<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
================================================================================
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] 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.)
150 East 52nd Street
New York, New York 10022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 212-813-1500
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 ___
Issuer had no revenues from continuing operations for its most recent
fiscal year.
No disclosure of delinquent filers in response to Item 405 of Regulation
S-B is 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.
The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 6, 1998 was approximately $4,165,000, based on the average
high/low bid/ask prices of $2.02 for such stock on that date.
As of March 6, 1998, the Registrant had 3,592,024 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Total number of pages in the numbered original (including exhibits) is 32.
Page 1 of 25 Pages
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<PAGE>
PART I
ITEM 1. Description of Business.
On October 14, 1997, Gateway Industries, Inc. (the "Company") signed a
letter of intent to acquire Only Multimedia Network, Incorporated ("OMNI"), a
privately held company in the business of providing casting directors with
Internet access to text, pictorial and video information on actors through its
CastNet(TM) service. CastNet(TM) became operational recently, and OMNI has had
limited revenues therefrom to date. Pursuant to the letter of intent, the
Company advanced $450,000 ($360,000 in 1997) to OMNI, and OMNI issued its
$500,000 secured promissary note due December 31, 1998. Gateway and OMNI are, at
the date hereof, in discussions to revise certain terms of the letter of intent;
there can be no assurance that such discussions will result in any revised
agreement in principal or, if it so results and a revised letter of intent is
signed, that the Merger Agreement contemplated thereby will be signed or, if
signed, consummated.
From November 22, 1995 through December 21, 1996, the Company was engaged
in the manufacture and sale of mirror and glass products through its formerly
wholly-owned subsidiary, Marsel Mirror & Glass Products, Inc. ("Marsel").
In August, 1996, the Company completed a "rights offering" whereby each
shareholder was granted the right to purchase additional shares of common stock
at $2.25 per share. A total of 2,568,456 shares was purchased in the offering,
and the Company received net proceeds therefrom of $5,649,000.
The Company's principal business was the design, development, manufacture
and sale of local area network communication products until, in September 1994,
it sold substantially all its assets relating to its that business. The Company
ceased revenue producing activities during the second quarter of 1994 in
anticipation of the sale, and from then and until its acquisition of Marsel on
November 22, 1995, it had no operating business.
The Company currently has no operating business. The Board of Directors is
pursuing various strategic alternatives, including the possible use of the
Company's liquid assets to acquire, merge, consolidate or otherwise combine with
an operating business or businesses. As of December 31, 1997, the Company had
cash, cash equivalents and short-term investments of $5,449,000. As yet, except
as referred to above, the Board has not identified any potential candidates to
acquire or with which to combine.
The Company has no full time employees, although its Chairman and Acting
President devote time to the Company's administrative needs and in exploring
potential acquisitions and combinations. Its office is located at 150 East 52nd
Street, New York, New York 10022, and its telephone number is (212) 813-1500.
The Company was incorporated in Delaware in July 1994. On September 22,
1994, Gateway Communications, Inc. (the Company's predecessor), a California
corporation, was merged into the Company. In connection therewith, Gateway
Communications, Inc. effected a one-for-five reverse stock split of its common
stock, no par value, into of the Company's Common Stock, $.001 par value
("Common Stock").
Page 2 of 25 Pages
<PAGE>
ITEM 2. Description of Property.
The Company occupies offices at 150 East 52nd Street, New York, New York,
10022, under a sub-lease commencing April 1, 1998 and expiring March 30, 2001.
ITEM 3. Legal Proceedings.
There are no material pending legal proceedings against the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended December 31, 1997.
Page 3 of 25 Pages
<PAGE>
PART II
ITEM 5. Market For Common Equity and Related Stockholder Matters.
Market for Common Stock
Since November 17, 1994, the Company's Common Stock has been traded
over-the-counter using the symbol AGWAY@ on what is commonly referred to as the
"Bulletin Board." The following table sets forth the high and low bid and ask
prices during each quarter of its last two fiscal years, and during the first
quarter of 1998 through March 6, 1998, as quoted on the Bulletin Board. Such
prices represent quotations between broker-dealers, do not include retail
markups and markdowns, or any commissions, and do not reflect prices in actual
transactions.
<TABLE>
<CAPTION>
CLOSING BID PRICES CLOSING ASK PRICES
------------------------- -------------------------
HIGH($) LOW($) HIGH($) LOW($)
------- ------ ------- ------
<S> <C> <C> <C> <C>
1996
----
FIRST QUARTER 8.25 4.25 9.00 4.50
SECOND QUARTER 7.75 3.75 8.25 4.50
THIRD QUARTER 3.625 2.125 4.50 2.50
FOURTH QUARTER 3.625 2.50 4.50 3.125
1997
----
FIRST QUARTER 2.50 1.50 3.125 2.125
SECOND QUARTER 2.1875 2.00 2.625 2.25
THIRD QUARTER 2.00 1.625 2.3125 1.9375
FOURTH QUARTER 3.00 1.75 3.75 2.25
1998
----
FIRST QUARTER (through March 6, 1998) 2.125 1.5625 2.50 1.875
</TABLE>
Page 4 of 25 Pages
<PAGE>
Dividends
The Company paid no dividends on its Common Stock and it does not
anticipate doing so in the foreseeable future.
