U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________.
Commission file number 0-13803
GATEWAY INDUSTRIES, INC.
(Exact name of Small Business Issuer as Specified in Its Charter)
DELAWARE 33-0637631
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
150 East 52nd Street
New York, NY 10022
(Address of Principal Executive Offices)
877-431-2942
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Shares of Issuer's Common Stock Outstanding at June 30, 1999: 3,592,024
Transitional small business disclosure format Yes [ ] No [X]
<PAGE>
GATEWAY INDUSTRIES, INC.
INDEX
Part I - Financial Information Page Number
Item 1. Condensed Financial Statements (Unaudited):
Condensed Balance Sheet
June 30, 1999............................................... 3
Condensed Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998.... 4
Condensed Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998..................... 5
Notes to Condensed Financial Statements..................... 6
Item 2. Management's Discussion and Analysis
or Plan of Operations....................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 7
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders......... 8
Item 5. Other Information........................................... 8
Item 6. Exhibits and Reports on Form 8-K............................ 8
Signatures.................................................. 9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
GATEWAY INDUSTRIES, INC.
CONDENSED BALANCE SHEET
June 30, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 5,618,000
Prepaid expenses and other current assets.................... 46,000
-----------
Total current assets......................................... 5,664,000
Other assets:
Security deposit............................................... 60,000
-----------
Total assets..................................................... $ 5,724,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 61,000
-----------
Total current liabilities................................... $ 61,000
Commitments
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000 shares authorized,
no shares issued or outstanding........................... ---
Common stock, $.001 par value, 10,000,000 shares authorized,
3,592,024 shares issued (including treasury shares)....... 4,000
Capital in excess of par value................................ 9,555,000
Accumulated deficit........................................... (3,850,000)
Treasury stock, 11,513 shares................................. (46,000)
----------
Total shareholders' equity.................................. 5,663,000
-----------
Total liabilities & shareholders' equity........................ $ 5,724,000
===========
See accompanying notes.
<PAGE>
<TABLE>
GATEWAY INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues ............................... $ -- $ -- $ -- $ --
Costs and expenses:
General and administrative ........ 134,000 108,000 201,000 158,000
---------- ---------- ---------- ----------
Operating loss .................... (134,000) (108,000) (201,000) (158,000)
Other income:
Interest income .............. 57,000 66,000 126,000 134,000
Other income ........................... -- 15,000 -- 32,000
---------- ---------- ---------- ----------
Total other income ................ 57,000 81,000 126,000 166,000
Net income/(loss) ...................... $ (77,000) $ (27,000) $ (75,000) $ 8,000
Net income per share - basic and diluted $ (.02) $ (.01) $ (.02) $ .00
Weighted average number
of shares .............................. 3,592,024 3,592,024 3,592,024 3,592,024
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
GATEWAY INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ (75,000) $ 8,000
Adjustments to reconcile net income to
net cash provided by/(used in) operating activities:
Changes in assets and liabilities:
Prepaid expenses and other assets .................. (18,000) (213,000)
Note receivable .................................... 566,000 --
Security deposit ................................... 20,000 --
Accounts payable ................................... (15,000) (48,000)
Accrued expenses and other liabilities ............. -- (15,000)
---------- ----------
Net cash provided by/(used in) operating activities ........ 478,000 (268,000)
Cash flows from investing activities:
Purchase of equity investments ..................... -- (93,000)
---------- ----------
Net cash used by investing activities ...................... -- (93,000)
Net increase/(decrease) in cash ............................ 478,000 (361,000)
Cash and cash equivalents at beginning of period ........... 5,140,000 5,433,000
---------- ----------
Cash and cash equivalents at end of period ................. $ 5,618,000 $ 5,072,000
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
1. GENERAL
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
interim financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to make such financial statements not misleading.
Results for the three months and six months ended June 30, 1999, are not
necessarily indicative of the results that may be expected either for any other
quarter in the year ending December 31, 1999 or for the entire year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.
2. OPERATIONS
The Company currently has no operating business. Management is pursuing
various strategic alternatives which include the possible use of the Company's
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.
