sec document
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 March 31, 2003
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ______________
Commission file number 0-13803
GATEWAY INDUSTRIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 33-0637631
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
590 Madison Avenue, 32nd Floor
New York, NY 10022
(Address of Principal Executive Offices Including Zip Code)
212-758-3232
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Shares of Issuer's Common Stock Outstanding at April 17, 2003: 4,192,105
Transitional Small Business Disclosure Format: Yes / / No /X/
INDEX
Part I - Financial Information Page Number
------------------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
March 31, 2003 and December 31, 2002........................ 2
Condensed Consolidated Statements
of Operations - Three Months Ended
March 31, 2003 and 2002..................................... 3
Condensed Consolidated Statements
of Cash Flows - Three Months Ended
March 31, 2003 and 2002..................................... 4
Notes to Condensed Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis or Plan of
Operation................................................... 8
Item 3. Controls and Procedures..................................... 12
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures.................................................. 13
1
Part I. Financial Information
---------------------
Item 1. Condensed Consolidated Financial Statements
-------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2003 December 31, 2002
(Unaudited)
Cash and cash equivalents $ 1,485,777 $ 1,844,512
Accounts receivable, net 1,008,936 800,766
Prepaid Expenses 121,503 94,652
Other current assets 49,959 45,584
------------ ------------
Total current assets 2,666,175 2,785,514
Security deposits 22,507 18,857
Fixed assets, net 378,566 379,050
Software, net 147,336 165,066
Goodwill, net 2,751,288 2,751,288
------------ ------------
Total assets $ 5,965,872 $ 6,099,775
============ ============
Liabilities and Shareholders' Equity
Liabilities
Accounts payable and accrued expenses $ 309,701 $ 278,308
Deferred income 226,912 227,537
Customer deposits 43,457 40,958
Current portion, capital lease 10,225 10,010
------------ ------------
Total current liabilities 590,295 556,813
Capital lease obligation 13,544 16,165
------------ ------------
Total liabilities 603,839 572,978
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; 1,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.001 par value; 10,000,000 shares
authorized; 4,192,105 shares issued and outstanding at March
31, 2003 and 4,192,000 shares issued and outstanding at
December 31, 2002 4,192 4,192
Capital in excess of par value 10,999,746 10,999,746
Accumulated deficit (5,641,905) (5,477,141)
------------ ------------
Total shareholders' equity 5,362,033 5,526,797
------------ ------------
Total liabilities and shareholders' equity $ 5,965,872 $ 6,099,775
============ ============
The accompanying notes are an integral part of these statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
2003 2002
---- ----
Revenues $ 1,489,323 $ 1,424,179
----------- -----------
Costs and expenses
Fulfillment and materials 166,550 129,084
Personnel costs 1,060,668 853,005
Selling, general and administrative 426,419 426,170
----------- -----------
Total costs and expenses 1,653,637 1,408,259
----------- -----------
Operating income (loss) (164,314) 15,920
----------- -----------
Other income
Interest 2,646 7,399
Other income (expenses), net (3,096) (6,710)
----------- -----------
Total other income (loss) (450) 689
----------- -----------
Net income (loss) $ (164,764) $ 16,609
=========== ===========
Net Income (loss) per share - basic $ (.04) $ .00
=========== ===========
Net Income (loss) per share - diluted $ (.04) $ .00
=========== ===========
Weighted average shares outstanding - basic 4,192,105 4,192,024
=========== ===========
Weighted average shares outstanding - diluted 4,192,105 4,192,024
=========== ===========
The accompanying notes are an integral part of these statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (164,764) $ 16,609
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 32,965 27,721
Amortization of software costs 17,730 17,730
Changes in assets and liabilities net
of assets and liabilities acquired:
Accounts receivable (208,170) 28,869
Prepaid expenses and other (31,226) (11,009)
Security deposit (3,650) --
Accounts payable 31,393 (313,460)
Deferred income (625) (12,447)
Customer deposits 2,499 (39,028)
----------- -----------
Net cash used in operating activities (323,848) (285,015)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (32,481) (20,410)
----------- -----------
Net cash used in investing activities (32,481) (20,410)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of obligation on capital lease (2,406) (4,924)
----------- -----------
Net cash used by financing activities (2,406) (4,924)
----------- -----------
Net decrease in cash and cash equivalents (358,735) (310,349)
Cash and cash equivalents at beginning of period 1,844,512 2,041,315
----------- -----------
Cash and cash equivalents at end of period $ 1,485,777 $ 1,730,966
=========== ===========
Supplemental cash flow information:
Cash paid during the year for
Income taxes $ 17,657 $ 3,498
Interest Expense $ 3,096 $ 3,214
Supplemental information:
Oaktree acquired $5,648 of assets under a capital lease in 2002.