Holders of Record
At March 6, 1998, there were approximatly 1,400 holders of the Company's
Common Stock.
ITEM 6. Management's Discussion and Analysis or Plan of Operations.
Sale of Operating Business in 1996
Since December 21, 1996, when the Company sold Marsel, then its only
operating business, it has had no operating business. See "Item 1. Description
of Business." Accordingly, a discussion and analyses of the Company's operating
results during its fiscal year ended December 31, 1997 is not meaningful.
Liquidity and Capital Resources.
The Company's cash, cash equivalents and short-term investments totaled
$5,449,000 at December 31, 1997, compared with $6,061,000 at December 31, 1996.
The change arose primarily from the Company's $360,000 advance in 1997 to OMNI
(see, Item 1, "Description of Business"), related expenses, and payments for
administrative services.
Year 2000 Issue
Until recently computer programs were written to store only two digits of
date related information in order to more effectively handle and store data.
Such programs are unable to properly distinguish between the year 1900 and the
year 2000. This situation is frequently referred to as the "Year 2000 problem."
The Company believes that all of its significant computer software is year 2000
compliant and that it will not need to modify or replace its software so that
its computer systems will function properly with respect to dates in the year
2000 and beyond.
ITEM 7. Financial Statements.
The Company's financial statements are filed as part of this Annual
Report, as indicated in the Index to Financial Statements included in the
Report.
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Page 5 of 25 Pages
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Ronald W. Hayes 60 Director
810 Saturn Street
Suite 16-432
Jupiter, FL 33477-4398
Jack Howard 36 Acting President and Director
2927 Montecito Avenue
Santa Rosa, CA 95404
Warren G. Lichtenstein 32 Chairman of the Board of Directors
150 East 52nd Street
New York, NY 10022
Warren G. Lichtenstein was appointed a director of the Company in May 1994
and became Chairman of the Board in October 1995. He served as President and
Director of Marsel from its inception in July 1995 until shortly after the
acquisition of its business in November 1995, and continued as a director until
its disposition in December 1996. Mr. Lichtenstein has served as the President
of a General Partner of Steel Partners, L.P. since 1990, and a managing member
of Steel Partners, LLC, the General Partner of Steel Partners II, L.P. since
1993. Mr. Lichtenstein has been Chairman of Steel Partners Services, Ltd. since
1993. He serves on the Boards of Saratoga Springs Water, Inc., a bottler and
distributor of spring water, and Roses Holdings, Inc., formerly a chain of
retail stores.
Ronald W. Hayes was appointed a director of the Company in May 1993. Mr.
Hayes is the owner of Lincoln Consulters & Investors, Inc., an investing and
consulting firm.
Jack Howard was appointed Acting President of the Company in September
1994. He was elected a director of the Company in May 1994. Since 1989, he has
been a principal of the Mutual Securities, Inc., a division of Cowles Sabol &
Co. (securities brokers). Mr. Howard serves on the Board of Directors of Roses
Holdings, Inc. and Scientific Software Intercomp. Inc.
Page 6 of 25 Pages
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company, during its fiscal year ended December 31,
1997 all Section 16(a) filing requirements applicable to its officers, directors
and greater-than 10% beneficial owners were satisfied.
Board and Committee Meetings
The Board of Directors of the Company held four formal meetings during its
fiscal year ended December 31, 1997. Presently, the Board of Directors has no
standing committees. No director attended less than 75% of the total number of
Board meetings held during the fiscal year.
ITEM 10. Executive Compensation.
The following table sets forth all compensation paid to the Company's
Acting President during its fiscal year ended December 31, 1997. No other
executive officer received annual compensation at the rate of $100,000 or more
during the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- Awards
------------
Fiscal All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation
- --------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jack Howard, 1997 -0- $50,000 25,000 -0-
Acting President 1996 -0- -0- 32,500 -0-
</TABLE>
Page 7 of 25 Pages
<PAGE>
Stock Options
The following table provides information with respect to stock options
granted to all executive officers during the Company's last fiscal year. The
Company has no Stock Appreciation Rights Plan and has issued no such rights.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------
On Number of
Securities % of Total
Underlying Options Granted
Options to Employees in Exercise Price
Name Granted Fiscal Year(1) ($/Sh) Expiration Date
---- ------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
Jack Howard 50,000 49% $1.81 8/8/05
Acting President
</TABLE>
- --------------------
(1) Options were granted for a total of 102,000 shares during the last
fiscal year to the Company's Acting President, a director and a consultant. The
Company had no employees during the year.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
The following table sets forth information concerning options exercised
during the fiscal year ended December 31, 1997 and the number of unexercised
options held by the Company's executive officers at the end of such fiscal year:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Options at Options at
FY-End(#) FY-End($)
Shares Value
Acquired on Realized
Name Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Jack Howard 0 0 21,667/60,833 0/9,500
Acting President
Warren G. Lichtenstein 0 0 50,000/50,000 0/0
Chairman of the Board
</TABLE>
- -------------------
(1) Based on $2.00, the average high/low bid/ask prices for the Common
Stock on the last date of 1997 for which trading was reported.
