       $288,228            $383,644        $454
=======================================================================================================================


CRITICAL ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS

      In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145  RESCISSION  OF FASB  STATEMENTS  NO. 4, 44, AND 64,  AMENDMENT  OF FASB
STATEMENT  NO.  13, AND  TECHNICAL  CORRECTIONS  ("SFAS  145").  This  Statement
rescinds FASB Statement No. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF
DEBT, and an amendment of that Statement, FASB Statement No. 64, EXTINGUISHMENTS
OF DEBT MADE TO SATISFY SINKING-FUND REQUIREMENTS.  This Statement also rescinds
FASB Statement No. 44, ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR CARRIERS.  This
Statement amends FASB Statement No. 13,  ACCOUNTING FOR LEASES,  to eliminate an
inconsistency  between the required  accounting for sale-leaseback  transactions
and the required  accounting for certain lease  modifications that have economic
effects that are similar to  sale-leaseback  transactions.  This  Statement also
amends other existing  authoritative  pronouncements  to make various  technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  Effective  January 1, 2003,  the Company  adopted the provisions of
SFAS 145 which did not have a material  impact on the results of  operations  or
financial position of the Company for the six months ended June 30, 2003.

                                       12




      In July  2002,  the FASB  Issued  Statement  No. 146 ACCOUNTING  FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL  ACTIVITIES SFAS 146. This Statement  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities  and  nullifies  Emerging  Issues Task Force  (EITF)  Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."  The
principal  difference  between  this  Statement  and Issue  94-3  relates to its
requirements  for  recognition of a liability for a cost associated with an exit
or disposal  activity.  This  Statement  requires  that a  liability  for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred.  Under  Issue 94-3,  a liability  for an exit cost as defined in Issue
94-3 was  recognized at the date of an entity's  commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal  activities that
are initiated  after December 31, 2002.  Effective  January 1, 2003, the Company
adopted the  provisions of SFAS 146 which did not have a material  impact on the
results of  operations  or financial  position of the Company for the six months
ended June 30, 2003.

      In November  2002,  the FASB  issued  Interpretation  No. 45,  "GUARANTORS
ACCOUNTING  AND  DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,  INCLUDING  INDIRECT
GUARANTEES OF  INDEBTEDNESS  OF OTHERS" ("FIN 45"). FIN 45 requires that certain
guarantees  be initially  recorded at fair value,  which is  different  from the
general  current  practice of recording a liability only when a loss is probable
and reasonably  estimable.  FIN 45 also requires a guarantor to make significant
new disclosures for virtually all guarantees. The Company adopted the disclosure
requirements  under FIN 45 for the quarter  ended March 31, 2003 and has adopted
the initial  recognition and initial  measurement  provisions for any guarantees
issued or modified  after March 31, 2003.  The adoption of FIN 45 did not have a
material  impact on the  results of  operations  or  financial  position  of the
Company for the six months ended June 30, 2003.

      On December 31, 2002,  the FASB issued SFAS No. 148,  ACCOUNTING FOR STOCK
BASED COMPENSATION TRANSITION AND DISCLOSURE, SFAS 148 AMENDS FASB STATEMENT NO.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION,  to provide alternative methods of
transition  to SFAS  123's  fair  value  method of  accounting  for  stock-based
employee  compensation.  SFAS 148 also amends the disclosure  provisions of SFAS
123 and APB Opinion No. 28, INTERIM FINANCIAL  REPORTING,  to require disclosure
in the summary of significant  accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee  compensation on reported
net income and  earnings per share in annual and interim  financial  statements.
While  SFAS 148 does not amend  SFAS 123 to require  companies  to  account  for
employee stock options using the fair value method, the disclosure provisions of
SFAS 148 are applicable to all companies with stock-based employee compensation,
regardless  of whether  they account for the  compensation  using the fair value
method of SFAS 123 or the intrinsic  value method of APB Opinion 25. The Company
adopted the required disclosure provisions of SFAS No. 148. See Note 5.

      In January 2003, the FASB issued  interpretation No. 46, "CONSOLIDATION OF
VARIABLE  INTEREST ENTITIES - AN INTERPRETATION OF ARB No. 51" ("FIN 46"), which
addresses  consolidation  of  variable  interest  entities.  FIN 46 expands  the
criteria for  consideration  in determining  whether a variable  interest entity
should  be   consolidated   by  a  business   entity,   and  requires   existing
unconsolidated  variable interest  entities (which include,  but are not limited
to, Special  Purpose  Entities,  or SPE's) to be  consolidated  by their primary
beneficiaries  if the entities do not  effectively  disburse risks among parties
involved.  This interpretation applies immediately to variable interest entities
created  after  January 31,  2003,  and variable  interest  entities in which an
enterprise  obtains an interest  after that date. It applies in the first fiscal
year or interim  period  beginning  after June 15,  2003,  to variable  interest
entities  in which an  enterprise  holds a variable  interest  that it  acquired
before  February  1, 2003.  The  adoption  of FIN 46 is not  expected  to have a

                                       13



material  impact on the  results of  operations  or  financial  position  of the
Company.

      In April 2003,  the FASB issued SFAS No. 149,  "AMENDMENT OF STATEMENT 133
ON DERIVATIVE  INSTRUMENTS AND HEDGING ACTIVITIES." SFAS 149 was issued to amend
and clarify  financial  accounting and reporting for derivative  instruments and
hedging  activities  under SFAS 133,  ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND
HEDGING   ACTIVITIES.   Specifically,   this  Standard   clarifies   under  what
circumstances a contract with an initial net investment meets the characteristic
of  a  derivative  and  when  a  derivative  contains  a  financing   component.
Additionally,  SFAS 149 amends the  definition of an underlying to conform it to
language  used  in  FASB  Interpretation  No.  45,  GUARANTOR'S  ACCOUNTING  AND
DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,   INCLUDING  INDIRECT  GUARANTEES  OF
INDEBTEDNESS OF OTHERS, and amends certain other existing  pronouncements.  SFAS
149 is effective for contracts  entered into or modified  subsequent to June 30,
2003 and hedging  relationships  designated  subsequent  to June 30,  2003.  The
provisions  of this  Standard are to be applied  prospectively.  The adoption of
SFAS 149 is not expected to have a material  impact on the results of operations
or financial position of the Company.

      In May  2003,  the FASB  issued  SFAS No.  150,  "ACCOUNTING  FOR  CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." SFAS
150 requires that certain financial  instruments,  which under previous guidance
were  accounted  for as equity,  must now be accounted for as  liabilities.  The
Standard requires that certain freestanding  financial instruments be classified
as  liabilities,   including  mandatorily   redeemable  financial   instruments,
obligations to repurchase the issuer's equity shares by transferring  assets and
certain  obligations to issue a variable number of shares. SFAS 150 is effective
for financial  instruments  entered into or modified subsequent to May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after  June  15,  2003.  It is to be  implemented  by  reporting  the
cumulative  effect  of  a  change  in  an  accounting  principle  for  financial
instruments created before the issuance date of the Statement and still existing
at the  beginning  of the  interim  period of  adoption.  The  Company  does not
anticipate  that the  implementation  of SFAS 150 will have a material impact on
its financial position, results of operations or cash flows.

                                       14





ITEM 3.     CONTROLS AND PROCEDURES

      (a) Evaluation of disclosure controls and procedures

          Within  the 90 days  prior to the  date of this  report,  the  Company
carried out an evaluation,  under the supervision and with the  participation of
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's  disclosure controls and procedures.  Based upon that evaluation,  the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to  the  Company  (including  its  consolidated
subsidiary) required to be included in the Company's periodic SEC filings.

      (b) Changes in internal controls

          There were no significant  changes in the Company's  internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.

      (c) Asset-Backed issuers

          Not applicable.

                                       15





PART II.    OTHER INFORMATION

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

            Effective March 3, 2003, the Company granted  Christopher Lynde, the
Chief Executive Officer of the Oaktree subsidiary, nonstatutory stock options to
purchase 125,000 shares of Common Stock under the Company's Amended and Restated
1990 Incentive Stock Option Plan and 1990  Nonstatutory  Stock Option Plan at an
exercise price of $2.25 per share.  The options vest and become  exercisable one
year from the date of grant and  terminate  eight  years from the date of grant.
The issuance of the options was deemed to be exempt from registration  under the
Securities  Act of  1933,  as  amended,  in  reliance  on  Section  4(2)  of the
Securities Act as a transaction by an issuer not involving a public offering.

            On March 5, 2003, the Company agreed to grant to the Mayo Foundation
for Medical  Education and Research  ("Mayo") warrants to purchase up to 100,000
shares and 50,000  shares,  respectively,  of common  stock of the Company at an
exercise price of $1.75 per share. The warrants were issued on July 1, 2003. The
warrants were subject to the following  conditions.  The warrants to purchase up
to 100,000 shares become exercisable in four equal annual installments on July 1
of each year beginning  July 1, 2004 as long as the Oaktree  subsidiary and Mayo
continue to be parties to a certain Master Services Agreement effective November
15, 2002 (the "Master Services Agreement") and expire June 30, 2008. Each annual
installment  becomes  exercisable  only if  subscriptions to any consumer health
information publication intended for sale to the general public produced by Mayo
("Consumer  Health  Subscription  Business")  that are managed and  fulfilled by
Oaktree under the Master Services  Agreement account for at least ninety percent
of Mayo's total gross  revenues  derived from the Consumer  Health  Subscription
Business during the  twelve-month  period  preceding the applicable  installment
date. The warrants to purchase up to 50,000 shares become exercisable subject to
the  achievement  of certain  revenue  goals by Oaktree  from New  Business  (as
defined in the  warrants)  and expire  December  31, 2007.  The warrants  become
exercisable as to fifty percent of the shares if cumulative  gross revenues from
New  Business  for the  first  time  exceed  $1,000,000  for any  calendar  year
commencing  January 1, 2003 and ending  December 31, 2006.  The warrants  become
exercisable as to one hundred percent of the shares if cumulative gross revenues
from New Business exceed $2,000,000 for any calendar year commencing  January 1,
2003 and ending  December  31,  2006,  regardless  of whether any portion of the
warrants was exercisable prior thereto.  The issuance of the warrants  described
in this paragraph was deemed to be exempt from registration under the Securities
Act of 1933, as amended,  in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.