The accompanying notes are an integral part of these statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
NOTE 1. GENERAL
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instruction to Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying unaudited interim financial statements include all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation. Results for the three months ended March 31, 2003 are not
necessarily indicative of the results that may be expected either for any other
quarter in the year ending December 31, 2003 or for the entire year ending
December 31, 2003. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002.
NOTE 2. OPERATIONS
Gateway Industries, Inc. (the "Company") was incorporated in
Delaware in July 1994 and acquired all of the outstanding common stock of
Oaktree Systems, Inc. ("Oaktree") in March 2000. Oaktree provides real-time
database development consolidation and management services, such as database
marketing, product fulfillment, subscription fulfillment, web site design and
maintenance to customers. Such customers are principally not-for-profit
entities, health care providers and publishers throughout the United States.
The Company had no full time employees from December 1996 until the
acquisition of Oaktree.. The Company's officers and Steel Partners Services,
Ltd. (an entity controlled by the Company's Chairman) devote significant time to
the Company's administration and exploring potential acquisitions and other
business opportunities.
NOTE 3. NET INCOME (LOSS) PER SHARE
Net Income (loss) per share was calculated using the weighted
average number of common shares outstanding. For the three months ended March
31, 2003 and 2002, stock options excluded from the calculation of diluted loss
per share were 1,069,000 and 592,500, respectively, as their effect would have
been antidilutive. Accordingly, basic and diluted income per share is the same
for each of the three months ended March 31, 2003 and 2002.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards 145 RESCISSION OF FASB
STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS SFAS 145. This Statement rescinds FASB Statement No. 4, REPORTING
GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT, and an amendment of that
Statement, FASB Statement No. 64, EXTINGUISHMENTS OF DEBT MADE TO SATISFY
SINKING-FUND REQUIREMENTS. This Statement also rescinds FASB Statement No. 44,
ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR CARRIERS. This Statement amends FASB
Statement No. 13, ACCOUNTING FOR LEASES, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
5
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions.
Effective January 1, 2003, the Company adopted the provisions of SFAS 145 which
did not have an impact on the results of operations or financial position of the
Company for the three months ended March 31, 2003.
In July 2002, the FASB Issued Statement 146 ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES SFAS 146. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
principal difference between this Statement and Issue 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities
initiated after December 31, 2002. Effective January 1, 2003, the Company
adopted the provisions of SFAS 146 which did not have an impact on the results
of operations or financial position of the Company for the three months ended
March 31, 2003.
In November 2002, the FASB issued Interpretation No. 45, "GUARANTORS
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS" ("FIN 45"). FIN 45 requires that certain
guarantees be initially recorded at fair value, which is different from the
general current practice of recording a liability only when a loss is probable
and reasonably estimable. FIN 45 also requires a guarantor to make significant
new disclosures for virtually all guarantees. The Company adopted the disclosure
requirements under FIN 45 for the quarter ended March 31, 2003 and will adopt
the initial recognition and initial measurement provisions for any guarantees
issued or modified after March 31, 2003. The adoption of FIN 45 is not expected
to have a material impact on the results of operations or financial position of
the Company.