Page 8 of 25 Pages
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of March 6, 1998 regarding
the beneficial ownership of the Common Stock by each person known by the Company
to own beneficially more than 5% of the Common Stock, by each director and
executive officer, individually, and by all directors and executive officers as
a group. Shares listed below have been adjusted to reflect the one-for-five
reverse stock split effective September 22, 1994.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
- ------------------- --------- --------
<S> <C> <C>
Warren G. Lichtenstein
150 East 52nd Street
New York, NY 10022................................ 1,499,427(1)(2) 41.7%
Ronald W. Hayes
810 Saturn Street
Suite 16-432 50,007(3) 1.4%
Jupiter, FL 33477-4398............................
Jack Howard
2927 Montecito Avenue
Santa Rosa, CA 95404.............................. 50,462(4) 1.4%
Steel Partners II, L.P.
750 Lexington Avenue
New York, NY 10022................................ 1,388,608 38.7%
Peter Cundill & Associates
15 Alton Hill
Southampton SN 01
Bermuda........................................... 200,000(5) 5.6%
All directors and executive officers as a
group (three persons)............................ 1,599,896(1) 44.5%
</TABLE>
Page 9 of 25 Pages
<PAGE>
(1) Includes: (i) 1,388,608 shares owned by Steel Partners II, L.P., an entity
controlled by Mr. Lichtenstein, (ii) 45,952 shares owned directly by Mr.
Lichtenstein, and (iii) 52,000 Shares underlying stock options that may be
acquired within 60 days.
(2) More than one beneficial owner is listed above for the same securities,
since the shares owned beneficially by Steel Partners II, L.P. are
included in the shares beneficially owned by Mr. Lichtenstein. See note
(1) above.
(3) Includes 11,667 shares which may be acquired within 60 days through the
exercise of stock options.
(4) Includes 21,667 shares which may be acquired within 60 days through the
exercise of stock options.
(5) As reported in the shareholder=s most recent Schedule 13D.
ITEM 12. Certain Relationships and Related Transactions.
The Company leases offices at 150 East 52 Street, New York, NY 10022 under
a lease expiring March 30, 2001, at an annual cost of approximately $100,000. It
sub-leases offices, at one-third of its cost for the space, to Steel Partners
Services, Ltd., an entity controlled by Mr. Lichtenstein, and it also sub-lease
offices, at one-third of its cost for the space, to Roses Holdings, Inc., a
company in which Steel Partners II, L.P., an entity controlled by Mr.
Lichtenstein, has an approximately 22% beneficial interest and of which he and
Mr. Howard are directors.
During the year ended December 31, 1997, the Company paid approximately
$73,000 to a company affiliated with Mr. Lichtenstein, Steel Partners Services,
Ltd., for certain administrative services.
ITEM 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger of Gateway Industries, Inc., a Delaware
Corporation, and Gateway Communications, Inc., a California
Corporation. (a)
3.1 Articles of Incorporation. (a)
3.2 By laws. (a)
10.8 Amended and Restated 1990 Incentive Stock Option Plan and 1990
Nonstatutory Stock Option Plan. (b)
10.9 Form of Indemnity Agreement between the Registrant and certain of its
Officers and Directors. (c)
Page 10 of 25 Pages
<PAGE>
10.11 Stock Purchase Agreement, dated December 21, 1996, between Gateway
Industries, Inc. and Richard A. Hickland. (d)
10.12 Letter of Intent between the Company and Only Multimedia Network,
Incorporated, dated October 14, 1997, as amended. (e)
- ------------------
(a) Filed as an exhibit to the Company's Proxy Statement for its Special
Meeting of Shareholders held on September 9, 1994, and incorporated
herein by reference.
(b) Filed as an exhibit to the Company's Form 10-KSB filed for its quarter
ended March 31, 1996, and incorporated herein by reference.
(c) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended
June 30, 1989, and incorporated herein by reference.
(d) Filed as an exhibit to the Company's Form 8-K filed on or about
January 5, 1997, and incorporated herein by reference.
(e) Filed herewith.
(b) Reports on Form 8-K
No Form 8-K was filed by the Company during the last quarter of its fiscal
year ended December 31, 1997.
Page 11 of 25 Pages
<PAGE>
<PAGE>
Index to Financial Statements
GATEWAY INDUSTRIES, INC.
Report of Independent Auditors............................................F-2
Consolidated Balance Sheet at December 31, 1997...........................F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996.............................................F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996.............................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996.............................................F-6
Notes to Consolidated Financial Statements................................F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Gateway Industries, Inc.
We have audited the accompanying consolidated balance sheet of Gateway
Industries, Inc. (the Company) as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 1997. 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, 1997, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
Los Angeles, California
March 24, 1998
F-2
<PAGE>
Gateway Industries, Inc.
