<PAGE>
The following Items were the subject of a Form
12b-25 and are included herein:Items 6 and 7.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-13803
GATEWAY INDUSTRIES, INC.
(Name of small business issuer in its charter)
Delaware 33-0637631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 212-446-5205
Securities registered under Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock $.001 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Registrant's revenues from continuing operations for its most recent
fiscal year - $-0-
----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes X No
--- ---
The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 14, 1997 was approximately $3,792,625 based on the last sale
price of $2 1/8 for such stock on that date.
As of March 14, 1997, the Registrant had 3,592,000 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Sale of Marsel Mirror & Glass Products, Inc.
On December 21, 1996, the Company sold all the outstanding shares of
Marsel, its only operating business which it acquired on November 24, 1995. See
"Business - The Company." Accordingly, a comparison of operating results with
prior periods is not meaningful.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $6,045,000 at December
31, 1996. Cash, cash equivalents and short-term investments totaled $848,000 at
December 31, 1995. The increase of cash during 1996 was due to the receipt of
approximately $5,600,000 of net proceeds of the Rights Offering consummated by
the Company in the third quarter of 1996.
While the Company seeks an acquisition or other business combination,
management believes its cash position is sufficient to cover administrative
expenses and current obligations for the foreseeable future.
- 2 -
<PAGE>
Item 7. Financial Statements
Report of Independent Auditors
The Board of Directors
Gateway Industries, Inc.
We have audited the accompanying consolidated balance sheet of Gateway
Industries, Inc. (the "Company") as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Gateway Industries, Inc. at December 31, 1996, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
New York, New York
April 3, 1997
F-1
<PAGE>
Gateway Industries, Inc.
Consolidated Balance Sheet
December 31, 1996
Assets
Current assets:
Cash and cash equivalents $6,045,000
Prepaid expenses and other current assets 16,000
----------
Total assets $6,061,000
==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 25,000
Accrued expenses and other liabilities 348,000
----------
Total liabilities 373,000
Commitments and contingencies (Note 1) --
Shareholders' Equity: (Notes 2, 4 and 6)
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,
3,592,022 shares issued and outstanding 4,000
Capital in excess of par value 9,555,000
Accumulated deficit (3,825,000)
Treasury stock, 11,513 shares (46,000)
----------
Total shareholders' equity 5,688,000
----------
Total liabilities and shareholders' equity $6,061,000
==========
See accompanying notes.
F-2
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Operations
Year ended December 31
1996 1995
---- ----
Net sales $ 16,878,000 $ 1,669,000
Cost of sales 15,569,000 1,435,000
------------ ----------
Gross profit 1,309,000 234,000
Sales and marketing 1,389,000 168,000
General and administrative expenses 2,085,000 285,000
------------ ----------
Operating loss (2,165,000) (219,000)
Other income (expense):
Interest income 98,000 173,000
Interest expense (789,000) (67,000)
Other income 31,000 1,000
Loss on sale of investment (115,000) --
Write down of investment to fair value (115,000) --
------------ ----------
Total other income (expense) (890,000) 107,000
------------ ----------
Net loss $ (3,055,000) $ (112,000)
============ ==========
Net loss per share $ (1.61) $ (.11)
============ ==========
Weighted average number of shares 1,893,000 1,035,000
============ ==========
See accompanying notes.
F-3
<PAGE>
Gateway Industries, Inc.
