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, 1999

[ ]          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 Identification No.)
 incorporation or organization)


                              150 East 52nd Street
                            New York, New York 10022
          (Address of principal executive offices including zip code)

          Issuer's telephone number, including area code: 877-431-2942

Securities registered under Section 12(b) of the Act:  NONE.

Securities registered under 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 [ ]

Check  if 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 the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendments to this Form 10-KSB. [X]

Issuer has had no revenues in its most recent fiscal year.

The aggregate market value of voting stock held by  non-affiliates of the Issuer
at March 31, 2000 was  approximately  $8,749,420  based on the average  high/low
ask/bid price of $3.6875 for such stock on that date.

As of March 31, 2000, the Registrant had 4,192,024 shares of common stock, $.001
par value per share, outstanding.

Transitional small business disclosure format:  Yes  [ ]  No  [X]

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's definitive Proxy Statement to be used in connection
with  its  Annual  Meeting  of  Stockholders  to be held on June 30,  2000,  are
incorporated by reference into Part III of this report.
<PAGE>
                            Gateway Industries, Inc.

                               TABLE OF CONTENTS

                                                                       PAGE NO.

                                     PART I

Item 1.  Description of Business.                                           2

Item 2.  Description of Property.                                           4

Item 3.  Legal Proceedings.                                                 5

Item 4.  Submission of Matters to a Vote of Security Holders.               5


                                    PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.          6


Item 6.  Management's Discussion and Analysis
         or Plan of Operation.                                              7

Item 7.  Financial Statements                                               8

Item 8.  Changes In and Disagreements With Accountants
         on Accounting and Financial Disclosure.                            8


                                    PART III

Item 9.  Directors, Executive Officers, Promoters and
         Control Persons;Compliance With Section 16(a)
         of the Exchange Act.                                               9

Item 10. Executive Compensation                                             9

Item 11. Security Ownership of Certain Beneficial
         Owners and Managers                                                9

Item 12. Certain Relationships and Related Transactions.                    9


Item 13. Exhibits and Reports on Form 8-K                                  10

Signatures                                                                 11
<PAGE>
                                     PART I

ITEM 1.  Description of Business

OVERVIEW

     Gateway  Industries,  Inc. (the "Company") was  incorporated in Delaware in
July 1994.  The Company had no operating  business  from  December 1996 to March
2000,  when it acquired all of the  outstanding  common stock of Oaktree Systems
Inc.  ("Oaktree").  Oaktree provides  database  development,  consolidation  and
management services, and web site design and maintenance to customers throughout
the United  States:  such  customers are  principally  not-for-profit  entities,
health care providers and publishers. See the description of Oaktree below.

     The  Company  had no full  time  employees  from  December  1996  until the
acquisition of Oaktree in March 2000. The Company's  Chairman,  Acting President
and Steel  Partners  Services,  Ltd.  (an  entity  controlled  by the  Company's
Chairman) devote time to the Company's administration and in exploring potential
acquisitions and other business opportunities.

OAKTREE

     The Company acquired Oaktree on March 21, 2000 pursuant to a Stock Purchase
Agreement.  The  purchase  price of  Oaktree  was  approximately  $3.6  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  provides  database   development,   consolidation  and  management
services,  web site design and maintenance,  and other miscellaneous services to
customers  throughout the United States.  Oaktree's  customers are predominantly
not-for-profit organizations, healthcare providers, and publishers.

     Oaktree  had  revenues  of  approximately  $3.0  million  in  1999  and was
profitable.  Operating income in 1999 was adversely impacted by expenses related
to Year 2000 preparedness,  unusually large software and system upgrades and web
design  development  projects  which are not  expected to recur  annually to the
extent  incurred in 1999.  The Company  believes  that these  expenditures  will
enable Oaktree to significantly enhance the services provided to its customers.

     The  Company's  growth  strategy  regarding  Oaktree  is to (a)  cross-sell
services  with  MDM  Technologies  Inc.,  an  entity  controlled  by  Warren  G.
Lichtenstein,  who is the sole managing  member of Steel  Partners  L.L.C.,  the
General Partner of Steel Partners II, L.P, which together with Mr.  Lichtenstein
has  a  30%  beneficial  interest  in  the  Company,   (see  "Item  12,  Certain
Relationships  and  Related  Transactions."),  and (b) explore  acquisitions  of
related   established   products  and  service   providers   that  will  provide
opportunities to offer Oaktree's customers an integrated,  full-service  product
offering.

     The Company's  ability to make further  product  acquisitions  will depend,
among  other   things,   on  the   availability   of   appropriate   acquisition
opportunities,  the ability to obtain  appropriate  financing  and the Company's
ability  to  consummate  acquisitions  on  acceptable  terms.  There  can  be no
assurance  that the Company will be able to consummate  any such  acquisition on
acceptable terms.

     COMPETITION

     Oaktree  competes in a highly  fragmented  industry  with many national and
local  competitors.  Competition  comes  from many  sources  including  database
development companies,  service bureaus, and mailhouses. Many of the competitors
of Oaktree possess  substantially  greater financial,  technical,  marketing and
other resources than we do.

     PROPERTY

     Oaktree  leases 2,500 square feet of office space in  Calverton,  New York.
The lease expires on February 1, 2003. The space is rented from a partnership in
which two of the senior managers of Oaktree each own a material  interest.  Rent
expense,  including  Oaktree's  share of real estate  taxes,  was  approximately
$224,000 and $228,000 in 1999 and 1998, respectively.

     During 1999,  Oaktree entered into a lease for 806 square feet in St. Paul,
Minnesota. Rent expense is $962 per month. The lease expires on Dec 31, 2000.