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $5,433,000
Prepaid expenses and other current assets 16,000
----------
Total assets $5,449,000
==========
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 61,000
Accrued expenses and other liabilities 39,000
----------
Total current liabilities 100,000
Commitments and contingencies
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
3,592,024 shares issued (including treasury shares) 4,000
Capital in excess of par value 9,555,000
Accumulated deficit (4,164,000)
Treasury stock, 11,513 shares (46,000)
----------
Total shareholders' equity 5,349,000
----------
Total liabilities and shareholders' equity $5,449,000
==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Operations
Year ended December 31
1997 1996
----------------------------
Net sales $ - $16,878,000
Cost of sales - 15,569,000
----------------------------
Gross profit - 1,309,000
Sales and marketing - 1,389,000
General and administrative expenses 366,000 2,085,000
----------------------------
Operating loss (366,000) (2,165,000)
Other income (expense):
Interest income 297,000 98,000
Interest expense - (789,000)
Other income 38,000 31,000
Gain (loss) on sale of investment 52,000 (115,000)
Write down of investment to fair value (360,000) (115,000)
----------------------------
Total other income (expense) 27,000 (890,000)
----------------------------
Net loss $ (339,000) $(3,055,000)
============================
Net loss per share $ (0.09) $(1.61)
============================
Weighted average number of shares 3,592,022 1,893,000
============================
See accompanying notes.
F-4
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of (Accumulated Treasury
Shares Amount Par Value Deficit) Stock Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,035,015 $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 3,592,024 4,000 9,555,000 (3,825,000) (46,000) 5,688,000
Net loss - - - (339,000) - (339,000)
----------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,592,024 $4,000 $9,555,000 $(4,164,000) $(46,000) $ 5,349,000
==============================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Gateway Industries, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996
----------------------------
<S> <C> <C>
Operating activities
Net loss $ (339,000) $(3,055,000)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization - 345,000
Provision for losses on accounts receivable - 64,000
Gain on sale of investment - 115,000
Write-down of investment to fair value - 115,000
Changes in operating assets and liabilities:
Accounts receivable - 363,000
Inventories - 722,000
Prepaid expenses and other current assets - 44,000
Accounts payable 36,000 1,384,000
Accrued expenses and other liabilities (309,000) 571,000
Other long-term liabilities - (70,000)
---------------------------
Net cash (used in) provided by operating activities (612,000) 598,000
---------------------------
Investing activities
Purchase of machinery and equipment - (151,000)
Cash included in disposition of Marsel Mirror and Glass Products, Inc.
- (447,000)
---------------------------
Net cash used in investing activities - (598,000)
---------------------------
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)
Net repayments of short-term debt - (173,000)
---------------------------
Net cash provided by financing activities - 5,197,000
---------------------------
(Decrease) increase in cash and cash equivalents (612,000) 5,197,000
Cash and cash equivalents at beginning of year 6,045,000 848,000
===========================
Cash and cash equivalents at end of year $5,433,000 $ 6,045,000
===========================
Supplemental cash flow information:
Interest paid during the period $ - $ 509,000
Income taxes paid during the period $ - $ 15,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization, Business Activities and Summary of Significant
Accounting Policies
Organization and Business Activities
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,
1991.
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 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. 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 issued
approximately $300,000 of guarantees on behalf of Marsel which have been fully
satisfied. 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 was not accounted for as a
discontinued operation.
On December 23, 1996, Marsel filed for bankruptcy under Chapter 11 of the
Bankruptcy Code.
The Company currently has no operating business. Management is pursuing various
strategic alternatives which include the possible use of the Company's remaining
net assets to acquire, merge, consolidate or otherwise combine with an operating
business or businesses; however, there is no assurance that any such
alternatives will occur.
F-7
<PAGE>
Gateway Industries, Inc.
Notes to Consolidated Financial Statements (continued)
1. Organization, Business Activities and Summary of Significant
Accounting Policies (continued)
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.
Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity date of three months or less and investments in money market accounts
to be cash equivalents. At December 31, 1997, cash and cash equivalents were
principally held at one financial institution.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" (SFAS No. 128), which is effective for annual and interim
financial statements issued for periods ending after December 15, 1997. SFAS No.
128 was issued to simplify the standards for calculating earning per share (EPS)
previously in APB No. 15, "Earnings Per Share." SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. The new rules also
require dual presentation of basic and diluted EPS on the face of the statement
of operations.
Net loss per share was calculated using the weighted average number of common
shares outstanding. The effect of all common stock equivalents is not included
in the per share computation for the years ended December 31, 1997 and 1996, as
such items are anti-dilutive in these years; accordingly, basic and diluted loss
per share are the same for the years ended December 31, 1997 and 1996.