On December 31, 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
STOCK BASED COMPENSATION TRANSITION AND DISCLOSURE, SFAS148 AMENDS FASB
STATEMENT NO. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to provide
alternative methods of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS 148 does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for the
compensation using the fair value method of SFAS 123 or the intrinsic value
method of APB Opinion 25. The Company adopted the required disclosure provisions
of SFAS No. 148. See Note 5.
In January 2003, the FASB issued interpretation No. 46,
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES - AN INTERPRETATION OF ARB NO. 51"
("FIN 46"), which addresses consolidation of variable interest entities. FIN 46
expands the criteria for consideration in determining whether a variable
interest entity should be consolidated by a business entity, and requires
existing unconsolidated variable interest entities (which include, but are not
limited to, Special Purpose Entities, or SPE's) to be consolidated by their
6
primary beneficiaries if the entities do not effectively disburse risks among
parties involved. This interpretation applies immediately to variable interest
entities created after January 31, 2003, and variable interest entities in which
an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of FIN 46 is not expected to have
a material impact on the results of operations or financial position of the
Company.
NOTE 5. STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK
BASED COMPENSATION-TRANSITION AND DISCLOSURE-AN AMENDMENT OF SFAS 123, which
provided alternative methods for a voluntary change to the fair value method of
accounting for stock-based employee compensation and amends the disclosure
requirements of SFAS 123. The Company has elected to continue to account for its
stock-based employee compensation plans under APB Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations. The following
disclosures are provided in accordance with SFAS 148.
As permitted by the FASB Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "ACCOUNTING FOR STOCK-BASED COMPENSATION," the Company
has elected to follow Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"ACCOUNTING FOR STOCK-ISSUED TO EMPLOYEES," and related interpretations in
accounting for its employee stock option plans. Under APB No. 25, no
compensation expense is recognized at the time of option grant because the
exercise price of the Company's employee stock option equals the fair market
value of the underlying common stock on the date of grant.
The exercise price of all other options equals the market price of
the Company's common stock on the date of grant. Accordingly, no compensation
cost has been recognized for the Company's employee stock option plans. Had
compensation cost for such plans been determined based on the fair value of the
options at the grant dates consistent with the method of SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below.
Three months ended March 31, 2003 2002
---------------------------------------------------------------------
Actual net Income (loss) $ (164,764) $ 16,609
Pro forma net Income (loss) $ (170,051) $ 11,686
Actual net Income (loss) per share
Basic $ (0.04) $ 0.00
Diluted $ 0.00 $ 0.00
Pro forma net (loss) per share
Basic - Pro forma $ (0.04) $ 0.00
Diluted - Pro forma $ 0.00 $ 0.00
The fair value of the above stock-based compensation costs were
determined using the Black-Scholes option valuation model. The Black Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions, are fully transferable and
do not include a discount for large block trades. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility, expected life of the option and other estimates. Because
7
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes of the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------- ------------------------------------
INTRODUCTION
------------
The Company acquired Oaktree on March 21, 2000 pursuant to a Stock
Purchase Agreement. The purchase price of Oaktree was approximately $4.1
million, consisting of $2 million in cash, the issuance of 600,000 restricted
shares of Common Stock of the Company and the assumption of approximately
$650,000 of debt, which was repaid at the closing date, plus certain fees and
expenses.
Oaktree is a twenty year-old company specializing in providing cost
effective marketing solutions to organizations needing sophisticated information
management tools. In the past, these systems were found principally only on
mainframe and minicomputer systems. Oaktree has developed a sophisticated PC
based relational database that provides unlimited capacity and flexibility to
meet today's demanding informational needs. Oaktree has also implemented a
state-of-the-art Data Center that incorporates the latest Client/Server based PC
architecture. Oaktree currently manages direct marketing databases for clients
which contain over 25 million customers that include a related 100 million
transactions.