Statements of Shareholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Capital In
Common Stock Excess of Accumulated Treasury
Shares Amount Par Value Deficit Stock Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 1,035,013 $ 1,000 $ 3,950,000 $ (658,000) $ -- $ 3,293,000
Net loss -- -- -- (112,000) -- (112,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 1,035,013 1,000 3,950,000 (770,000) -- $ 3,181,000
Purchase of treasury stock -- -- -- -- (46,000) (46,000)
Common stock issued 2,557,009 3,000 5,605,000 -- -- 5,608,000
Net loss -- -- -- (3,055,000) -- (3,055,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 3,592,022 $ 4,000 $ 9,555,000 $(3,825,000) $ (46,000) $ 5,688,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(3,055,000) $ (112,000)
Adjustments to reconcile net loss to
net cash provided by
(used in) operating activities:
Depreciation and amortization 345,000 29,000
Provision for losses on accounts receivable 64,000 5,000
Loss on sale of investment 115,000 --
Write down of investment to fair value 115,000 --
Changes in operating assets and liabilities,
net of effects from sale and purchase of
Marsel in 1996 and 1995, respectively:
Accounts receivable 363,000 (123,000)
Inventories 722,000 (865,000)
Prepaid expenses and other
current assets 44,000 (169,000)
Other assets -- 7,000
Accounts payables 1,384,000 383,000
Accrued expenses and other liabilities 571,000 320,000
Other long-term liabilities (70,000) --
----------- -----------
Cash provided by (used in) operating activities 598,000 (525,000)
----------- -----------
Cash flows from investing activities:
Purchase of machinery and equipment (151,000) --
Acquisition of Marsel Mirror and Glass Products, Inc.,
net of cash acquired -- (2,579,000)
Cash included in disposition of Marsel (447,000) --
----------- -----------
Net cash used in investing activities (598,000) $(2,579,000)
=========== ===========
</TABLE>
F-5
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1996 1995
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 5,753,000 --
Share issuance expenses (145,000) --
Purchase of treasury stock (46,000) --
Repayments of capital lease obligations (192,000) (20,000)
Net proceeds (repayments) of short-term debt (173,000) 498,000
----------- -----------
Net cash provided by financing activities 5,197,000 478,000
----------- -----------
Increase (decrease) in cash and cash equivalents 5,197,000 (2,626,000)
Cash and cash equivalents at beginning of year 848,000 3,474,000
----------- -----------
Cash and cash equivalents at end of year $ 6,045,000 $ 848,000
=========== ===========
See accompanying notes.
F-6
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Organization, Current Business Activities and Summary of Significant
Accounting Policies
Organization
Gateway Industries, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on September 24, 1994, and was the successor, by merger, to
Gateway Communications, Inc., a California corporation incorporated on March 6,
1981. Until its decision in May 1994 to cease revenue producing activities, the
Company's principal business was to design, develop, manufacture and market
local and wide area networking communications products.
On November 24, 1995, Glass Acquisition Corp., a wholly-owned subsidiary of
Gateway Industries, Inc., acquired substantially all of the assets and business
of Marsel Mirror & Glass Products, Inc. ("Old Marsel") and the related real
estate interest of Barlow Associates ("Barlow") from which Old Marsel conducted
its business in Brooklyn, New York. Old Marsel was one of the originators of
mass producing mirrors for consumption across the country. Its products are sold
throughout the country through the nation's mass-merchants. Subsequent to the
closing, Glass Acquisition Corp. changed its name to Marsel Mirror & Glass
Products, Inc. ("Marsel").
On December 21, 1996, the Company sold all outstanding shares of its
wholly-owned subsidiary, 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. The Company paid $75,000 to Marsel's lender and has
issued approximately $300,000 of guarantees on behalf of Marsel, which has been
accrued for in the financial statements. Subsequent to December 31, 1996, the
Company paid approximately $200,000 pursuant to two of the guarantees. 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, if
either occur. 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
and the failure of Marsel to obtain an extension of its letter of credit beyond
December 31, 1996. Since the Company has a contingent 50% interest in Marsel,
the above transaction has not been accounted for as a discontinued operation.
F-7
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
1. Organization, Current Business Activities and Summary of Significant
Accounting Policies (continued)
Organization (continued)
On December 23, 1996, Marsel filed for bankruptcy under Chapter 11 of the
Bankruptcy Code.