F-8
<PAGE>
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 Standards 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
1997 1996
----------------------------
Current:
Federal $ - $ -
State and local - -
----------------------------
- -
Deferred:
Federal - -
State and local - -
----------------------------
- -
----------------------------
$ - $ -
============================
F-9
<PAGE>
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, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Reserves and allowances $ 190,000 $ 120,000
Net operating loss carryforward 2,975,000 2,807,000
------------------------------
Total deferred tax assets 3,165,000 2,927,000
Valuation allowance (3,165,000) (2,927,000)
------------------------------
Deferred tax assets, net of valuation allowance $ - $ -
==============================
</TABLE>
The deferred tax assets were offset by a valuation allowance in both 1997 and
1996 due to the uncertainty of realizing the federal and state income tax
benefits associated with these deferred tax assets.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $7,459,000 and $5,516,000 that expire between 2000 and 2011 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. Stock Option Plans
The Company's Incentive Stock Option Plan and Nonstatutory Stock Option Plan
(collectively, the Plans), as amended in December 1995, provide for the granting
of nonqualified and qualified stock options under the Internal Revenue Code. An
aggregate of 400,000 shares of common stock have been reserved for grant at
December 31, 1997. Persons who are not employees of the Company are eligible to
receive only nonqualified stock options. The options may be granted for a term
of up to five years. If an incentive stock option is granted to an individual
owning more than 10% of the total combined voting power of all classes of the
Company's stock, the exercise price of the option may not be less than 110% of
the fair market value of the underlying shares on the date of the grant.
F-10
<PAGE>
4. Stock Option Plans (continued)
Directors who are not employees of the Company are granted 2,000 options upon
joining the Company's Board, and 2,000 options on the day of each annual meeting
of shareholders in which such director is elected or reelected to office.
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 1997 and 1996, respectively:
risk-free interest rates of 6.19% and 6.18%; volatility factors of the expected
market price of the Company's common stock of 1.13 and .71. The weighted-average
expected life of the options is 5.3 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
1997 1996
-----------------------------
Pro forma net loss $531,000 $3,624,000
Pro forma net loss per share $.15 $1.91
F-11
<PAGE>
4. Stock Option Plans (continued)
Stock option activity is summarized as follows:
Weighted-
Average
Exercise
Shares Price
----------------------------
Balance at December 31, 1995 222,000 $3.87
Granted 2,000 2.25
Canceled (78,000) 3.58
----------------------------
Options outstanding at December 31, 1996 146,000 3.88
Granted 102,000 1.82
Canceled - -
----------------------------
Options outstanding at December 31, 1997 248,000 $2.99
============================
The weighted average fair value of options granted during 1997 and 1996 is $1.66
and $1.64, respectively. The exercise prices for options outstanding as of
December 31, 1997 ranged from $1.81 to $4.25. The weighted average remaining
contractual life of these options is 5.29 years.
At December 31, 1997, approximately 81,300 options were exercisable. No options
were exercised during the years ended December 31, 1997 and 1996.
5. Investment in OMNI
In October 1997, the Company signed a letter of intent to acquire Only
Multimedia Network Incorporated (OMNI), a privately held company in the business
of providing casting directors with Internet access to text, pictorial and video
information on actors. Pursuant to the letter of intent, the Company has
advanced OMNI $450,000 (including $90,000 in January 1998), and OMNI has issued
a secured promissory note to the Company in the amount of $500,000 due December
31, 1998. OMNI's financial performance has been less than expected, and the
Company and OMNI are in discussions to revise certain terms of the letter of
intent. It now appears that, unless the letter of intent is revised and a merger
agreement is executed and consummated, OMNI will require third-party financing
to repay its promissory note. There is no assurance that OMNI could secure such
financing and, accordingly, the Company has written-off the balance due on the
note at December 31, 1997.
F-12
<PAGE>
6. Related Party Transactions
During the year ended December 31, 1997, the Company paid approximately $73,000
to companies affiliated with its Chairman for certain administrative services
rendered. Such amount is included in general and administrative expenses
($62,000) and prepaid expenses ($11,000) in the accompanying 1997 statement of
operations.
7. Commitments
The Company has entered into a three-year operating lease for office space
commencing April 1, 1998. Future minimum lease payments under this lease are as
follows:
Deduct Net
Sublease Rental
Commitments Rentals Commitments
--------------------------------------
1998 $ 73,000 $ 49,000 $24,000
1999 97,000 65,000 32,000
2000 97,000 65,000 32,000
2001 24,000 16,000 8,000
--------------------------------------
$291,000 $195,000 $96,000
======================================
The Company has sublet a portion of its office space to affiliated companies.
8. Year 2000 Issue (Unaudited)
Until recently computer programs were written to store only two digits of date
related information in order to more efficiently handle and store data. Such
programs are unable to properly distinguish between the year 1900 and the year
2000. This situation is frequently referred to as the "Year 2000 problem." The
Company believes that all of its significant computer software is year 2000
compliant and that it will not need to modify or replace its software so that
its computer systems will function properly with respect to dates in the year
2000 and beyond.