                                       16





ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            (a)   EXHIBITS

Exhibit No.       Description

10.1              Warrant issued to Mayo  Foundation  for Medical  Education and
                  Research to  purchase  100,000  shares of common  stock of the
                  Company effective March 5, 2003.

10.2              Warrant issued to Mayo  Foundation  for Medical  Education and
                  Research  to  purchase  50,000  shares of common  stock of the
                  Company effective March 5, 2003.

99.1              Certification  of Chief Executive  Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.*

99.2              Certification  of Chief Financial  Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.*

99.3              Certification  of Chief Executive  Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.**

99.4              Certification  of Chief Financial  Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.**

                  * Filed as an exhibit  pursuant to Item 601(b)31 of Regulation
                  S-B as directed by the Securities  and Exchange  Commission in
                  Release No. 33-8238.

                  ** Filed as an exhibit pursuant to Item 601(b)32 of Regulation
                  S-B as directed by the Securities  and Exchange  Commission in
                  Release No. 33-8238.


           (b)    REPORTS ON FORM 8-K

                  None

                                       17





                                   SIGNATURES


            In  accordance  with  the  requirements  of the  Exchange  Act,  the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                    GATEWAY INDUSTRIES, INC.



                                    /s/ Maritza Ramirez
                                    -------------------
                                    Maritza Ramirez, Chief Financial Officer
                                    and duly authorized signatory

Date:  July 31, 2003

                                       18

EX-10.1

                                                                    EXHIBIT 10.1

THIS WARRANT AND ANY SHARES  ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED,  SOLD OR OTHERWISE DISPOSED OF
IN THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION  STATEMENT  WITH  RESPECT TO THE
SECURITIES  EVIDENCED BY THIS  CERTIFICATE,  FILED AND MADE EFFECTIVE  UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,  AND SUCH APPLICABLE  STATE SECURITIES LAWS,
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
TO THE  EFFECT  THAT  REGISTRATION  UNDER  SUCH  ACT AND SUCH  APPLICABLE  STATE
SECURITIES LAWS IS NOT REQUIRED.

                                             Dated: July 1, 2003

                                     WARRANT


                            GATEWAY INDUSTRIES, INC.

                             Expiring June 30, 2008

            THIS IS TO CERTIFY THAT,  for value  received,  Mayo  Foundation for
Medical  Education and Research (the  "Holder") is entitled,  subject to certain
conditions  set forth in Sections 1.1 and 1.2 hereof,  to purchase  from Gateway
Industries,  Inc., a Delaware  corporation  (the  "Company"),  at the  Company's
principal  executive  office,  at the Exercise  Price, up to 100,000 shares (the
"Warrant  Shares") of Common Stock,  $.001 par value per share ("Common Stock"),
all  subject to  adjustment  and upon the terms and  conditions  as  hereinafter
provided,  and is entitled also to exercise the other appurtenant rights, powers
and privileges hereinafter described.

            Certain terms used in this Warrant are defined in Article IV hereof.


                                   ARTICLE I

                               METHOD OF EXERCISE

            1.1 TIME OF EXERCISE;  SUBSIDIARY CHANGE OF CONTROL.  Subject to the
provisions of Sections 1.2 and 1.3 hereof, this Warrant shall become exercisable
in four (4) equal annual  installments  on July 1 of each year beginning July 1,
2004 (each, an  "Installment  Date") and prior to the Expiration Time as long as
Oaktree  Systems,  Inc., a subsidiary of the Company  ("Oaktree") and the Holder
continue  to be parties to that  certain  Master  Services  Agreement  effective
November  15, 2002 or any other  replacement  or  substitute  agreement  between
Oaktree and the Holder (the "Master  Agreement").  Each annual installment shall
become  exercisable  only if  subscriptions  to any consumer health  information






publication  intended  for  sale  to the  general  public  now or in the  future
produced by the Holder (the "Consumer  Health  Subscription  Business") that are
managed and fulfilled by Oaktree under the Master Agreement account for at least
ninety  percent  (90%) of the  Holder's  total gross  revenues  derived from the
Consumer  Health  Subscription  Business  during  the twelve  (12) month  period
preceding the applicable  Installment  Date.  Upon the termination of the Master
Agreement  for any reason  other than  material  breach by Oaktree  which is not
timely  cured,  this Warrant will  immediately  terminate and shall no longer be
exercisable.

            Upon a Subsidiary Change of Control, this Warrant, to the extent not
previously  exercised,  shall become  exercisable in full for a period of ninety
(90) days from the occurrence of such Subsidiary  Change of Control.  At the end
of such ninety (90) day period, this Warrant will immediately terminate.

            1.2  CERTIFICATION  OF REVENUES  FROM CONSUMER  HEALTH  SUBSCRIPTION
BUSINESS;  RIGHT TO AUDIT.  During the term of this Warrant,  within  forty-five
(45) days  following  each  Installment  Date,  the Holder shall  deliver to the
Company a certificate from the principal  financial or accounting officer of the
Holder setting forth revenues  generated from the Consumer  Health  Subscription
Business for the twelve (12) month period  preceding the applicable  Installment
Date (each,  a  "Certification").  The Company shall have the right to retain an
independent  accounting  firm selected by the Company to audit, at the Company's
expense,  the  Holder's  books and  records to  determine  the  accuracy  of any
Certification,  in accordance with generally accepted accounting principles,  by
delivering a written  notice to the Holder within thirty (30) days following the
Company's receipt of the  Certification in question.  If such audit results in a
discrepancy  then the Company and the Holder  shall for a thirty (30) day period
seek to  resolve  such  discrepancy.  If not  resolved,  the  dispute  shall  be
submitted to an independent  accounting  firm mutually  acceptable to the Holder
and the Company whose determination shall be binding. The Company and the Holder
shall split equally the fees of such independent accounting firm. Failure by the
Holder to deliver any Certification  within the prescribed time period shall not
be deemed a breach of this  Warrant  if cured  within  ten (10) days of  written
demand from the Company.

            1.3 METHOD OF  EXERCISE.  To  exercise  this  Warrant in whole or in
part,  the Holder  shall  deliver to the  Company,  at the  Company's  principal
executive  office,  (a) this  Warrant,  (b) a written  notice  of such  Holder's
election to exercise this Warrant in the form attached hereto and (c) payment of
the Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, in cash, by certified or bank cashier's check, money order
or wire transfer, in the manner specified in the next succeeding  paragraph,  or
in any other manner  consented to in writing by the Company,  or any combination
thereof.

            Notwithstanding  any provisions  herein in the contrary,  in lieu of
exercising  this  Warrant  as  hereinabove  permitted,  the  Holder may elect to
exercise  this  Warrant or a portion  hereof and to pay for the  Warrant  Shares
issuable  upon such  exercise  by way of  cashless  exercise  (a) by delivery of
shares of Common Stock or other  securities of the Company  already owned by the
Holder with an aggregate  Fair Market Value on the date of exercise equal to the

                                       2





aggregate Exercise Price,  subject,  however, to the provisions of Section 16(b)
of the  Exchange  Act  or (b) by  surrendering  this  Warrant  at the  principal
executive office of the Company,  together with the Notice of Exercise, in which
event the  Company  shall  issue to the Holder  that  number of  Warrant  Shares
computed using the following formula:

                                  X= Y x (A-B)
                                     ---------
                                        A

Where:

               X equals the number of Warrant Shares to be issued to the Holder;

               Y equals  the  number of  Warrant  Shares  purchasable  under the
               Warrant or, if only a portion of the Warrant is being  exercised,
               the portion of the Warrant  being  exercised (at the date of such
               calculation);

               A equals the Fair Market Value (at the date of such  calculation)
               of one share of Common Stock; and

               B equals the Exercise Price.

            The Company shall,  as promptly as practicable  after receipt of the
items  required by the  preceding  paragraphs  of this Section 1.3,  execute and
deliver or cause to be executed and delivered, in accordance with such notice, a
certificate or certificates  representing the aggregate number of Warrant Shares
specified in such notice.  The share  certificate or  certificates  so delivered
shall be in such denominations as shall be specified in such notice and shall be
issued in the name of the Holder or such other  name as shall be  designated  in
such notice;  provided,  in an opinion of counsel  reasonably  acceptable to the
Company,  the  issuance  in such  other  name  is  permitted  under  the Act and
applicable  state  securities  laws. Such  certificate or certificates  shall be
deemed to have been  issued,  and such Holder or Holders or any other  person so
designated to be named therein shall be deemed for all purposes to have become a
Holder of record of such  shares,  as of the date the  aforementioned  notice is
received by the Company. If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of the  certificate or  certificates,
deliver  to the  Holder a new  Warrant  evidencing  the  right to  purchase  the
remaining Warrant Shares called for by this Warrant,  which new Warrant shall in
all other  respects  be  identical  to this  Warrant,  or, at the request of the
Holder,  appropriate  notations  may be made on this Warrant which shall then be
returned to the  Holder.  The Company  shall pay all  expenses,  taxes and other
charges  payable in connection  with the  preparation,  issuance and delivery of
share  certificates and new Warrants,  except that, if share certificates or new
Warrants  shall  be  registered  in a name or names  other  than the name of the
Holder,  funds sufficient to pay all transfer taxes, if any, payable as a result
of such  transfer  shall be paid by the  Holder  at the time of  delivering  the
aforementioned  notice of exercise or promptly upon receipt of a written request
of the Company for payment.