Principles of Consolidation
The consolidated financial statements include the accounts of Gateway
Industries, Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment were recorded at cost and were depreciated on the
straight-line basis over their estimated useful lives. Leasehold improvements
were amortized over the shorter of their estimated useful lives or the remaining
lease term. Maintenance and repairs were charged to operations, while
replacements and improvements were capitalized. Upon retirement or disposal, the
asset cost and accumulated depreciation were removed from the respective
accounts and any resulting gain or loss was included in operations. Amortization
of assets under capital leases was included in depreciation and amortization
expense.
Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 1996, cash and cash equivalents were principally
held at one financial institution.
F-8
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
1. Organization, Current Business Activities and Summary of Significant
Accounting Policies (continued)
Net Loss Per Share
Net loss per share was calculated using the weighted average number of common
shares outstanding and, when dilutive, common stock equivalents.
2. Rights Offering
The Company completed a rights offering of 2,557,009 shares of common stock at
$2.25 per share in August 1996. Costs incurred with respect to the registration
of the shares amounted to approximately $145,000.
3. Income Taxes
Financial Accounting Standard Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109") requires the liability approach to accounting for deferred
income taxes for financial reporting purposes. Under the provisions of FAS 109,
deferred tax assets and liabilities are determined based on tax rates expected
to be in effect when the taxes will actually be paid or refunds received.
Income taxes consist of the following:
Year ended December 31
1996 1995
----- -----
Current:
Federal $ -- $ --
State and local -- --
----- -----
Deferred:
Federal -- --
State and local -- --
----- -----
$ -- $ --
===== =====
F-9
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
3. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1996 and
1995 are as follows:
1996 1995
Deferred tax assets:
Reserves and allowances $ 120,000 $ 750,000
Net operating loss carry-forward 2,807,000 2,124,000
--------- ---------
Total deferred tax assets 2,927,000 2,994,000
Valuation allowance (2,927,000) (2,994,000)
---------- ----------
Deferred tax assets, net of valuation
allowance $ - $ -
========== ==========
The deferred tax assets were offset by a valuation allowance in both 1996 and
1995 due to the uncertainty of realizing the Federal and State income tax
benefits associated with these deferred tax assets.
At December 31, 1996, the Company had net operating loss carry-forwards of
approximately $7,311,000 and $5,420,000 that expire between 2000 and 2010 for
Federal and California purposes, respectively. Utilization of the net operating
losses may be subject to an annual limitation due to the ownership change rules
provided by Section 382 of the Internal Revenue Code and similar state
provisions.
4. Employee Benefit Plans
Employee Stock Purchase Plan
Pursuant to the terms of the 1987 Employee Stock Purchase Plan, 6,595 shares of
common stock are reserved for purchase by employees. Eligible employees may,
through payroll deductions, purchase common stock under the plan at a purchase
price of 85% of the lesser of the fair market value of the Company's common
stock on the first or last day of each six-month offering period.
F-10
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
4. Employee Benefit Plans (continued)
Profit Sharing Plan
In January 1986, the Company established a profit sharing plan for all eligible
employees. The plan is a noncontributory, defined contribution plan which
provides for contributions from the Company based on eligible compensation.
Company contributions vest over five years (amended in January 1991 from seven
years) from the date of the employee's initial hiring. The Company has made no
contribution for the years ended December 31, 1996 and 1995.
Retirement Plan
In January 1986, the Company established a 401(K) employees retirement plan for
all eligible employees. Under the plan, the Company contributes matching amounts
for employee contributions up to a maximum of $1,000 per employee. Company
contributions fully vest at the time the contribution is made. The Company's
contributions for each of the years ended December 31, 1996 and 1995 were
approximately $2,000.
5. Supplemental Cash Flow Information
Cash paid for interest in 1996 and 1995 amount to approximately $509,000 and
$37,000, respectively. Cash paid for income taxes in 1996 amounts to
approximately $15,000. No cash payments were made for income taxes in 1995.