F-13
<PAGE>
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: March 31, 1998 By: /s/ Jack Howard
---------------------------------------
Jack Howard, Acting President
Date: March 31, 1998 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: March 31, 1998 /s/ Jack Howard
-----------------
Jack Howard
Director
Date: March 31, 1998 /s/ Warren G. Lichtenstein
--------------------------
Warren G. Lichtenstein
Director
Date: March 31, 1998 /s/ Ronald W. Hayes
-------------------
Ronald W. Hayes
Director
Page 25 of 25 Pages
<PAGE>
Gateway Industries, Inc.
750 Lexington Avenue
New York, NY 10022
October 14, 1997
Personnel and Confidential
- --------------------------
Only Multimedia Network Incorporated
5820 Wilshire Blvd.
Suite 504
Los Angeles, CA 90036
Attn: Harvey Kibel
Dear Mr. Kibel:
This letter sets fourth our understanding regarding the proposed merger
(the "Merger") of Only Multimedia Network Incorporated, a California corporation
("OMNI"), with Gateway Industries, Inc., a Delaware corporation ("GWAY") and/or
a wholly-owned subsidiary ("Sub"), of GWAY formed for the purpose of
accomplishing the Merger on the terms set forth below.
As soon as possible after the execution of this letter, GWAY, through
its representatives, will conclude its review of OMNI's business. You have
agreed to make available to these representatives such relevant information as
GWAY may reasonably request. Simultaneously, the parties will commence
negotiating a definitive merger agreement (the "Merger Agreement"), the
principal features of which are set forth below.
1. Merger Agreement.
a. It is intended that the Merger will be a tax-free reorganization
pursuant to Section 368 of the Tax Code. Pursuant to the Merger Agreement, each
share of common stock of OMNI will be converted into 0.74 shares of common stock
of GWAY assuming that GWAY's common stock trades at $2.50 per share or less for
the twenty trading days immediately preceding the consummation of the Merger. If
GWAY's common stock trades higher than $2.50 per share during such period, a
proportional decrease will be made to the number of GWAY shares to be issued in
the Merger (but the exchange rate will not be less than 0.68). Each outstanding
option, warrant or similar right to purchase OMNI shares (other than those to be
canceled pursuant to the Merger Agreement) will be converted into the right to
purchase shares of GWAY common stock on the basis of the conversion ratio of
OMNI shares into GWAY shares.
b. On the effective date of the Merger (which will be the third
business day following stockholder approval), GWAY will have approximately
3,700,000 shares of common stock outstanding and a minor number of options. On
the effective date of the Merger, OMNI will have
<PAGE>
approximately 2,537,392 shares of common stock outstanding (including shares
underlying the Class A warrants plus those issued in its current private
placement, but excluding shares to be issued to Financial West pursuant to
subsection 1f below) and 1,505,325 options to purchase shares outstanding. If
permissible under applicable law, the Shares to be issued by GWAY will not be
registered under the Securities Act of 1933, as amended, and GWAY will agree to
so register the Shares as promptly as possible following closing. During the
period between closing and the effectiveness of the registration statement
described in the preceding sentence, the GWAY shares beneficially owned by
Warren Lichtenstein will be subject to a lockup agreement. Each OMNI shareholder
receiving GWAY shares will be required to enter into a lockup agreement
prohibiting the sale of one half of the GWAY shares received for six months, and
the balance for twelve months. The lock-up restrictions shall be released on a
proportionate basis upon the sale of shares beneficially owned by Warren
Lichtenstein. Each OMNI shareholder will be required to give an irrevocable
proxy to Warren G. Lichtenstein effective for two years from the effective date
of the Merger, but subject to termination if Mr. Lichtenstein's beneficial
ownership of GWAY shares falls below 5%.
c. Simultaneously with the execution of this letter of intent, GWAY
will commit to loan OMNI up to $500,000. Such commitment may be drawn upon in
$100,000 increments, provided at the time the loan is drawn upon, OMNI shall
have each of less than $250,000 and prior to any draw down under the commitment,
it shall execute and file a Form UCC-1 Financing Statement in favor of GWAY
which shall be a first and prior lien on all of OMNI's assets. For giving the
commitment, OMNI shall issue 50,000 shares of OMNI capital stock to Gateway. For
each $100,000 drawn on the $500,000 commitment, OMNI shall issue an additional
$10,000 to GWAY as a commitment fee. If the Merger is not consummated by
December 31, 1997, the loan will be repayable on or before December 31, 1998
with interest at a rate of 10% per annum.
d. The effectiveness of the Merger will be conditioned upon approval by
the shareholders of both GWAY and OMNI, which, with respect to GWAY
shareholders, would be accomplished pursuant to a Proxy or Consent Statement in
accordance with applicable Securities and Exchange Commission rules and
regulations. OMNI will cooperate with and provide to GWAY the necessary
information for inclusion in such proxy statement including, without limitation,
the required audited financial information.
e. The Merger Agreement will provide that current holders of OMNI units
consisting of 10% promissory notes and Class AA warrants and cancelable warrants
(a "Unit") purchased for an aggregate of $1,950,000 would be required to
exchange such Units for a newly created GWAY preferred stock with a liquidation
preference equal to 125% of the purchase price of the Unit up to an aggregate of
$2,500,000, and a 6% payment in kind dividend, convertible at the holder's
option into common stock at the rate of $5.00 per share, which preferred stock
would be automatically convertible into up to 500,000 shares of GWAY common
stock at the rate of $5.00 per share if
<PAGE>
GWAY's common stock trades for at least $5.50 per share (as may be subsequently
adjusted for stock splits, etc.) for any five of ten consecutive trading days.