3. LEASE COMMITMENTS
The Company entered into a three-year operating lease for office space in
New York, NY which began April 1, 1998. The Company has sublet a portion of its
office space to affiliated companies. Future minimum lease payments under this
lease are as follows:
Deduct Net
Sublease Rental
Commitments Rentals Commitments
-----------------------------------------
1999 97,000 65,000 32,000
2000 97,000 65,000 32,000
2001 24,000 16,000 8,000
$ 218,000 $ 146,000 $ 72,000
4. NET INCOME PER SHARE
Net income per share was calculated using the weighted average number of
common shares outstanding. The effect of all common stock equivalents is not
included in the per share computation for the quarters ended June 30, 1999 and
1998, as such items are anti-dilutive in these quarters; accordingly, basic and
diluted income per share are the same for the quarters ended June 30, 1999 and
1998.
5. COMPREHENSIVE INCOME
For the three and six months ended June 30, 1998, the Company's
comprehensive income/(loss) was $(41,000) and $5,000, respectively. The
comprehensive income differs from the net income in the first two quarters of
1998 due to the inclusion of the Company's unrealized gain on equity securities
in its comprehensive income. For the three and six months ended June 30, 1999,
there was no unrealized gain or loss and consequently net (loss) of $(77,000)
and $(75,000) were equal to comprehensive income.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company currently has no operating business. The Board of Directors is
pursuing various strategic alternatives which include the possible use of the
Company's net assets to acquire, merge, consolidate or otherwise combine with an
operating business or businesses.
REVENUES AND EXPENSES
The Company had no revenues for the three and six months ended June 30,
1999. Expenses for the three and six months ended June 30, 1999 aggregated
$134,000 and $201,000, respectively consisting of general and administrative
expense. General and administrative expenses for the three and six-month period
ended June 30, 1998 totaled $108,000 and $158,000, respectively. Increased
expense over last year is attributable to proxy and legal costs.
NET INTEREST INCOME AND OTHER INCOME
During the three and six months ended June 30, 1999, the Company recognized
$57,000 and $126,000 of net interest income, respectively compared with $66,000
and $135,000 net interest income in the corresponding periods of 1998. For the
three and six months ended June 30, 1998, the Company recorded $15,000 and
$32,000 in other income attributable to audit adjustments which were
subsequently reclassified and reversed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $5,618,000 at June 30, 1999
and $5,140,000 at December 31, 1998. Collection of the note receivable owed by
Only Multimedia Network, Inc. ("OMNI") during the first quarter accounted for
the increase in cash. At June 30, 1999, the Company's working capital balance
was $5,603,000.
While the Company seeks an acquisition or other business combination,
management believes its cash position is sufficient to cover administrative
expenses and current obligations for the foreseeable future.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote at the annual meeting of
stockholders of the Company, held on June 15, 1999.
1. To elect three directors of the Corporation; (FOR: 3,442;239 AGAINST: 0;
ABSTAINED: 6,589). The Board of Directors of the Company currently consists
of Jack Howard, Warren Lichtenstein, and Ronald Hayes. All of the current
members of the Board of Directors will serve as directors until the next
annual meeting of the Company, and until their successors are duly elected
and shall have qualified.
2. Ratified the appointment of Ernst & Young LLP, independent accountants, to
audit the books and accounts of the Company. (FOR: 3,441,021; AGAINST:
7,079; ABSTAINED: 728)
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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. (a)
10.9 Form of Indemnity Agreement between the Registrant and certain of
its Officers and Directors. (b)
10.11 Stock Purchase Agreement, dated December 21, 1996, between
Gateway Industries, Inc. and Richard A. Hickland. (c)
27 Financial Data Schedule (d)
- ---------------
(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-QSB for the quarter
ended June 30, 1989, and incorporated herein by reference.
(c) Filed as an exhibit to the Company's Form 8-K filed on or about
January 5, 1997, and incorporated herein by reference.
(d) Filed as part of the electronic filing only
<PAGE>
(b) Reports on Form 8-K
The Registrant filed the following current report on Form 8-K during
the last quarter of the period covered by this report:
(i) Report in Form 8-K dated June 29, 1999 reporting the termination of
the Company's relationship with the audit firm of Ernst & Young,
LLP.
(ii) Report on Form 8-K dated June 29, 1999 as amended.
<PAGE>
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.
/s/ Jack Howard
Jack Howard, Acting President
Date: August xx, 1999
<TABLE> <S> <C>
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<CIK> 0000725876
<NAME> Gateway Industries, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,618,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,644,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,724,000
<CURRENT-LIABILITIES> 61,000
<BONDS> 0
0
0
<COMMON> 4,000
<OTHER-SE> 5,659,000
<TOTAL-LIABILITY-AND-EQUITY> 5,724,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (201,000)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (75,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (75,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,000)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
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