6. Stock Option Plans
The 1990 Incentive Stock Option and Nonstatutory Stock Option Plans, as amended
in December 1995, provide for the granting of incentive stock options to
employees of the Company and nonstatutory stock options to directors and
employees of the Company. Under the plans, options may be granted at prices not
less than the fair market value of the shares on the date of grant and may be
granted with expiration dates from five to eight years from the date of grant.
Directors who are not employees of the Company are granted 2,000 options on
January 31st of each year.
F-11
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stock Option Plans (continued)
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net loss and loss per share is required by FASB
Statement No. 123, "Accounting for Stock Based Compensation", and has been
determined as if the Company had accounted for its stock options under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1996 and 1995, respectively:
risk-free interest rates of 6.18% and 5.09% to 6.29%; volatility factors of the
expected market price of the Company's common stock of .71 and 1.36. The
weighted-average expected life of the options is 5.8 years.
Dividends are not expected in the future.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
Year ended December 31
1996 1995
----------- ---------
Pro forma net loss $ 3,624,000 $ 156,000
Pro forma net loss per share $ 1.91 $ .14
F-12
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stock Option Plans (continued)
Stock option activity is summarized as follows:
Weighted-
Average
Shares Exercise Price
-------- --------------
Balance at January 1, 1995 17,000 $ 1.14
Granted 280,000 $ 4.04
-------- --------
Balance at December 31, 1995 297,000 $ 3.87
Granted 2,000 $ 2.25
Canceled (78,000) $ 3.58
-------- --------
Options outstanding at December 31, 1996 221,000 $ 3.96
======= ========
The weighted average fair value of options granted during 1996 and 1995 is $1.64
and $3.38, respectively. The exercise prices for options outstanding as of
December 31, 1996 ranged from $3.44 to $4.25. The weighted average remaining
contractual life of these options is 5.5 years.
At December 31, 1996, 425,400 shares of the Company's common stock were reserved
for issuance under the plans and options as to 126,400 shares were available for
future grant.
At December 31, 1996, approximately 37,000 options were exercisable.
7. Pro Forma Information (Unaudited)
As discussed in Note 1, on December 21, 1996, the Company sold the stock of its
subsidiary for $1. The operations of Marsel are included in the statement of
operations for the years ended December 31, 1996 and 1995 from the date of its
acquisition, November 22, 1995, through the date of its sale, December 21, 1996.
The pro forma unaudited results of operations for the year ended December 31,
1995, assuming the sale of Marsel had been consummated as of January 1, 1995,
are as follows (in thousands, except per share data):
Revenues $ -
Net loss 3,015
Net loss per common share $2.91
F-13
<PAGE>
Item 13. Exhibits
Exhibit 27 -- Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GATEWAY INDUSTRIES, INC.
Date: April 15, 1997 By: /s/Jack Howard
-----------------------------
Jack Howard, Acting President
Date: April 15, 1997 By: /s/ Warren G. Lichtenstein
-----------------------------
Warren G. Lichtenstein
Chairman of the Board and
Principal Financial Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 15, 1997 /s/ Jack Howard
-------------------------
Jack Howard
Director
Date: April 15, 197 /s/ Warren G. Lichtenstein
--------------------------
Warren G. Lichtenstein
Director
Date: __________________________
Ronald Hayes
Director
- 3 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED AS ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,045,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,061,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,061,000
<CURRENT-LIABILITIES> 373,000
<BONDS> 0
0
0
<COMMON> 4,000
<OTHER-SE> 5,684,000
<TOTAL-LIABILITY-AND-EQUITY> 6,061,000
<SALES> 16,878,000
<TOTAL-REVENUES> 16,878,000
<CGS> 15,569,000
<TOTAL-COSTS> 19,043,000
<OTHER-EXPENSES> 890,000
<LOSS-PROVISION> 64,000
<INTEREST-EXPENSE> 509,000
<INCOME-PRETAX> (3,055,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,055,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,055,000)
<EPS-PRIMARY> (1.61)
<EPS-DILUTED> (1.61)
</TABLE>
