<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 21, 1996
-----------------
GATEWAY INDUSTRIES, INC.
---------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-13803 33-0637631
--------------- ---------------- -------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
750 Lexington Avenue, 27th Floor, New York, NY 10022
- ------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 212-446-5217
------------
1375 Fourth Street, Suite 202, Santa Rosa, CA
------------------------------------------------------------
(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 21, 1996, Gateway Industries, Inc. (the "Company") sold all
the outstanding shares of its wholly-owned subsidiary, Marsel Mirror and Glass
Products, Inc. ("Marsel"), to Richard A. Hickland, pursuant to a Stock Purchase
Agreement dated that date. Mr. Hickland paid $1.00 for the shares, and he and
Marsel gave the Company the right to purchase 50% of the then outstanding shares
until December 21, 1999 for $2.00. In addition, the Stock Purchase Agreement
contains provisions relating to the allocation between the Company and Mr.
Hickland and/or Marsel of sums from sale or liquidation of Marsel or the sale of
equity in Marsel by Mr. Hickland or Marsel including the reimbursement of
$75,000 previously delivered by the Company to Marsel's lender as cash
collateral for loans to Marsel, and of certain guarantees previously issued by
the Company to certain of Marsel's venders. The accompanying pro forma financial
statements assume that the Company will be required to make payment on the
guarantees and will not be reimbursed by Marsel. The Company does not believe
that it will have any further liabilities with respect to Marsel or that
continuing losses at Marsel will have any adverse effect on the Company's
financial condition.
The purchase price and terms were determined in arms' length
negotiations between the Company and Mr. Hickland, following the expiration of
Marsel's credit facility with Fleet National Bank and said bank's demand for
immediate repayment of all outstanding balances, Marsel's failure to negotiate a
financing agreement with a new commercial lender, the failure of National Bank
of Canada to extend the expiration date of a letter of credit beyond December
31, 1996 and continuing losses at Marsel. There was no material relationship
between the Company or any of its affiliates, or between any director or officer
of the Company or any associate of any such director or officer, and Mr.
Hickland prior to said transaction.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(b) Pro Forma Financial Information.
The following pro forma financial information is filed herewith:
- Pro Forma Statement of Operations for Year ended December 31, 1995
- Pro Forma Statement of Operations for nine months ended September
30, 1996
- Pro Forma Balance Sheet as at September 30, 1996
- Notes to Pro Forma Financial Statements
(c) Exhibits.
Exhibit 1................................. Stock Purchase Agreement, dated
December 21, 1996, between Gateway
Industries, Inc. and Richard A.
Hickland
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gateway Industries. Inc.
(Registrant)
By: /s/ Warren G. Lichtenstein
-----------------------------------
Warren G. Lichtenstein,
Chairman of the Board
and Principal Financial
and Accounting Officer
<PAGE>
Gateway Industries, Inc.
Pro Forma Financial Statements
(Unaudited)
<PAGE>
Gateway Industries, Inc.
Pro Forma Financial Statements
Basis of Presentation
(Unaudited)
The following pro forma balance sheet as of September 30, 1996 and the
statements of operations for the year ended December 31, 1995, and the nine
months ended September 30, 1996 give effect to the transactions described in
Note 1 to the pro forma financial statements.
The pro forma information is based on historical financial statements of Gateway
Industries, Inc. (the "Company") and Marsel Mirror and Glass Products, Inc.
("Marsel"), giving effect to the transactions under the assumptions and
adjustments in the accompanying notes to the pro forma financial statements.
The pro forma balance sheet at September 30, 1996 gives effect to the
transactions as if they occurred on the balance sheet date.
The pro forma statements of operations for the year ended December 31, 1995 and
the nine months ended September 30, 1996 give effect to these transactions as if
they occurred at the beginning of the respective periods presented.
The pro forma financial statements have been prepared by the Company's
management based upon the historical financial statements of the Company and
Marsel. These pro forma financial statements may not be indicative of the
results that actually would have occurred if the disposition had been in effect
on the dates indicated. The pro forma financial statements should be read in
conjunction with the historical financial statements and notes contained
elsewhere herein, and in the the Company's annual report on Form 10KSB and
Company's quarterly report on Form 10QSB.