                                       3





            1.4   RESERVATION   OF   SHARES;   SHARES  TO  BE  FULLY   PAID  AND
NONASSESSABLE.  The Company shall at all times reserve and keep available out of
its  authorized but unissued  shares of Common Stock,  solely for the purpose of
effecting  the  exercise  of this  Warrant,  such number of its shares of Common
Stock as shall  from  time to time be  sufficient  to effect  the full  exercise
hereof;  and if at any time the  number of  authorized  but  unissued  shares of
Common Stock shall not be  sufficient  to effect the full  exercise  hereof,  in
addition to such other remedies as shall be available to the Holder, the Company
will take such  corporate  action as may,  in the  opinion  of its  counsel,  be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient  for such purposes,  including,  without
limitation,  engaging  in best  efforts  to  obtain  the  requisite  stockholder
approval of any  necessary  amendment to these  provisions.  All Warrant  Shares
issued upon the exercise of this Warrant shall be duly and validly issued, fully
paid and nonassessable.

            1.5 NO  FRACTIONAL  SHARES TO BE ISSUED.  The  Company  shall not be
required to issue fractions of Warrant Shares upon exercise of this Warrant.  If
any  fractions  of a share would,  but for this  Section,  be issuable  upon any
exercise of this Warrant, in lieu of such fractional share the Company shall pay
to the Holder,  in cash, an amount equal to the same fraction of the Fair Market
Value of one share of Common Stock.

            1.6 SHARE LEGEND.  Each  certificate  for Warrant Shares issued upon
exercise  of this  Warrant,  unless  at the time of  exercise  such  shares  are
registered under the Act, shall bear a legend substantially as follows:

            THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT
            BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS
            AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS AND MAY NOT
            BE  TRANSFERRED,  SOLD  OR  OTHERWISE  DISPOSED  OF IN THE
            ABSENCE  OF  AN  EFFECTIVE   REGISTRATION  STATEMENT  WITH
            RESPECT TO THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE,
            FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED,  AND SUCH APPLICABLE STATE SECURITIES LAWS, OR
            UNLESS  THE   COMPANY   RECEIVES  AN  OPINION  OF  COUNSEL
            SATISFACTORY   TO  THE   COMPANY   TO  THE   EFFECT   THAT
            REGISTRATION  UNDER  SUCH  ACT AND SUCH  APPLICABLE  STATE
            SECURITIES LAWS IS NOT REQUIRED.

            Any certificate  issued at any time in exchange or substitution  for
any  certificate  bearing  such  legend  (except a new  certificate  issued upon
completion of a public distribution  pursuant to a registration  statement under
the Act)  shall  also  bear  such  legend  unless,  in the  opinion  of  counsel
reasonably acceptable to the Company, the securities represented thereby need no
longer be subject to restrictions on resale under the Act.

                                       4





                                   ARTICLE II

                      REPLACEMENTS OF WARRANT CERTIFICATES

            2.1 LOSS, THEFT OR DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt
of evidence  satisfactory  to the  Company of the loss,  theft,  destruction  or
mutilation  of any  Warrant  and,  in  the  case  of any  such  loss,  theft  or
destruction,  upon receipt of indemnity or security from the Holder satisfactory
to the  Company,  or, in the case of any such  mutilation,  upon  surrender  and
cancellation of the Warrant,  the Company will make and deliver, in lieu of such
lost,  stolen,  destroyed or mutilated  Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of Warrant Shares.

            2.2 CHANGE OF PRINCIPAL  EXECUTIVE  OFFICE. In the event the Company
shall change the address of its principal  executive  office,  the Company shall
give  the  Holder  notice  of any such  change  within a  reasonable  time.  Any
correspondence  from the  Company to the Holder  with an address  printed on the
Company's letterhead shall fulfill this requirement.


                                  ARTICLE III

                             ANTIDILUTION PROVISIONS

            3.1  ADJUSTMENTS  GENERALLY.  The  Exercise  Price and the number of
shares of Common Stock (or other securities or property)  issuable upon exercise
of this  Warrant  shall be  subject  to  adjustment  from  time to time upon the
occurrence of certain events, as provided in this Article III.

            3.2  CERTAIN  ADJUSTMENTS.  The  Exercise  Price shall be subject to
adjustment from time to time as follows:

                                       5





               (a) STOCK SPLITS, SUBDIVISIONS.

            (1) In the event the Company should at any time or from time to time
after the date first written above fix a record date for the  effectuation  of a
split  or  subdivision  of  the  outstanding  shares  of  Common  Stock  or  the
determination of holders of Common Stock entitled to receive a dividend or other
distribution  payable  in  additional  shares  of Common  Stock or Common  Stock
equivalents  without  payment  of any  consideration  by  such  holder  for  the
additional shares of Common Stock or the Common Stock equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend  distribution,  split
or  subdivision  if no  record  date is  fixed),  the  Exercise  Price  shall be
appropriately  decreased and the number of shares of Common Stock  issuable upon
exercise of this Warrant  shall be increased in  proportion  to such increase in
the aggregate of shares of Common Stock outstanding and issuable with respect to
such  Common  Stock  equivalents.

            (2) If the number of shares of Common Stock  outstanding at any time
after  the  date  first  written  above is  decreased  by a  combination  of the
outstanding  shares of Common  Stock,  then,  following  the record date of such
combination,  the Exercise Price shall be appropriately increased and the number
of shares  of  Common  Stock  issuable  on  exercise  of this  Warrant  shall be
decreased in proportion to such decrease in outstanding shares.

               (b) RECAPITALIZATIONS.  If at any time or from time to time there
shall be a  recapitalization  of the Common  Stock  (other  than a  subdivision,
combination  or merger or sale of assets  transaction  provided for elsewhere in
this Section 3.2),  provision shall be made so that the Holder shall  thereafter
be entitled  to receive  upon  exercise of this  Warrant the number of shares of
stock or other  securities or property of the Company or  otherwise,  to which a
holder of Common Stock  deliverable  upon  exercise  would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 3.2 with respect to the rights
of the Holder after the  recapitalization to the end that the provisions of this
Section 3.2  (including  adjustment of the Exercise Price then in effect and the
number of shares  issuable upon  exercise of this  Warrant)  shall be applicable
after that event as nearly equivalent as may be practicable.

               (c) NO  AVOIDANCE.  The  Company  will not, by  amendment  of its
Certificate of  Incorporation or through any  reorganization,  recapitalization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action,  avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed  hereunder by the
Company,  but will at all times in good faith  assist in the carrying out of all
the  provisions  of this Section 3.2 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder.

               (d) REORGANIZATIONS, RECLASSIFICATIONS, PARENT CHANGE OF CONTROL.
If any capital  reorganization or  reclassification  of the capital stock of the
Company, or a Parent Change of Control,  shall be effected while this Warrant is

                                       6





outstanding  in such a manner  that  holders of shares of Common  Stock shall be
entitled to receive  stock,  securities or assets with respect to or in exchange
for  Common   Stock,   then,   as  a  condition   of  such   reorganization   or
reclassification,  or Parent  Change of Control,  lawful and adequate  provision
shall be made whereby the Holder shall thereafter have the right to receive upon
the basis and upon the terms and conditions  specified herein and in lieu of the
shares of Common Stock immediately  theretofore receivable upon exercise of this
Warrant, such shares of stock,  securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
so receivable had such reorganization or  reclassification,  or Parent Change of
Control not taken place,  and in such case  appropriate  provision shall be made
with  respect  to the  rights  and  interests  of the Holder to the end that the
provisions hereof (including,  without limitation,  provisions for adjustment of
the  Exercise  Price and of the number of shares of Common Stock  issuable  upon
exercise thereof) shall thereafter be applicable,  as nearly as may be possible,
in relation to any shares of stock,  securities or assets thereafter deliverable
upon  the  exercise  of  this  Warrant.  Prior  to or  simultaneously  with  the
consummation  of any such Parent  Change of Control,  the  survivor or successor
corporation  (if other than the Company)  resulting from such  consolidation  or
merger or the  corporation  purchasing  such  assets  shall  assume  by  written
instrument  executed and mailed or delivered to the Holder,  the  obligation  to
deliver  to such  Holder  such  shares of  stock,  securities  or assets  as, in
accordance  with the  foregoing  provisions,  such  Holder  may be  entitled  to
receive, and containing the express assumption of such successor  corporation of
the due and  punctual  performance  and  observance  of every  provision of this
Warrant (as such may be amended from time to time) to be performed  and observed
by the Company and of all liabilities  and obligations of the Company  hereunder
with respect to this Warrant.

               (e)  NOTICE OF  RECORD  DATE.  In the event of any  taking by the
Company of a record of the holders of any class of securities for the purpose of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash  dividend)  or  other  distribution,  any  right to  subscribe  for,
purchase  or  otherwise  acquire  any  shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
the  Holder,  at least 10 days  prior to the date  specified  therein,  a notice
specifying  the date on which any such  record is to be taken for the purpose of
such  dividend,  distribution  or right,  and the amount and  character  of such
dividend, distribution or right.

               (f)   ADJUSTMENT   CERTIFICATE.   Upon  the  occurrence  of  each
adjustment or readjustment of the Exercise Price or the number of Warrant Shares
pursuant to this  Section  3.2, the  Company,  at its  expense,  shall  promptly
compute such  adjustment or readjustment in accordance with the terms hereof and
prepare and  furnish to the Holder a  statement,  signed by its Chief  Financial
Officer  or  other  appropriate  officer,   setting  forth  such  adjustment  or
readjustment  and  showing in detail the facts  upon  which such  adjustment  or
readjustment is based.  The Company shall,  upon the written request at any time
of  the  Holder,  furnish  or  cause  to be  furnished  to  such  holder  a like
certificate  setting  forth  (i)  such  adjustment  and  readjustment,  (ii) the

                                       7





Exercise  Price at the time in effect,  and (iii) the number of shares of Common
Stock and the  amount,  if any,  of other  property  which at the time  would be
received upon the exercise of this Warrant.