f. Consummation of the Merger will be contingent upon (i) Financial
West Group agreeing to exchange all of its options, rights and shares of OMNI's
common stock (received as compensation as dealer-manager and placement agent)
for a number of GWAY options upon items to be agreed upon between Financial West
Group and GWAY (such options upon terms will be subject to the lock up and proxy
set forth above); (ii) GWAY having cash of at least $5.2 million (after making
the $500,000 loan) and liabilities of less than $350,000 at the effective date;
and (iii) neither GWAY nor OMNI having incurred a material adverse effect in its
financial condition, business or prospects.
g. OMNI will be required to deliver audited financial statements,
prepared in accordance with GAAP, for the periods required by applicable SEC
regulations.
2. Access to Information - Confidentiality.
OMNI shall provide GWAY and its employees, counsel, accountants and
other representatives with access to OMNI's properties, personnel, books and
records and such other information as may be reasonably requested by GWAY during
normal business hours and upon reasonable notice. GWAY hereby agrees that it and
its Representatives shall use such information solely for the purpose of
evaluating the proposed Merger. Such information will be kept confidential and
will not be disclosed in any manner whatsoever; provided, however, that (i) GWAY
may make any disclosure of such information to which OMNI gives its prior
written consent; (ii) any of such information may be disclosed to GWAY's
Representatives who need to know such information for the sole purpose of
evaluating and negotiating the proposed Merger, who agree to keep such
information confidential; and (iii) such information may be disclosed as
required by law.
3. Expenses.
Each party will be responsible for and pay its own costs, fees and
expenses associated with this transaction.
4. Exclusive Rights.
In consideration of the execution of this letter, OMNI agrees to
negotiate exclusively with GWAY for the merger or sale of OMNI's shares or its
assets until November 15, 1997, the execution of the Agreement or the mutual
termination of negotiations, whichever comes first, and neither
<PAGE>
OMNI nor any of its directors, officers, employees, advisors, representatives,
agents or affiliates shall, directly or indirectly, encourage, engage in,
solicit or initiate any discussions or negotiate with, or provide any
information to, or negotiate or enter into any agreement or agreement in
principle with, any person, entity or group, with respect to any of the
foregoing, or take any similar action which would impair or frustrate the
proposed Merger.
5. Non-Binding Proposal.
This letter is intended as a general recitation of the principle terms
of the proposed Merger and, except for paragraphs 1(c),2,3 and 4, does not
constitute a contract legally binding upon either party. The Merger Agreement
if, as, and when executed by the parties, will be the legally binding contract
between the parties on all other terms.
6. Publicity. Until publicly disclosed by GWAY, OMNI will not publicly disclose
the existence of this letter of intent without the written consent of GWAY.
If you determine is satisfactory in principle, we would appreciate your
acknowledgment of this by the execution and delivery to us of the enclosed copy
of this letter.
GATEWAY INDUSTRIES, INC.
By: /s/ Warren G. Lichtenstein
---------------------------
Warren G. Lichtenstein
AGREED AND ACCEPTED:
ONLY MULTIMEDIA NETWORK INCORPORATED
By: /s/ Harvey P. Kibel
-----------------------
<PAGE>
Gateway Industries, Inc.
750 Lexington Avenue
New York, NY 10022
November 26, 1997
Only Multimedia Network Incorporated
5820 Wilshire Blvd.
Suite 504
Los Angeles, CA 90036
Attn: Harvey Kibel, CEO
Re: Amendment to October 14, 1997 Letter of Intent
----------------------------------------------
Dear Mr. Kibel:
This letter amends the letter of intent, dated October 14, 1997,
between Gateway Industries, Inc. ("GWAY") and Only Multimedia Network
Incorporated ("OMNI"), as follows:
1) The references to GWAY in paragraph of 1d of the letter of intent
are deleted.
2) Paragraph 1e of the letter of intent is amended by (a) deleting
"GWAY" as the last word of the third line thereof and substituting "OMNI" in
lieu thereof, and (b) adding "of GWAY" after "common stock" in the sixth line
(first line of page 3) thereof.
3) The merger agreement will provide (a) that a wholly-owned subsidiary
of GWAY, CN Acquisition Corp., will merge with OMNI, and (b) that GWAY and said
subsidiary may, at any time on or before March 15, 1998, elect to terminate
their obligations under the merger agreement and to not consummate the merger
for any reason (including failure of GWAY's Board to approve the agreement),
without liability.