<PAGE>
Gateway Industries, Inc.
Pro Forma Statement of Operations
(Unaudited)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Gateway Industries, Pro Forma
Inc. Historical Adjustments Pro Forma
-------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Net sales $ 1,669,000 $ (1,669,000) (A) $ -
Cost of sales 1,435,000 (1,435,000) (A) -
-------------------- ---------------------- ---------------------
Gross profit 234,000 (234,000) -
Sales and marketing 168,000 (168,000) (A) -
General and administrative expenses 285,000 (197,000) (A)
216,000 (B) 338,000
-------------------- ---------------------- ---------------------
Operating loss (219,000) (119,000) (338,000)
Other income (expense):
Interest income 173,000 - (A) 173,000
Interest expense (67,000) 66,000 (A) (1,000)
Other income 1,000 - (A) 1,000
Loss on sale of investment - (1,400,000) (A) (1,400,000)
Write down of investment to fair value - (1,400,000) (D) (1,400,000)
-------------------- ---------------------- ---------------------
Total other income (expense) 107,000 (2,734,000) (2,627,000)
-------------------- ---------------------- ---------------------
Net loss $ (112,000) $ (2,853,000) $ (2,965,000)
==================== ====================== =====================
</TABLE>
<PAGE>
Gateway Industries, Inc.
Pro Forma Statement of Operations
(Unaudited)
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Gateway Industries, Pro Forma
Inc. Historical Adjustments Pro Forma
-------------------- ---------------------- --------------------
<S> <C> <C> <C>
Net sales $ 13,447,000 $ (13,447,000) (A) $ -
Cost of sales 12,179,000 (12,179,000) (A) -
-------------------- ---------------------- --------------------
Gross profit 1,268,000 (1,268,000) -
Sales and marketing 1,072,000 (1,072,000) (A) -
General and administrative expenses 1,318,000 (1,194,000) (A)
250,000 (B) 374,000
-------------------- ---------------------- --------------------
Operating loss (1,122,000) 748,000 (374,000)
Other income (expense):
Interest income 22,000 - (A) 22,000
Interest expense (574,000) 574,000 (A) -
Other income 30,000 - (A) 30,000
Loss on sale of investment - (1,302,000) (A) (1,302,000)
Write down of investment to fair value - (1,301,000) (D) (1,301,000)
-------------------- ---------------------- --------------------
Total other income (expense) (522,000) (2,029,000) (2,551,000)
-------------------- ---------------------- --------------------
Net loss $ (1,644,000) $ (1,281,000) $ (2,925,000)
==================== ====================== ====================
</TABLE>
<PAGE>
Gateway Industries, Inc.
Pro Forma Balance Sheet
(Unaudited)
September 30, 1996
<TABLE>
<CAPTION>
Gateway Industries, Pro Forma
Inc. Historical Adjustments Pro Forma
-------------------- ---------------------- --------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents:
Unrestricted $ 6,080,000 $ (16,000) (A) $ 6,064,000
Restricted - 75,000 (C) 75,000
Accounts receivable, less allowance for
doubtful accounts 2,485,000 (2,482,000) (A) 3,000
Inventories 2,435,000 (2,435,000) (A) -
Prepaid expenses and other current assets 285,000 (285,000) (A) -
------------------ ------------------------ ------------------
Total current assets 11,285,000 (5,143,000) 6,142,000
Property, plant and equipment, at cost, less
accumulated depreciation 6,537,000 (6,537,000) (A) -
------------------ ----------------------- ------------------
Total assets $ 17,822,000 (11,680,000) $ 6,142,000
================== ======================== ==================
Current liabilities:
Accounts payable $ 1,141,000 (1,128,000) (A) $ 13,000
Accrued expenses and other liabilities 955,000 (866,000) (A) 89,000
Short-term financing 3,225,000 (3,225,000) (A) -
Bond payable 4,780,000 (4,780,000) (A) -
Current portion of capital lease obligations 67,000 (67,000) (A) -
------------------ ------------------------ ------------------
Total current liabilities 10,168,000 (10,066,000) 102,000
Accounts payable, less current portion 300,000 (300,000) (A) -
Capital lease obligations, less current portion 144,000 (144,000) (A) -
Other long-term liabilities 70,000 250,000 (B) 320,000
------------------ ------------------------ ------------------
Total liabilities 10,682,000 (10,260,000) 422,000
Shareholders' Equity:
Preferred stock - - -
Common stock 4,000 - 4,000
Capital in excess of par value 9,596,000 - 9,596,000
Accumulated Deficit (2,414,000) (585,000) (A)
(250,000) (B)
(585,000) (D) (3,834,000)
Treasury stock (46,000) - (46,000)
------------------ ------------------------ ------------------
Total shareholders' equity 7,140,000 (1,420,000) 5,720,000
------------------ ------------------------ ------------------
Total liabilities and shareholders' equity $ 17,822,000 $ (11,680,000) $ 6,142,000
================== ======================== ==================
</TABLE>
<PAGE>
Gateway Industries, Inc.