                                   ARTICLE IV

                                   DEFINITIONS

            The following  terms,  as used in this  Warrant,  have the following
respective meanings:

            "ACT" means the Securities Act of 1933, as amended,  and any similar
or successor  Federal  statute,  and the rules and regulations of the Commission
(or its successor) thereunder, all as the same shall be in effect at the time.

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON  STOCK"  shall  have the  meaning  set  forth  in the  first
paragraph of this Warrant.

            "COMPANY" shall have the meaning set forth in the first paragraph of
this Warrant.

            "EASTERN TIME" means Eastern Daylight Time or Eastern Standard Time,
whichever is in effect on the relevant date.

            "EXCHANGE  ACT"  means  the  Securities  Exchange  Act of  1934,  as
amended,  and any  similar  or  successor  Federal  statute,  and the  rules and
regulations of the Commission  (or its  successor)  thereunder,  all as the same
shall be in effect at the time.

            "EXERCISE PRICE" means $1.75,  subject to adjustment pursuant to the
terms of this Warrant.

            "EXPIRATION  TIME" means 5:00 p.m.  Eastern  Time on June 30,  2008,
unless earlier terminated pursuant to Section 1.1 hereof.

            "FAIR  MARKET  VALUE" on any day  means (i) if shares of the  Common
Stock are listed or admitted for trading on a national securities exchange,  the
reported  last sales price or, if no such  reported sale occurs on such day, the
average of the  closing  bid and asked  prices on such day,  in each case on the
principal  national  securities  exchange on which the Common Stock is listed or
admitted to trading,  (ii) if shares of Common  Stock are not listed or admitted
to trading on any national securities  exchange,  the average of the closing bid
and asked  prices in the  over-the-counter  market  on such day as  reported  by
Nasdaq or any comparable  system or, if not so reported,  as reported by any New
York Stock  Exchange  member firm  selected  by the Company for such  purpose or
(iii) if no such  quotations are available on such day, the fair market value of

                                       8





one share of Common Stock on such day as  determined  in good faith by the Board
of Directors of the Company.

            "HOLDER" shall have the meaning set forth in the first  paragraph of
this Warrant and  "Holders"  shall  include any and all  successors,  assigns or
designees of the initial  Holder with respect to this  Warrant,  as permitted by
this Warrant.

            "NASDAQ" means The National Association of Securities Dealers,  Inc.
Automated Quotation System.

            "PARENT   CHANGE  OF   CONTROL"   means  (i)  the  sale  of  all  or
substantially  all of the  assets of the  Company  in one or a series of related
transactions  to any person or entity or group of persons or entities  acting in
concert or (ii) the merger or  consolidation of the Company with or into another
corporation  with the effect that the then existing  stockholders of the company
hold  less  than  50% of the  combined  voting  power  of the  then  outstanding
securities  of the  surviving  corporation  of such  merger  or the  corporation
resulting  from such  consolidation  or (iii) the  acquisition  by any person or
entity or group of persons or  entities,  other than Steel  Partners II, L.P. or
its affiliates, acting in concert of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding
shares  of the  voting  stock  of the  Company  or (iv) the  adoption  of a plan
relating to the liquidation or dissolution of the Company.

            "SUBSIDIARY  CHANGE  OF  CONTROL"  means  (i)  the  sale  of  all or
substantially  all of the  assets  of  Oaktree  in one or a  series  of  related
transactions  to any person or entity or group of persons or entities  acting in
concert or (ii) the merger or  consolidation  of  Oaktree  with or into  another
corporation  with the effect that the then existing  stockholders of the company
hold  less  than  50% of the  combined  voting  power  of the  then  outstanding
securities  of the  surviving  corporation  of such  merger  or the  corporation
resulting  from such  consolidation  or (iii) the  acquisition  by any person or
entity  or group of  persons  or  entities,  acting  in  concert  of  beneficial
ownership  (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more of the outstanding  shares of the voting stock of Oaktree or (iv)
the adoption of a plan relating to the liquidation or dissolution of Oaktree.

            "WARRANT"  and  "WARRANTS"  shall mean this warrant and any warrants
issued upon the partial exercise of this warrant.

            "WARRANT  SHARES"  shall  have the  meaning  set  forth in the first
paragraph of this Warrant.

                                       9





                                   ARTICLE V

                     REDEMPTION AND CANCELLATION OF WARRANTS

            5.1  REDEMPTION OF WARRANTS.  The Warrants are not redeemable by the
Company   and   the   Company   has  no   right   to   purchase   or   otherwise
acquire the Warrants.

            5.2  CANCELLATION OF WARRANTS.  The Company shall cancel any Warrant
surrendered for transfer, exchange or exercise.


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

            The Company hereby  represents and warrants,  as of the date hereof,
to the Holder that:

            6.1 AUTHORIZATION.  This Warrant has been duly authorized,  executed
and  delivered  by the  Company  and  constitutes  the legal,  valid and binding
obligation of the Company,  enforceable in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency,  reorganization and moratorium laws, (ii)
other laws of general application affecting the enforcement of creditors' rights
generally and general  principles of equity,  (iii) the  discretion of the court
before  which any  proceeding  therefor  may be  brought,  and (iv) as rights to
indemnity  may be  limited  by  Federal  or state  securities  laws or by public
policy.

            6.2 VALID ISSUANCE. The issuance, sale and delivery of this Warrant,
and the  reservation  for issuance of the shares of Common Stock  issuable  upon
exercise of this Warrant  have been duly  authorized  by all required  corporate
action on the part of the  Company.  The shares of Common  Stock  issuable  upon
exercise of this Warrant have been duly and validly  reserved for issuance  and,
upon  issuance in accordance  with the terms of this Warrant,  shall be duly and
validly issued,  fully paid, and non-assessable.  When issued,  shares of Common
Stock  issuable  upon  exercise of this  Warrant will be free and clear from any
liens or encumbrances  other than those created by, or imposed upon, the holders
thereof  through no action of the Company,  other than  restrictions on transfer
under state and/or  Federal  securities  laws.  Issuance of this Warrant and the
shares of Common Stock  issuable  upon  exercise of this Warrant will be free of
statutory preemptive rights.

                                  ARTICLE VII

                                  MISCELLANEOUS

            7.1 NOTICES. All notices, requests and other communications provided
for herein  shall be in writing,  and shall be deemed to have been made or given
upon  personal  delivery  to the party to be  notified  or three (3) days  after
deposit with the United States Post Office,  by  registered  or certified  mail,
postage  prepaid  and  addressed  to the  party to be  notified  at the  address
indicated  for such  party  below,  or at such  other  address as such party may

                                       10





designate by ten (10) days' advance written notice to the other parties,  with a
copy (which shall not constitute  notice), in the case of notice to the Company,
to Olshan  Grundman Frome  Rosenzweig & Wolosky LLP, 505 Park Avenue,  New York,
New York 10022, Attention:  Steven Wolosky, Esq. Notices to (a) the Holder shall
be addressed to Mayo Medical Ventures, 200 First Street SW, Rochester, Minnesota
55905,  Attention:  Steven R. Stenhaug and (b) the Company shall be addressed to
590 Madison  Avenue,  32nd Floor,  New York, New York 10022,  Attention:  Warren
Lichtenstein;  provided,  however,  that  notice  of a change  in the  Company's
principal   executive  office  in  accordance  with  Section  2.2  hereof  shall
constitute  notice of a change of the Company's  address for the purposes of any
notice given pursuant to this Warrant.

            7.2  WAIVERS;  AMENDMENTS.  No  failure  or delay of the  Holder  in
exercising  any right,  power or privilege  hereunder  shall operate as a waiver
thereof, nor shall any single or partial exercise thereof, or any abandonment or
discontinuance  of steps to enforce such a right,  power or privilege,  preclude
any other or further exercise thereof or the exercise of any other right,  power
or  privilege.  The rights and  remedies  of the Holder are  cumulative  and not
exclusive  of any  rights  or  remedies  which  it  would  otherwise  have.  The
provisions  of this Warrant may be amended,  modified or waived if, but only if,
such  amendment,  modification  or  waiver  is in  writing  and is signed by the
Holders of a majority  in  interest  of the  Warrant  Shares;  provided  that no
amendment,  modification  or waiver  may change the  Exercise  Price  (including
without   limitation  any   adjustments  or  any  provisions   with  respect  to
adjustments, the expiration of or the manner of exercising the Warrants) without
the consent in writing of all of the Holders.

            7.3  GOVERNING  LAW.  This Warrant  shall be construed in accordance
with and  governed  by the laws of the  State of New  York,  without  regard  to
conflicts of laws principles thereof.

            7.4 SURVIVAL OF AGREEMENTS; REPRESENTATIONS AND WARRANTIES, ETC. All
warranties,  representations  and covenants made by the Company herein or in any
certificate  or other  instrument  delivered by or on behalf of it in connection
herewith  shall be  considered to have been relied upon by the Holders and shall
survive the issuance  and  delivery of the  Warrants and shall  continue in full
force and effect so long as this Warrant is  outstanding.  All statements in any
such  certificate  or other  instrument  shall  constitute  representations  and
warranties hereunder.

            7.5  COVENANTS TO BIND  SUCCESSOR  AND ASSIGNS.  All the  covenants,
stipulations,  promises and agreements contained in this Warrant by or on behalf
of the  Company  shall  bind  its  successors  and  assigns,  whether  or not so
expressed.

            7.6  SEVERABILITY.  In  case  any  one or  more  of  the  provisions
contained  in this Warrant  shall be invalid,  illegal or  unenforceable  in any
jurisdiction,  the  validity,  legality  and  enforceability  of  the  remaining
provisions  contained  herein and  therein  shall not in any way be  affected or
impaired in such  jurisdiction  and shall not  invalidate  or render  illegal or
unenforceable such provision in any other jurisdiction.