Oaktree provides a full set of database marketing solutions that
cover the full range of customer interaction. These entirely Web based solutions
allow our customers to manage their marketing promotions and the supporting
operational systems from their desktops in a real-time mode. The Internet is the
preferred medium for providing information and reports to our clients. All
reports, data access and the status of production jobs are available to
customers 24 hours a day, seven days a week simply by accessing their desktop
browsers. With Oaktree providing a single source solution, all data will reflect
a real-time status, meaning that reports will reflect information that is
accurate and up-to-date. Multiple levels of security provide a high degree of
data integrity and protection.
Oaktree's proprietary, integrated database allows clients with
e-commerce, subscription, product fulfillment and fundraising businesses to
utilize a single, customer focused database to do all of their marketing
promotions and response analysis. Clients can track their businesses on a real
time basis and make immediate decisions to adjust marketing promotions and/or
production schedules. We believe Oaktree's new Internet initiatives and the
release of its database product DB-Cultivator will allow us to offer better
expansion of services to existing customers and should generate
quarter-to-quarter growth.
Management believes that the competitive landscape continues to
favor Oaktree's PC Database and Internet business model. Management also
believes that customers will pursue solutions that improve operating
efficiencies and improve income potential. Oaktree's products offer both
opportunities at lower costs than traditional, mainframe competitors.
8
REVENUES AND EXPENSES
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
The Company had revenues of $1,489,323 for the three months ended
March 31, 2003 compared to $1,424,179 for the comparable period in 2002. The
increase is primarily due to approximately $100,000 of increased revenue from
the Company's new Subscription Fulfillment Product released in November 2002,
partially offset by decreased revenues in the Database Management Product.
Fulfillment and materials costs were $166,550 for the three months
ended March 31, 2003 compared to $129,084 for the comparable period in 2002.
This increase was due primarily to the cost of operations of the Company's new
Subscription Fulfillment Product, which was developed in 2002.
Personnel costs were $1,060,668 for the three months ended March 31,
2003 compared to $853,005 for the comparable period in 2002. This increase was
due primarily to the one time costs associated with the hiring of new industry
specific management and expenses incurred as a result of a reduction in existing
workforce.
Selling, general & administrative expenses were $426,419 for the
three months ended March 31, 2003 compared to $426,170 for the comparable period
in 2002.
Other income & expenses were $2,646 and $3,096, respectively,
for the three months ended March 31, 2003 compared to $7,399 and $6,710,
respectively, for the comparable period in 2002. This decrease was primarily due
to decreasing money market rates earned on cash held by the Company.
The Company had a net loss of $164,764 for the three months ended
March 31, 2003 compared to a net profit of $16,609 for the comparable period in
2002. This decrease was primarily due to the one time costs associated with the
hiring of new industry specific management and expenses incurred as a result of
a reduction in existing workforce.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents totaled $1,485,777 at March
31, 2003 and $1,844,512 at December 31, 2002. The Company's cash and cash
equivalents decreased in the first quarter of 2003 due primarily to the one time
costs associated with the hiring of new industry specific management and
expenses incurred as a result of a reduction in existing workforce and an
increase in accounts receivable of $208,170. The Company continues to seek an
acquisition or other business combination; although no definitive agreements,
arrangements or understandings have been reached. Management believes its cash
position is sufficient to cover administrative expenses and current obligations
for the foreseeable future.