Notes to Pro Forma Financial Statements
(Unaudited)
1. Summary of Transaction
On December 21, 1996, Gateway Industries, Inc. (the "Company") sold all
outstanding shares of its wholly-owned subsidiary, Marsel Mirror and Glass
Products, Inc. ("Marsel"), to an unrelated third party for $1.00, pursuant to a
Stock Purchase Agreement (the "Agreement"). Under the Agreement, the Company has
the right to purchase 50% of the outstanding shares of Marsel until December 21,
1999 for $2.00. In addition, the Agreement contains provisions relating to the
allocation between the Company and the unrelated third party of sums from the
sale or liquidation of Marsel or the sale of equity in Marsel by the unrelated
third party. The purchase price and terms were determined by the Company and the
unrelated third party following the expiration of Marsel's credit facility and
said bank's demand for immediate repayment of all outstanding balances, Marsel's
failure to negotiate a financing agreement with a new commercial lender, the
failure of Marsel to obtain the extension of a letter of credit securing its
bond obligations beyond December 31, 1996 and Marsel's continuing losses. Since
the Company has a contingent 50% interest in Marsel, the above transaction has
not been accounted for as a discontinued operation.
On December 23, 1996, Marsel filed for bankruptcy under chapter 11 of the
Bankruptcy code.
2. Pro Forma Adjustments
(A) To record the sale of the outstanding shares of its subsidiary, Marsel, to
an unrelated third party for $1.00 and to eliminate the assets and
liabilities and sales, cost of sales and expenses of Marsel.
(B) To accrue for the guarantee made by the Company on behalf of Marsel.
(C) To record escrow payment made to Marsel's lender.
(D) To record the write down of investment in Marsel to fair value reflecting
the fact that Marsel is in bankruptcy.
EXHIBIT 1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made the 21st day of December, 1996, by and between
GATEWAY INDUSTRIES, INC., a Delaware Corporation, having an address c/o Warren
G. Lichtenstein, 750 Lexington Avenue, New York, New York, hereinafter the
"Seller", and RICHARD A. HICKLAND, of P.O. Box 543, Salem, New York, hereinafter
the "Purchaser".
WHEREAS, the Seller owns all of the issued and outstanding shares of
MARSEL MIRROR AND GLASS PRODUCTS, INC. (hereinafter the "Company"), a New York
Corporation, having its principal place of business at 101 Foster Avenue,
Brooklyn, New York; and
WHEREAS, the Seller desires to sell and the Purchaser desires to
purchase such shares on the terms herein stated;
NOW, THEREFORE, the parties agree as follows:
1. Sale of Shares:
The Seller shall sell and transfer to the Purchaser, and the Purchaser
purchases and acquires from the Seller, all of the outstanding shares of the
Company consisting of 200 shares of common stock and 2600 shares of preferred
stock simultaneously with the execution hereof.
2. Purchase Price:
The purchase price for said shares is One Dollar ($1.00).