                                       11





            7.7  HEADINGS.  The  headings  used  herein are for  convenience  of
reference only and shall not be deemed to be a part of this Warrant.

            7.8 NO RIGHTS AS  STOCKHOLDER.  This  Warrant  shall not entitle the
Holder to any rights as a stockholder of the Company.

            7.9 PRONOUNS.  The pronouns "it" and "its" herein shall be deemed to
mean "he" and "his" or "she" and "hers," as the context requires.

            7.10 TRANSFERABILITY.  No portion of this Warrant may be transferred
by the Holder other than to an  "affiliate"  (as defined in Rule 144 of the Act)
of the initial Holder.

            7.11 FURNISHING OF INFORMATION. The Company agrees to provide to the
Holder copies of all (i) public  filings with the  Commission,  including  Forms
10-K and 10-Q and Schedules 14A,  promptly after such material is filed with the
Commission;  and (ii) press releases,  reports and financial statements that the
Company  provides  to its  stockholders  promptly  after such  material  is made
available to the stockholders.

                                       12





            IN  WITNESS  WHEREOF,  the  Company  has caused  this  Warrant to be
executed in its corporate name by one of its officers  thereunto duly authorized
as of the day and year first above written.

                                       GATEWAY INDUSTRIES, INC.



                                       By: /s/ James R. Henderson
                                          --------------------------------------
                                           Name:  James R. Henderson
                                           Title: President


ACKNOWLEDGED AND AGREED:

MAYO FOUNDATION FOR MEDICAL
EDUCATION AND RESEARCH


By:  /s/ Rick F. Colvin
   ---------------------------------------
     Name:  Rick F. Colvin
     Title: Assistant Treasurer

                                       13





                           FORM OF NOTICE OF EXERCISE

                [To be signed only upon exercise of the Warrant]

                     TO BE EXECUTED BY THE REGISTERED HOLDER
                         TO EXERCISE THE WITHIN WARRANT

            The  undersigned  hereby  exercises  the right to  purchase  _______
shares of Common  Stock  which the  undersigned  is  entitled to purchase by the
terms of the within Warrant  according to the conditions  thereof,  and herewith
makes  payment of the Exercise  Price of such shares in full, as provided in the
Warrant.  All shares to be issued pursuant hereto shall be issued in the name of
and the initial address of such person to be entered on the books of the Company
shall be:


            The  shares  are to be  issued  in  certificates  of  the  following
denominations:


                                          ------------------------------
                                          [Type Name of Holder]


                                          By:___________________________


                                          Title:_________________________



Dated:_____________________________

EX-10.2

                                                                    EXHIBIT 10.2

THIS WARRANT AND ANY SHARES  ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED,  SOLD OR OTHERWISE DISPOSED OF
IN THE  ABSENCE  OF AN  EFFECTIVE  REGISTRATION  STATEMENT  WITH  RESPECT TO THE
SECURITIES  EVIDENCED BY THIS  CERTIFICATE,  FILED AND MADE EFFECTIVE  UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,  AND SUCH APPLICABLE  STATE SECURITIES LAWS,
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
TO THE  EFFECT  THAT  REGISTRATION  UNDER  SUCH  ACT AND SUCH  APPLICABLE  STATE
SECURITIES LAWS IS NOT REQUIRED.

                                         Dated: July 1, 2003

                                     WARRANT


                            GATEWAY INDUSTRIES, INC.

                           Expiring December 31, 2007

            THIS IS TO CERTIFY THAT,  for value  received,  Mayo  Foundation for
Medical  Education and Research (the  "Holder") is entitled,  subject to certain
conditions  set forth in Sections 1.1 and 1.2 hereof,  to purchase  from Gateway
Industries,  Inc., a Delaware  corporation  (the  "Company"),  at the  Company's
principal  executive  office,  at the Exercise  Price,  up to 50,000 shares (the
"Warrant  Shares") of Common Stock,  $.001 par value per share ("Common Stock"),
all  subject to  adjustment  and upon the terms and  conditions  as  hereinafter
provided,  and is entitled also to exercise the other appurtenant rights, powers
and privileges hereinafter described.

            Certain terms used in this Warrant are defined in Article IV hereof.


                                   ARTICLE I

                               METHOD OF EXERCISE

            1.1 TIME OF EXERCISE;  SUBSIDIARY CHANGE OF CONTROL.  Subject to the
provisions of Sections 1.2 and 1.3 hereof, this Warrant shall become exercisable
subject to the achievement of certain revenue goals related to New Business. The
Warrant shall become exercisable as to fifty percent (50%) of the Warrant Shares
(and shall remain  exercisable  until the Expiration  Time) if cumulative  gross







revenues  from New  Business  for the  first  time  exceeds  $1,000,000  for any
calendar  year  commencing  January 1, 2003 and ending  December 31,  2006.  The
Warrant shall become exercisable as to one hundred percent (100%) of the Warrant
Shares (and shall remain  exercisable  until the Expiration  Time) if cumulative
gross  revenues  from New Business  exceeds  $2,000,000  for any  calendar  year
commencing  January 1, 2003 and ending December 31, 2006,  regardless of whether
any portion of the Warrant was exercisable prior thereto.

            Upon a Subsidiary Change of Control, this Warrant, to the extent not
previously  exercised,  shall become  exercisable in full for a period of ninety
(90) days from the occurrence of such Subsidiary  Change of Control.  At the end
of such ninety (90) day period, the Warrant will immediately terminate and shall
no longer be exercisable.

            1.2  CERTIFICATION  OF REVENUES FROM NEW  BUSINESS;  RIGHT TO AUDIT.
During the term of this Warrant,  within  forty-five (45) days following the end
of each  calendar  year  following  the date of  issuance of this  Warrant,  the
Company  shall  deliver to the  Holder a  certificate  from the Chief  Financial
Officer of the Company  setting forth  revenues  generated from New Business for
such completed year (each, a  "Certification").  The Holder shall have the right
to retain an independent accounting firm selected by the Holder to audit, at the
Holder's  expense,  the Company's books and records to determine the accuracy of
any Certification,  in accordance with generally accepted accounting principles,
by delivering a written  notice to the Company within thirty (30) days following
the Holder's receipt of the Certification in question.  If such audit results in
a discrepancy then the Holder and the Company shall for a thirty (30) day period
seek to  resolve  such  discrepancy.  If not  resolved,  the  dispute  shall  be
submitted to an independent  accounting firm mutually  acceptable to the Company
and the Holder whose determination shall be binding.  The Holder and the Company
shall split equally the fees of such independent accounting firm. Failure by the
Company to deliver any Certification within the prescribed time period shall not
be deemed a breach of this  Warrant  if cured  within  ten (10) days of  written
demand from the Holder.

            1.3 METHOD OF  EXERCISE.  To  exercise  this  Warrant in whole or in
part,  the Holder  shall  deliver to the  Company,  at the  Company's  principal
executive  office,  (a) this  Warrant,  (b) a written  notice  of such  Holder's
election to exercise this Warrant in the form attached hereto and (c) payment of
the Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, in cash, by certified or bank cashier's check, money order
or wire transfer, in the manner specified in the next succeeding  paragraph,  or
in any other manner  consented to in writing by the Company,  or any combination
thereof.

            Notwithstanding  any provisions  herein in the contrary,  in lieu of
exercising  this  Warrant  as  hereinabove  permitted,  the  Holder may elect to
exercise  this  Warrant or a portion  hereof and to pay for the  Warrant  Shares
issuable  upon such  exercise  by way of  cashless  exercise  (a) by delivery of
shares of Common Stock or other  securities of the Company  already owned by the
Holder with an aggregate  Fair Market Value on the date of exercise equal to the
aggregate Exercise Price,  subject,  however, to the provisions of Section 16(b)
of the  Exchange  Act  or (b) by  surrendering  this  Warrant  at the  principal
executive office of the Company,  together with the Notice of Exercise, in which
event the  Company  shall  issue to the Holder  that  number of  Warrant  Shares
computed using the following formula:

                                       2



                                  X= Y x (A-B)
                                     ---------
                                        A

Where:

                 X equals  the  number  of  Warrant  Shares  to be issued to the
                 Holder;

                 Y equals  the number of Warrant  Shares  purchasable  under the
                 Warrant  or,  if  only  a  portion  of  the  Warrant  is  being
                 exercised,  the portion of the Warrant being  exercised (at the
                 date of such calculation);

                 A  equals  the  Fair   Market   Value  (at  the  date  of  such
                 calculation) of one share of Common Stock; and

                 B equals the Exercise Price.

            The Company shall,  as promptly as practicable  after receipt of the
items  required by the  preceding  paragraphs  of this Section 1.3,  execute and
deliver or cause to be executed and delivered, in accordance with such notice, a
certificate or certificates  representing the aggregate number of Warrant Shares
specified in such notice.  The share  certificate or  certificates  so delivered
shall be in such denominations as shall be specified in such notice and shall be
issued in the name of the Holder or such other  name as shall be  designated  in
such notice;  provided,  in an opinion of counsel  reasonably  acceptable to the
Company,  the  issuance  in such  other  name  is  permitted  under  the Act and
applicable  state  securities  laws. Such  certificate or certificates  shall be
deemed to have been  issued,  and such Holder or Holders or any other  person so
designated to be named therein shall be deemed for all purposes to have become a
Holder of record of such  shares,  as of the date the  aforementioned  notice is
received by the Company. If this Warrant shall have been exercised only in part,
the Company shall, at the time of delivery of the  certificate or  certificates,
deliver  to the  Holder a new  Warrant  evidencing  the  right to  purchase  the
remaining Warrant Shares called for by this Warrant,  which new Warrant shall in
all other  respects  be  identical  to this  Warrant,  or, at the request of the
Holder,  appropriate  notations  may be made on this Warrant which shall then be
returned to the  Holder.  The Company  shall pay all  expenses,  taxes and other
charges  payable in connection  with the  preparation,  issuance and delivery of
share  certificates and new Warrants,  except that, if share certificates or new
Warrants  shall  be  registered  in a name or names  other  than the name of the
Holder,  funds sufficient to pay all transfer taxes, if any, payable as a result
of such  transfer  shall be paid by the  Holder  at the time of  delivering  the
aforementioned  notice of exercise or promptly upon receipt of a written request
of the Company for payment.