9
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Payments Due by Period
Contractual Cash Obligations Total Less than 1 year 1-3 years 4 - 5 years After 5 years
Long Term Debt 0
Capital Lease Obligations $ 23,769 $ 10,225 $ 13,544
Operating Leases $621,679 $242,891 $378,030 $758
Unconditional Purchase Obligations 0
Other Long Term Obligations 0
Total Contractual Cash Obligations $645,448 $253,116 $391,574 $758
CRITICAL ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued Statement of Financial Accounting
Standards 145 RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS SFAS 145. This Statement rescinds
FASB Statement No. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT,
and an amendment of that Statement, FASB Statement No. 64, EXTINGUISHMENTS OF
DEBT MADE TO SATISFY SINKING-FUND REQUIREMENTS. This Statement also rescinds
FASB Statement No. 44, ACCOUNTING FOR INTANGIBLE ASSETS OF MOTOR CARRIERS. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Effective January 1, 2003, the Company adopted the provisions of
SFAS 145 which did not have an impact on the results of operations or financial
position of the Company for the three months ended March 31, 2003.
In July 2002, the FASB Issued Statement 146 ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES SFAS 146. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
principal difference between this Statement and Issue 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. Effective January 1, 2003, the Company
adopted the provisions of SFAS 146 which did not have an impact on the results
of operations or financial position of the Company for the three months ended
March 31, 2003.
10
In November 2002, the FASB issued Interpretation No. 45, "GUARANTORS
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS" ("FIN 45"). FIN 45 requires that certain
guarantees be initially recorded at fair value, which is different from the
general current practice of recording a liability only when a loss is probable
and reasonably estimable. FIN 45 also requires a guarantor to make significant
new disclosures for virtually all guarantees. The Company adopted the disclosure
requirements under FIN 45 for the quarter ended March 31, 2003 and will adopt
the initial recognition and initial measurement provisions for any guarantees
issued or modified after March 31, 2003. The adoption of FIN 45 is not expected
to have a material impact on the results of operations or financial position of
the Company.
On December 31, 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR
STOCK BASED COMPENSATION TRANSITION AND DISCLOSURE, SFAS 148 AMENDS FASB
STATEMENT NO. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to provide
alternative methods of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS 148 does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for the
compensation using the fair value method of SFAS 123 or the intrinsic value
method of APB Opinion 25. The Company adopted the required disclosure provisions
of SFAS No. 148. See Note 5.
In January 2003, the FASB issued interpretation No. 46,
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES - AN INTERPRETATION OF ARB NO. 51"
("FIN 46"), which addresses consolidation of variable interest entities. FIN 46
expands the criteria for consideration in determining whether a variable
interest entity should be consolidated by a business entity, and requires
existing unconsolidated variable interest entities (which include, but are not
limited to, Special Purpose Entities, or SPE's) to be consolidated by their
primary beneficiaries if the entities do not effectively disburse risks among
parties involved. This interpretation applies immediately to variable interest
entities created after January 31, 2003, and variable interest entities in which
an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of FIN 46 is not expected to have
a material impact on the results of operations or financial position of the
Company.
11
ITEM 3. CONTROLS AND PROCEDURES
------- -----------------------
(a) Evaluation of disclosure controls and procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiary) required to be included in the Company's periodic SEC filings.
(b) Changes in internal controls
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
(c) Asset-Backed issuers
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) Exhibits
Exhibit No. Description
99.1 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act
99.2 Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act
(b) Reports on Form 8-K
None
12
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GATEWAY INDUSTRIES, INC.
/s/ Maritza Ramirez
-----------------------------
Maritza Ramirez, Chief Financial Officer
and duly authorized signatory
Date: April 30, 2003
13
CERTIFICATION
Section 302 Certification
I, Warren G. Lichtenstein, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Gateway
Industries, Inc., a Delaware corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing of this quarterly report
(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The Registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrant's ability to record, process summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003 By: /s/ Warren G. Lichtenstein
--------------------------------
Warren G. Lichtenstein
Chief Executive Officer
14
CERTIFICATION
Section 302 Certification
I, Maritza Ramirez, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Gateway
Industries, Inc., a Delaware corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of,
and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing of this quarterly report
(the "Evaluation Date"); and c) presented in this
quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrant's ability to record, process summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003 By: /s/ Maritza Ramirez
-------------------
Maritza Ramirez
Chief Financial Officer
15