3. Seller's Representations and Warranties:
The Seller represents and warrants to the Purchaser as follows:
a. Corporate Status: The Company is, and will be on the closing date, a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York; copies of the Company's certificate of incorporation
and all amendments thereof to date are annexed hereto and made a part hereof.
b. Title to Shares: The Seller is, and will be on the closing date, the
owner, free and clear of any encumbrances, of all of the outstanding shares of
the common and preferred stock of the Company.
c. Seller's Authority to Sell: The sales of the shares of the company
as aforesaid has been authorized by a vote of the Board of Directors of the
Seller. A copy of the resolution authorizing such sale is annexed hereto and
made a part hereof and the original shall be delivered to the Purchaser at
closing.
<PAGE>
d. Payroll Taxes: To the best of the Seller's knowledge, the Company
has paid all taxes commonly known as "payroll taxes" due and payable up to and
including the date of closing. The Seller shall indemnify and hold harmless the
Purchaser at all times after the date of this agreement against and in respect
of all payroll taxes arising prior to the date hereof for which the Purchaser
may become liable.
4. Option to Re-Purchase:
The Purchaser, individually and on behalf of the Company, hereby grants
to the Seller the right to purchase Fifty Percent (50%) of all of the then
issued and outstanding shares of stock of the Company for the sum of Two Dollars
($2.00), said option to expire three (3) years from the date of this agreement.
The said option shall be exercised by the Seller giving notice thereof to the
Purchaser at the addresses set forth herein for notices. Promptly following the
exercise of the option, Purchaser shall cause the Company to issue a stock
certificate for such shares.
5. Closing:
The closing of the sale shall take place at 101 Foster Avenue,
Brooklyn, New York, simultaneously with the execution hereof. At closing, the
Seller shall deliver to the Purchaser, free and clear of all encumbrances,
certificates for the shares which it is required to sell in negotiable form. The
Seller shall also deliver the original certificate of incorporation, together
with any amendments thereto, and any and all minutes, by-laws, resolutions and
the like.
6. Escrow Account and Guarantees to Vendors:
The Seller has deposited with Fleet Bank the sum of $75,000.00 to be
held in escrow pursuant to the conditions of a certain loan from Fleet Bank to
the Company. The Seller has also issued its guarantees, contingent or otherwise,
on behalf of the Company not exceeding $250,000.00. Any sums not returned to
Seller from the escrow or paid by Seller under the guarantees shall be payable
by the Company from the sale or liquidation of the Company, or by the Purchaser
from the proceeds of the sales of any equity in the Company by either the
Purchaser or the Company. The remaining sums from the sale or liquidation as
aforesaid shall be divided equally between the parties. In the event that the
Company is not sold or liquidated, any portion of the escrow account forfeited
to the bank or any payment made by the Seller to the vendors pursuant to the
guarantees, will be repaid to the Seller from excess cash flow beginning two
years from the date of the sale or at such earlier time as the Purchaser, in his
discretion, may determine.
<PAGE>
The Company shall be liable for the obligations created in this
paragraph and the Seller shall not be personally obligated therefor except as
expressly provided for herein.
7. Survival of Representations and Warranties:
All representations and warranties contained herein shall survive the
closing.
8. Notices:
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by mail
or facsimile transmission.
If to the Seller: Warren G. Lichtenstein
750 Lexington Avenue
New York, New York 10022
Fax: (212-446-5240)
With a copy to: Robert W. Forman, Esq.
1370 Avenue of the Americas
New York, New York 10019
Fax: (212-757-4054)
If to the Purchaser: Richard A. Hickland
P.O. Box 543
Salem, New York 12865
Fax: (518-854-9501)
With a copy to: Carusone and Carusone
491 Broadway, P.O. Box 478
Saratoga Springs, New York 12866
Fax: (518-584-7451)
9. Release:
Upon transfer of the shares at closing, the Purchaser shall cause the
Company to release Gateway and its officers, directors, agents, employees and
affiliates, except as provided for herein.
10. Assignability:
This agreement may be assigned by the Purchaser to his wife and/or
children who, upon such assignment, shall become bound by the terms of this
agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and date first above written.
GATEWAY INDUSTRIES, INC.
By: /s/ WARREN G. LICHTENSTEIN
-----------------------------------
WARREN G. LICHTENSTEIN
/s/ RICHARD A. HICKLAND
-----------------------------------
RICHARD A. HICKLAND