            1.4   RESERVATION   OF   SHARES;   SHARES  TO  BE  FULLY   PAID  AND
NONASSESSABLE.  The Company shall at all times reserve and keep available out of
its  authorized but unissued  shares of Common Stock,  solely for the purpose of
effecting  the  exercise  of this  Warrant,  such number of its shares of Common

                                       3





Stock as shall  from  time to time be  sufficient  to effect  the full  exercise
hereof;  and if at any time the  number of  authorized  but  unissued  shares of
Common Stock shall not be  sufficient  to effect the full  exercise  hereof,  in
addition to such other remedies as shall be available to the Holder, the Company
will take such  corporate  action as may,  in the  opinion  of its  counsel,  be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient  for such purposes,  including,  without
limitation,  engaging  in best  efforts  to  obtain  the  requisite  stockholder
approval of any  necessary  amendment to these  provisions.  All Warrant  Shares
issued upon the exercise of this Warrant shall be duly and validly issued, fully
paid and nonassessable.

            1.5 NO  FRACTIONAL  SHARES TO BE ISSUED.  The  Company  shall not be
required to issue fractions of Warrant Shares upon exercise of this Warrant.  If
any  fractions  of a share would,  but for this  Section,  be issuable  upon any
exercise of this Warrant, in lieu of such fractional share the Company shall pay
to the Holder,  in cash, an amount equal to the same fraction of the Fair Market
Value of one share of Common Stock.

            1.6 SHARE LEGEND.  Each  certificate  for Warrant Shares issued upon
exercise  of this  Warrant,  unless  at the time of  exercise  such  shares  are
registered under the Act, shall bear a legend substantially as follows:

            THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT
            BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS
            AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS AND MAY NOT
            BE  TRANSFERRED,  SOLD  OR  OTHERWISE  DISPOSED  OF IN THE
            ABSENCE  OF  AN  EFFECTIVE   REGISTRATION  STATEMENT  WITH
            RESPECT TO THE SECURITIES  EVIDENCED BY THIS  CERTIFICATE,
            FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED,  AND SUCH APPLICABLE STATE SECURITIES LAWS, OR
            UNLESS  THE   COMPANY   RECEIVES  AN  OPINION  OF  COUNSEL
            SATISFACTORY   TO  THE   COMPANY   TO  THE   EFFECT   THAT
            REGISTRATION  UNDER  SUCH  ACT AND SUCH  APPLICABLE  STATE
            SECURITIES LAWS IS NOT REQUIRED.

            Any certificate  issued at any time in exchange or substitution  for
any  certificate  bearing  such  legend  (except a new  certificate  issued upon
completion of a public distribution  pursuant to a registration  statement under
the Act)  shall  also  bear  such  legend  unless,  in the  opinion  of  counsel
reasonably acceptable to the Company, the securities represented thereby need no
longer be subject to restrictions on resale under the Act.

                                       4





                                   ARTICLE II

                      REPLACEMENTS OF WARRANT CERTIFICATES

            2.1 LOSS, THEFT OR DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt
of evidence  satisfactory  to the  Company of the loss,  theft,  destruction  or
mutilation  of any  Warrant  and,  in  the  case  of any  such  loss,  theft  or
destruction,  upon receipt of indemnity or security from the Holder satisfactory
to the  Company,  or, in the case of any such  mutilation,  upon  surrender  and
cancellation of the Warrant,  the Company will make and deliver, in lieu of such
lost,  stolen,  destroyed or mutilated  Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of Warrant Shares.

            2.2 CHANGE OF PRINCIPAL  EXECUTIVE  OFFICE. In the event the Company
shall change the address of its principal  executive  office,  the Company shall
give  the  Holder  notice  of any such  change  within a  reasonable  time.  Any
correspondence  from the  Company to the Holder  with an address  printed on the
Company's letterhead shall fulfill this requirement.


                                  ARTICLE III

                             ANTIDILUTION PROVISIONS

            3.1  ADJUSTMENTS  GENERALLY.  The  Exercise  Price and the number of
shares of Common Stock (or other securities or property)  issuable upon exercise
of this  Warrant  shall be  subject  to  adjustment  from  time to time upon the
occurrence of certain events, as provided in this Article III.

            3.2  CERTAIN  ADJUSTMENTS.  The  Exercise  Price shall be subject to
adjustment from time to time as follows:

                 (a) STOCK SPLITS, SUBDIVISIONS.

            (1) In the event the Company should at any time or from time to time
after the date first written above fix a record date for the  effectuation  of a
split  or  subdivision  of  the  outstanding  shares  of  Common  Stock  or  the
determination of holders of Common Stock entitled to receive a dividend or other
distribution  payable  in  additional  shares  of Common  Stock or Common  Stock
equivalents  without  payment  of any  consideration  by  such  holder  for  the
additional shares of Common Stock or the Common Stock equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend  distribution,  split
or  subdivision  if no  record  date is  fixed),  the  Exercise  Price  shall be
appropriately  decreased and the number of shares of Common Stock  issuable upon
exercise of this Warrant  shall be increased in  proportion  to such increase in
the aggregate of shares of Common Stock outstanding and issuable with respect to
such Common Stock equivalents.

            (2) If the number of shares of Common Stock  outstanding at any time
after  the  date  first  written  above is  decreased  by a  combination  of the
outstanding  shares of Common  Stock,  then,  following  the record date of such
combination,  the Exercise Price shall be appropriately increased and the number
of shares  of  Common  Stock  issuable  on  exercise  of this  Warrant  shall be
decreased in proportion to such decrease in outstanding shares.

                                       5





                 (b)  RECAPITALIZATIONS.  If at any  time or  from  time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination  or merger or sale of assets  transaction  provided for elsewhere in
this Section 3.2),  provision shall be made so that the Holder shall  thereafter
be entitled  to receive  upon  exercise of this  Warrant the number of shares of
stock or other  securities or property of the Company or  otherwise,  to which a
holder of Common Stock  deliverable  upon  exercise  would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 3.2 with respect to the rights
of the Holder after the  recapitalization to the end that the provisions of this
Section 3.2  (including  adjustment of the Exercise Price then in effect and the
number of shares  issuable upon  exercise of this  Warrant)  shall be applicable
after that event as nearly equivalent as may be practicable.

                 (c) NO  AVOIDANCE.  The Company  will not, by  amendment of its
Certificate of  Incorporation or through any  reorganization,  recapitalization,
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action,  avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed  hereunder by the
Company,  but will at all times in good faith  assist in the carrying out of all
the  provisions  of this Section 3.2 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder.

                 (d)  REORGANIZATIONS,   RECLASSIFICATIONS,   PARENT  CHANGE  OF
CONTROL. If any capital  reorganization or reclassification of the capital stock
of the  Company,  or a Parent  Change of Control,  shall be effected  while this
Warrant is  outstanding  in such a manner that holders of shares of Common Stock
shall be entitled to receive  stock,  securities or assets with respect to or in
exchange  for Common  Stock,  then,  as a condition  of such  reorganization  or
reclassification,  or Parent  Change of Control,  lawful and adequate  provision
shall be made whereby the Holder shall thereafter have the right to receive upon
the basis and upon the terms and conditions  specified herein and in lieu of the
shares of Common Stock immediately  theretofore receivable upon exercise of this
Warrant, such shares of stock,  securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
so receivable had such reorganization or  reclassification,  or Parent Change of
Control not taken place,  and in such case  appropriate  provision shall be made
with  respect  to the  rights  and  interests  of the Holder to the end that the
provisions hereof (including,  without limitation,  provisions for adjustment of
the  Exercise  Price and of the number of shares of Common Stock  issuable  upon
exercise thereof) shall thereafter be applicable,  as nearly as may be possible,
in relation to any shares of stock,  securities or assets thereafter deliverable
upon  the  exercise  of  this  Warrant.  Prior  to or  simultaneously  with  the
consummation  of any such Parent  Change of Control,  the  survivor or successor
corporation  (if other than the Company)  resulting  from such Parent  Change of

                                       6





Control  or the  corporation  purchasing  such  assets  shall  assume by written
instrument  executed and mailed or delivered to the Holder,  the  obligation  to
deliver  to such  Holder  such  shares of  stock,  securities  or assets  as, in
accordance  with the  foregoing  provisions,  such  Holder  may be  entitled  to
receive, and containing the express assumption of such successor  corporation of
the due and  punctual  performance  and  observance  of every  provision of this
Warrant (as such may be amended from time to time) to be performed  and observed
by the Company and of all liabilities  and obligations of the Company  hereunder
with respect to this Warrant.

                 (e)  NOTICE OF RECORD  DATE.  In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining  the holders thereof who are entitled to receive any dividend (other
than a cash  dividend)  or  other  distribution,  any  right to  subscribe  for,
purchase  or  otherwise  acquire  any  shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
the  Holder,  at least 10 days  prior to the date  specified  therein,  a notice
specifying  the date on which any such  record is to be taken for the purpose of
such  dividend,  distribution  or right,  and the amount and  character  of such
dividend, distribution or right.