4) OMNI shall use its best efforts to deliver to GWAY (a) on or before
December 15, 1997, irrevocable proxies, executed by the holders of a majority of
the outstanding shares of OMNI entitled to vote, appointing nominees of GWAY as
proxy holder and authorizing said proxy holder to vote such shares in favor of
the merger described in the letter of intent (as amended hereby), and (b) on or
before December 31, 1997, Exchange Agreements and Investors' Representations
substantially as most recently submitted, executed by all holders of OMNI Units
consisting of 10% promissory notes, Class AA Warrants and Cancelable Warrants.
5) (a) If OMNI closes one or more related or unrelated financing
transactions with a party or parties other than GWAY or CN Acquisition Corp.
pursuant to which OMNI receives in excess of $250,000 more than the outstanding
balance of all loans made to OMNI by GWAY pursuant to paragraph 1c the letter of
intent, then GWAY's obligations under said paragraph 1c shall terminate and it
shall have the option to accelerate the due date under the OMNI promissory note
to CN Acquisition Corp., dated November 10, 1997 (the "OMNI Note"), executed in
connection therewith, upon which all amounts outstanding under the OMNI Note
shall (to the extent of such excess) become immediately due and payable.
<PAGE>
(b) If after March 15, 1998 OMNI closes one or more related or
unrelated financing transactions or closes one or more related or unrelated
transactions pursuant to which it sells substantially all of its assets to (or
exclusively licenses and/or transfers assets in a transaction having the
substantially the same economic effect as a sale of substantially all of its
assets), or is merged with or acquired by, a party or parties other than GWAY or
CN Acquisition Corp., then GWAY's obligations under paragraph 1c of the letter
of intent shall terminate and it shall have the option to accelerate the OMNI
Note (in the event of such financing(s), to the extent of the net proceeds
thereof), upon which all amounts (in the event of such financing(s), to such
extent) outstanding under the OMNI Note shall become immediately due and
payable.
(c) For purposes of paragraphs 5a and 5b hereof, extensions of
credit or loans by a seller or distributor of goods or services or their
affiliates related to the sale of goods or services shall not be considered a
financing transaction.
(d) OMNI shall promptly execute and deliver to GWAY an amended OMNI
Note incorporating the above, and it shall promptly execute and deliver to GWAY
a Security Agreement in substantially the form previously submitted.
6) The following is added to paragraph 1f of the letter of intent: ";
and (iv) approval, on or before March 15, 1998, of GWAY's Board of Directors."
7) The reference to "November 15, 1997" in paragraph 4 of the letter of
intent is deleted and replaced by "March 15, 1998."
8) The "except for paragraphs 2, 1c, 3 and 4" clause of paragraph 5 of
the letter of intent is deleted and the following substituted in lieu thereof:
"except for paragraphs 2, 1c, 3 and 4 of the letter of intent and paragraphs 4,
5 and 7 of the November 26, 1997 amendment to the letter of intent."
Other than as set forth above, the October 14, 1997 letter of intent
remains in full force and effect.
If the foregoing accurately reflects our agreement, please signify
OMNI's acceptance by signing below.
Very truly yours,
AGREED AND ACCEPTED: GATEWAY INDUSTRIES, INC.
ONLY MULTIMEDIA NETWORK INCORPORATED
By: /s/ Harvey Kibel By: /s/ Warren G. Lichtenstein
- ------------------------------------- ----------------------------------
Harvey Kibel, CEO Warren G. Lichtenstein,
Chairman of the Board
<PAGE>
November 30, 1997
Warren Lichtenstein
GATEWAY INDUSTRIES INC.
750 Lexington Avenue
New York, New York 10022
Dear Warren:
Our recent telephone discussion related to registration rights is important in
the sale of the Unit Exchange to the original investors. This is my
understanding. While Gateway is not committing to the registration of the
preferred stock, Gateway will register the common stock underlying the
conversion rights of the preferred shareholders and underlying the outstanding
options undertaken from OMNI in the merger in the same registration statement as
utilized for the OMNI common shareholders.
The registration statement would be effective as long as the conversion rights
are outstanding. I hope this is our understanding. If so, please sign and FAX
back to me so I can represent this when I contact the original investors. It is
my understanding from Steve Insel that there are no further comments from Mr.
Greenberger related to the Exchange offer and the letter of intent has been
approved by our Board.
Since Monday is December 1, 1997. I am anxious to get the Exchange Offer out on
that date. My home FAX # is 310 471 1151 and the FAX at OMNI is 213 964 1053. I
believe this is the last point of clarification and appreciate your cooperation
in this matter.
Sincerely,
/s/ Harvey P. Kibel
------------------------
Harvey P. Kibel
CEO, Only Multi-Media
APPROVED BY:
/s/ Warren Lichtenstein*
------------------------
Chairman of the Board
Gateway Industries, Inc.
*Gateway Industries, Inc. acceptance of the above is subject to all holders of
preferred stock agreeing to the same lock-up provisions with respect to the
common stock underlying the preferred stock and irrevocable proxies as the
holders of Only Multi-Media common stock and options are to be subject to under
paragraph 1b of the October 14, 1997 letter of intent. If this is acceptable,
please so indicate below.
ACCEPTED: Only Mutlimedia Network Incorporated
by:______________________________________________
Harvey P. Kibel, CFO