                 (f)  ADJUSTMENT  CERTIFICATE.   Upon  the  occurrence  of  each
adjustment or readjustment of the Exercise Price or the number of Warrant Shares
pursuant to this  Section  3.2, the  Company,  at its  expense,  shall  promptly
compute such  adjustment or readjustment in accordance with the terms hereof and
prepare and  furnish to the Holder a  statement,  signed by its Chief  Financial
Officer  or  other  appropriate  officer,   setting  forth  such  adjustment  or
readjustment  and  showing in detail the facts  upon  which such  adjustment  or
readjustment is based.  The Company shall,  upon the written request at any time
of  the  Holder,  furnish  or  cause  to be  furnished  to  such  holder  a like
certificate  setting  forth  (i)  such  adjustment  and  readjustment,  (ii) the
Exercise  Price at the time in effect,  and (iii) the number of shares of Common
Stock and the  amount,  if any,  of other  property  which at the time  would be
received upon the exercise of this Warrant.


                                   ARTICLE IV

                                   DEFINITIONS

            The following  terms,  as used in this  Warrant,  have the following
respective meanings:

            "ACT" means the Securities Act of 1933, as amended,  and any similar
or successor  Federal  statute,  and the rules and regulations of the Commission
(or its successor) thereunder, all as the same shall be in effect at the time.

            "COMMISSION" means the Securities and Exchange Commission.

                                       7





            "COMMON  STOCK"  shall  have the  meaning  set  forth  in the  first
paragraph of this Warrant.

            "COMPANY" shall have the meaning set forth in the first paragraph of
this Warrant.

            "EASTERN TIME" means Eastern Daylight Time or Eastern Standard Time,
whichever is in effect on the relevant date.

            "EXCHANGE  ACT"  means  the  Securities  Exchange  Act of  1934,  as
amended,  and any  similar  or  successor  Federal  statute,  and the  rules and
regulations of the Commission  (or its  successor)  thereunder,  all as the same
shall be in effect at the time.

            "EXERCISE PRICE" means $1.75,  subject to adjustment pursuant to the
terms of this Warrant.

            "EXPIRATION TIME" means 5:00 p.m. Eastern Time on December 31, 2007,
unless earlier terminated pursuant to Section 1.1 hereof.

            "FAIR  MARKET  VALUE" on any day  means (i) if shares of the  Common
Stock are listed or admitted for trading on a national securities exchange,  the
reported  last sales price or, if no such  reported sale occurs on such day, the
average of the  closing  bid and asked  prices on such day,  in each case on the
principal  national  securities  exchange on which the Common Stock is listed or
admitted to trading,  (ii) if shares of Common  Stock are not listed or admitted
to trading on any national securities  exchange,  the average of the closing bid
and asked  prices in the  over-the-counter  market  on such day as  reported  by
Nasdaq or any comparable  system or, if not so reported,  as reported by any New
York Stock  Exchange  member firm  selected  by the Company for such  purpose or
(iii) if no such  quotations are available on such day, the fair market value of
one share of Common Stock on such day as  determined  in good faith by the Board
of Directors of the Company.

            "HOLDER" shall have the meaning set forth in the first  paragraph of
this Warrant and  "Holders"  shall  include any and all  successors,  assigns or
designees of the initial  Holder with respect to this  Warrant,  as permitted by
this Warrant.

            "NASDAQ" means The National Association of Securities Dealers,  Inc.
Automated Quotation System.

            "NEW  BUSINESS"  means gross  revenues  derived by Oaktree  Systems,
Inc., a subsidiary of the Company  ("Oaktree")  for the  management of databases
for subscriptions to magazines and newsletters produced by clients of the Holder
in the publishing  industry  generally  allowing these clients to access via the
Internet their databases and all the associated  functions and reports  required
to manage their subscription  business.  These management  services also include
storage,  record  maintenance,  fulfillment  and data capture  functions,  order
entry,  list  maintenance,  call center  operations,  lockbox and money  opening
services,  renewal  and  invoice  production,  issue  fulfillment,  list  rental
management and other services required to manage and maintain such databases.

                                       8





            "PARENT   CHANGE  OF   CONTROL"   means  (i)  the  sale  of  all  or
substantially  all of the  assets of the  Company  in one or a series of related
transactions  to any person or entity or group of persons or entities  acting in
concert or (ii) the merger or  consolidation of the Company with or into another
corporation  with the effect that the then existing  stockholders of the company
hold  less  than  50% of the  combined  voting  power  of the  then  outstanding
securities  of the  surviving  corporation  of such  merger  or the  corporation
resulting  from such  consolidation  or (iii) the  acquisition  by any person or
entity or group of persons or  entities,  other than Steel  Partners II, L.P. or
its affiliates, acting in concert of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding
shares  of the  voting  stock  of the  Company  or (iv) the  adoption  of a plan
relating to the liquidation or dissolution of the Company.

            "SUBSIDIARY  CHANGE  OF  CONTROL"  means  (i)  the  sale  of  all or
substantially  all of the  assets  of  Oaktree  in one or a  series  of  related
transactions  to any person or entity or group of persons or entities  acting in
concert or (ii) the merger or  consolidation  of  Oaktree  with or into  another
corporation  with the effect that the then existing  stockholders of the company
hold  less  than  50% of the  combined  voting  power  of the  then  outstanding
securities  of the  surviving  corporation  of such  merger  or the  corporation
resulting  from such  consolidation  or (iii) the  acquisition  by any person or
entity  or group of  persons  or  entities,  acting  in  concert  of  beneficial
ownership  (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more of the outstanding  shares of the voting stock of Oaktree or (iv)
the adoption of a plan relating to the liquidation or dissolution of Oaktree.

            "WARRANT"  and  "WARRANTS"  shall mean this warrant and any warrants
issued upon the partial exercise of this warrant.

            "WARRANT  SHARES"  shall  have the  meaning  set  forth in the first
paragraph of this Warrant.


                                   ARTICLE V

                     REDEMPTION AND CANCELLATION OF WARRANTS

            5.1  REDEMPTION OF WARRANTS.  The Warrants are not redeemable by the
Company  and the  Company  has no right to  purchase  or  otherwise  acquire the
Warrants.

            5.2  CANCELLATION OF WARRANTS.  The Company shall cancel any Warrant
surrendered for transfer, exchange or exercise.

                                       9





                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

            The Company hereby  represents and warrants,  as of the date hereof,
to the Holder that:

            6.1 AUTHORIZATION.  This Warrant has been duly authorized,  executed
and  delivered  by the  Company  and  constitutes  the legal,  valid and binding
obligation of the Company,  enforceable in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency,  reorganization and moratorium laws, (ii)
other laws of general application affecting the enforcement of creditors' rights
generally and general  principles of equity,  (iii) the  discretion of the court
before  which any  proceeding  therefor  may be  brought,  and (iv) as rights to
indemnity  may be  limited  by  Federal  or state  securities  laws or by public
policy.

            6.2 VALID ISSUANCE. The issuance, sale and delivery of this Warrant,
and the  reservation  for issuance of the shares of Common Stock  issuable  upon
exercise of this Warrant  have been duly  authorized  by all required  corporate
action on the part of the  Company.  The shares of Common  Stock  issuable  upon
exercise of this Warrant have been duly and validly  reserved for issuance  and,
upon  issuance in accordance  with the terms of this Warrant,  shall be duly and
validly issued,  fully paid, and non-assessable.  When issued,  shares of Common
Stock  issuable  upon  exercise of this  Warrant will be free and clear from any
liens or encumbrances  other than those created by, or imposed upon, the holders
thereof  through no action of the Company,  other than  restrictions on transfer
under state and/or  Federal  securities  laws.  Issuance of this Warrant and the
shares of Common Stock  issuable  upon  exercise of this Warrant will be free of
statutory preemptive rights.


                                  ARTICLE VII

                                  MISCELLANEOUS

            7.1 NOTICES. All notices, requests and other communications provided
for herein  shall be in writing,  and shall be deemed to have been made or given
upon  personal  delivery  to the party to be  notified  or three (3) days  after
deposit with the United States Post Office,  by  registered  or certified  mail,
postage  prepaid  and  addressed  to the  party to be  notified  at the  address
indicated  for such  party  below,  or at such  other  address as such party may
designate by ten (10) days' advance written notice to the other parties,  with a
copy (which shall not constitute  notice), in the case of notice to the Company,
to Olshan  Grundman Frome  Rosenzweig & Wolosky LLP, 505 Park Avenue,  New York,
New York 10022, Attention:  Steven Wolosky, Esq. Notices to (a) the Holder shall
be addressed to Mayo Medical Ventures, 200 First Street SW, Rochester, Minnesota
55905,  Attention:  Steven R. Stenhaug and (b) the Company shall be addressed to
590 Madison  Avenue,  32nd Floor,  New York, New York 10022,  Attention:  Warren
Lichtenstein;  provided,  however,  that  notice  of a change  in the  Company's

                                       10





principal   executive  office  in  accordance  with  Section  2.2  hereof  shall
constitute  notice of a change of the Company's  address for the purposes of any
notice given pursuant to this Warrant.

            7.2  WAIVERS;  AMENDMENTS.  No  failure  or delay of the  Holder  in
exercising  any right,  power or privilege  hereunder  shall operate as a waiver
thereof, nor shall any single or partial exercise thereof, or any abandonment or
discontinuance  of steps to enforce such a right,  power or privilege,  preclude
any other or further exercise thereof or the exercise of any other right,  power
or  privilege.  The rights and  remedies  of the Holder are  cumulative  and not
exclusive  of any  rights  or  remedies  which  it  would  otherwise  have.  The
provisions  of this Warrant may be amended,  modified or waived if, but only if,
such  amendment,  modification  or  waiver  is in  writing  and is signed by the
Holders of a majority  in  interest  of the  Warrant  Shares;  provided  that no
amendment,  modification  or waiver  may change the  Exercise  Price  (including
without   limitation  any   adjustments  or  any  provisions   with  respect  to
adjustments, the expiration of or the manner of exercising the Warrants) without
the consent in writing of all of the Holders.

            7.3  GOVERNING  LAW.  This Warrant  shall be construed in accordance
with and  governed  by the laws of the  State of New  York,  without  regard  to
conflicts of laws principles thereof.

            7.4 SURVIVAL OF AGREEMENTS; REPRESENTATIONS AND WARRANTIES, ETC. All
warranties,  representations  and covenants made by the Company herein or in any
certificate  or other  instrument  delivered by or on behalf of it in connection
herewith  shall be  considered to have been relied upon by the Holders and shall
survive the issuance  and  delivery of the  Warrants and shall  continue in full
force and effect so long as this Warrant is  outstanding.  All statements in any
such  certificate  or other  instrument  shall  constitute  representations  and
warranties hereunder.

            7.5  COVENANTS TO BIND  SUCCESSOR  AND ASSIGNS.  All the  covenants,
stipulations,  promises and agreements contained in this Warrant by or on behalf
of the  Company  shall  bind  its  successors  and  assigns,  whether  or not so
expressed.

            7.6  SEVERABILITY.  In  case  any  one or  more  of  the  provisions
contained  in this Warrant  shall be invalid,  illegal or  unenforceable  in any
jurisdiction,  the  validity,  legality  and  enforceability  of  the  remaining
provisions  contained  herein and  therein  shall not in any way be  affected or
impaired in such  jurisdiction  and shall not  invalidate  or render  illegal or
unenforceable such provision in any other jurisdiction.

            7.7  HEADINGS.  The  headings  used  herein are for  convenience  of
reference only and shall not be deemed to be a part of this Warrant.

            7.8 NO RIGHTS AS  STOCKHOLDER.  This  Warrant  shall not entitle the
Holder to any rights as a stockholder of the Company.

                                       11





            7.9 PRONOUNS.  The pronouns "it" and "its" herein shall be deemed to
mean "he" and "his" or "she" and "hers," as the context requires.

            7.10 TRANSFERABILITY.  No portion of this Warrant may be transferred
by the Holder other than to an  "affiliate"  (as defined in Rule 144 of the Act)
of the initial Holder.

            7.11 FURNISHING OF INFORMATION. The Company agrees to provide to the
Holder copies of all (i) public  filings with the  Commission,  including  Forms
10-K and 10-Q and Schedules 14A,  promptly after such material is filed with the
Commission;  and (ii) press releases,  reports and financial statements that the
Company  provides  to its  stockholders  promptly  after such  material  is made
available to the stockholders.

                                       12





            IN  WITNESS  WHEREOF,  the  Company  has caused  this  Warrant to be
executed in its corporate name by one of its officers  thereunto duly authorized
as of the day and year first above written.

                                          GATEWAY INDUSTRIES, INC.



                                          By: /s/ James R. Henderson
                                             -----------------------------------
                                              Name:  James R. Henderson
                                              Title: President


ACKNOWLEDGED AND AGREED:

MAYO FOUNDATION FOR MEDICAL
EDUCATION AND RESEARCH


By: /s/ Rick F. Colvin
   ----------------------------------
    Name:  Rick F. Colvin
    Title: Assistant Treasurer

                                       13







                           FORM OF NOTICE OF EXERCISE

                [To be signed only upon exercise of the Warrant]

                     TO BE EXECUTED BY THE REGISTERED HOLDER
                         TO EXERCISE THE WITHIN WARRANT

            The  undersigned  hereby  exercises  the right to  purchase  _______
shares of Common  Stock  which the  undersigned  is  entitled to purchase by the
terms of the within Warrant  according to the conditions  thereof,  and herewith
makes  payment of the Exercise  Price of such shares in full, as provided in the
Warrant.  All shares to be issued pursuant hereto shall be issued in the name of
and the initial address of such person to be entered on the books of the Company
shall be:



            The  shares  are to be  issued  in  certificates  of  the  following
denominations:


                                           ------------------------------
                                           [Type Name of Holder]


                                           By:___________________________


                                           Title:_________________________


Dated:_____________________________

EX-99.1

                                                                    Exhibit 99.1

                                  CERTIFICATION
                            Section 302 Certification

I, Warren G. Lichtenstein, certify that:

1)    I  have  reviewed  this  quarterly   report  on  Form  10-QSB  of  Gateway
      Industries, Inc., a Delaware corporation;

2)    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3)    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the small  business  issuer as of, and for, the periods  presented in this
      report;

4)    The  small  business  issuer's  other  certifying  officer(s)  and  I  are
      responsible  for  establishing  and  maintaining  disclosure  controls and
      procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for
      the small business issuer and have:

      a)    Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            small business issuer, including its consolidated  subsidiaries,  is
            made  known to us by  others  within  those  entities,  particularly
            during the period in which this report is being prepared;

      b)    Evaluated  the   effectiveness   of  the  small  business   issuer's
            disclosure  controls and procedures and presented in this report our
            conclusions about the  effectiveness of the disclosure  controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      c)    Disclosed in this report any change in the small  business  issuer's
            internal  control over financial  reporting that occurred during the
            small  business  issuer's  most  recent  fiscal  quarter  (the small
            business  issuer's  fourth  fiscal  quarter in the case of an annual
            report) that has  materially  affected,  or is reasonably  likely to
            materially affect, the small business issuer's internal control over
            financial reporting; and

5)    The  small  business  issuer's  other  certifying  officer(s)  and I  have
      disclosed,  based on our most recent  evaluation of internal  control over
      financial reporting, to the small business issuer's auditors and the audit
      committee of the small  business  issuer's  board of directors (or persons
      performing the equivalent functions):

      a)    All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely  affect the small business  issuer's
            ability  to  record,   process,   summarize  and  report   financial
            information; and

      b)    Any fraud,  whether or not  material,  that  involves  management or
            other  employees who have a significant  role in the small  business
            issuer's internal control over financial reporting.

Date: July 31, 2003                            By: /s/ Warren G. Lichtenstein
                                                   --------------------------
                                                   Warren G. Lichtenstein
                                                   Chief Executive Officer

EX-99.2

                                                                    Exhibit 99.2

                                  CERTIFICATION
                            Section 302 Certification

I, Maritza Ramirez, certify that:

1)    I  have  reviewed  this  quarterly   report  on  Form  10-QSB  of  Gateway
      Industries, Inc., a Delaware corporation;

2)    Based on my knowledge,  this report does not contain any untrue  statement
      of a material fact or omit to state a material fact  necessary to make the
      statements made, in light of the circumstances under which such statements
      were made,  not  misleading  with  respect  to the period  covered by this
      report;

3)    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  report,  fairly  present  in all  material
      respects the financial condition,  results of operations and cash flows of
      the small  business  issuer as of, and for, the periods  presented in this
      report;

4)    The  small  business  issuer's  other  certifying  officer(s)  and  I  are
      responsible  for  establishing  and  maintaining  disclosure  controls and
      procedures (as defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for
      the small business issuer and have:

      a)    Designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            small business issuer, including its consolidated  subsidiaries,  is
            made  known to us by  others  within  those  entities,  particularly
            during the period in which this report is being prepared;

      b)    Evaluated  the   effectiveness   of  the  small  business   issuer's
            disclosure  controls and procedures and presented in this report our
            conclusions about the  effectiveness of the disclosure  controls and
            procedures, as of the end of the period covered by this report based
            on such evaluation; and

      c)    Disclosed in this report any change in the small  business  issuer's
            internal  control over financial  reporting that occurred during the
            small  business  issuer's  most  recent  fiscal  quarter  (the small
            business  issuer's  fourth  fiscal  quarter in the case of an annual
            report) that has  materially  affected,  or is reasonably  likely to
            materially affect, the small business issuer's internal control over
            financial reporting; and

5)    The  small  business  issuer's  other  certifying  officer(s)  and I  have
      disclosed,  based on our most recent  evaluation of internal  control over
      financial reporting, to the small business issuer's auditors and the audit
      committee of the small  business  issuer's  board of directors (or persons
      performing the equivalent functions):

      a)    All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely  affect the small business  issuer's
            ability  to  record,   process,   summarize  and  report   financial
            information; and

      b)    Any fraud,  whether or not  material,  that  involves  management or
            other  employees who have a significant  role in the small  business
            issuer's internal control over financial reporting.

Date: July 31, 2003                         By: /s/ Maritza Ramirez
                                                --------------------
                                                Maritza Ramirez
                                                Chief Financial Officer

EX-99.3

                                                                    Exhibit 99.3

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)


Pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002 (18  U.S.C.ss.1350),
the  undersigned,  Warren G.  Lichtenstein,  Chief Executive  Officer of Gateway
Industries,  Inc., a Delaware corporation (the "Company"),  does hereby certify,
to his knowledge, that:

The  Quarterly  Report on Form 10-QSB for the quarter ended June 30, 2003 of the
Company (the "Report") fully complies with the  requirements of Section 13(a) or
15(d) of the Securities  Exchange Act of 1934, and the information  contained in
the Report fairly presents,  in all material respects,  the financial  condition
and results of operations of the Company.



                                        /s/ Warren G. Lichtenstein
                                        --------------------------
                                        Warren G. Lichtenstein
                                        Chief Executive Officer
                                        July 31, 2003

EX-99.4

                                                                    Exhibit 99.4

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.ss.1350)


Pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002 (18  U.S.C.ss.1350),
the undersigned, Maritza Ramirez, Chief Financial Officer of Gateway Industries,
Inc.,  a Delaware  corporation  (the  "Company"),  does hereby  certify,  to her
knowledge, that:

The  Quarterly  Report on Form 10-QSB for the quarter ended June 30, 2003 of the
Company (the "Report") fully complies with the  requirements of Section 13(a) or
15(d) of the Securities  Exchange Act of 1934, and the information  contained in
the Report fairly presents,  in all material respects,  the financial  condition
and results of operations of the Company.



                                       /s/ Maritza Ramirez
                                       -------------------
                                       Maritza Ramirez
                                       Chief Financial Officer
                                       July 31, 2003