     PATENTS AND TRADEMARKS

     Oaktree does not have any patents or trademarks.

     HUMAN RESOURCES

     As of March 25, 2000, Oaktree employed 50 full time employees.  None of the
employees are subject to any  collective  bargaining  agreements  and we believe
that our relationship with our employees is good.

ONLY MULTIMEDIA NETWORK, INCORPORATED

     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 a letter of intent,  the Company
advanced  $450,000  ($90,000  in 1998 and  $360,000  in 1997) to OMNI,  and OMNI
issued a $500,000 secured promissory note.

     OMNI's  financial  performance  was less  than  expected,  and the  Company
reserved as uncollectible the $360,000 advanced to Omni as of December 31, 1997.
During 1998, the Company and OMNI terminated  merger  discussions,  renegotiated
the promissory note and OMNI issued 50,000 restricted shares of its stock to the
Company.  The  Company  continued  to pursue the amounts  advanced to OMNI,  and
received  full payment of the secured  promissory  note and related  interest in
March 1999.

MARSEL MIRROR AND GLASS PRODUCTS, INC.

     On November 24, 1995, Glass Acquisition Corp., a wholly owned subsidiary of
the  Company,  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. 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 Marsel to
an  unrelated  third  party for $1.00 per share,  pursuant  to a Stock  Purchase
Agreement (the "Agreement").  Under the Agreement,  the Company had the right to
purchase  50% of the  outstanding  shares  of Marsel  for $2.00 per share  until
December  21,  1999.  Pursuant to the  Agreement,  the Company  paid  $75,000 to
Marsel's  lender and issued  approximately  $300,000 of guarantees to vendors of
Marsel, all of which were fully satisfied by December 31, 1998. In addition, the
Agreement contains provisions relating to the allocation between the Company and
the unrelated third party of the proceeds from the sale or liquidation of Marsel
or the sale of equity in Marsel by the unrelated  third party, if either occurs.
The purchase  price and terms were  determined  by the Company and the unrelated
third party  following (a) the expiration of Marsel's credit  facility,  (b) the
bank's demand for immediate  repayment of all outstanding  balances and Marsel's
failure to negotiate a financing agreement with a new commercial lender, and (c)
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. During 1999, the Company received, pursuant to a court approved
settlement of all amounts due from Marcel,  $21,000, net of $79,000 of expenses.
During  1999,  the  Company  also  exercised  its option to  acquire  50% of the
outstanding  stock of Marsel.  The exercise of this option has not been approved
by the bankruptcy  court,  and the creditors'  committee of Marsel has put forth
other  proposals.  It is uncertain as to whether the exercise of the option will
be approved and consummated.  Although Marsel has current  business  operations,
there  is  significant  uncertainty  as to the  value of the  stock  of  Marsel.
Accordingly, the Company has not assigned any value to its holdings of Marsel.

ITEM 2. Description of Property.

     The Company  occupies  offices at 150 East 52nd Street,  New York, New York
10022,  under a lease agreement  extending  through March 30, 2001. It subleased
office  space,  at  one-third  of its cost for the  space,  to each of (a) Steel
Partners Services, Ltd. ("SPS"), an entity controlled by the Company's Chairman,
and (b) WebFinancial  Corporation,  a public company in which Steel Partners II,
L.P., an entity controlled by the Company's Chairman, and the Company's Chairman
have an approximate 30% beneficial interest.  As of January 1, 1999, the rent on
the  office  space  is  paid by SPS and the  Company  pays a  management  fee of
$275,000, which includes its one third share of rent expense, to SPS. (See "Item
12, Certain Relationships and Related Transactions.")

<PAGE>
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.

     None.
<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 "GWAY" on what is commonly referred to as the
"Bulletin  Board."  The  following  table sets forth the high and low bid prices
during each quarter of its last two fiscal  years,  and during the first quarter
of 2000 through  March 31, 2000, as quoted on the Bulletin  Board.  These prices
represent quotations between  broker-dealers,  do not include retail markups and
markdowns,   or  any   commissions,   and  may  not  reflect  prices  in  actual
transactions.
                                                CLOSING BID PRICES

                                               HIGH($)        LOW($)
1998
----
FIRST QUARTER                                  1.8125        1.8125
SECOND QUARTER                                 1.8750        1.8750
THIRD QUARTER                                  1.7500        1.7500
FOURTH QUARTER                                 1.6500        1.6500

1999
----
FIRST QUARTER                                  1.5000        1.5000
SECOND QUARTER                                 1.6250        1.5000
THIRD QUARTER                                  2.0000        1.5000
FOURTH QUARTER                                 1.8750        1.8750

2000
----
FIRST QUARTER March 31, 2000                   3.6875        2.9375

HOLDERS OF RECORD

     At March 7, 2000, there were  approximately  1,398 holders of the Company's
common stock.

DIVIDENDS

     The Company has not paid any dividends on its Common Stock for the last two
Fiscal years and does not anticipate doing so in the foreseeable future.

<PAGE>
ITEM 6. Management's Discussion and Analysis or Plan of Operations

PLAN OF OPERATIONS

     On March 21, 2000, the Company acquired Oaktree.  Oaktree provides database
development,   consolidation  and  management  services,  web  site  design  and
maintenance,  and other  services to  customers  throughout  the United  States.
Oaktree's customers are predominantly not-for-profit  organizations,  healthcare
providers, and publishers.

     Oaktree  had  revenues  of  approximately  $3.0  million  in  1999  and was
marginally profitable. Oaktree's operating income in 1999 was adversely impacted
by expenses  related to Year 2000  preparedness,  unusually  large  software and
system upgrades,  and web design development  projects which are not expected to
recur annually to the extent  incurred in 1999. The Company  believes that these
expenditures will enable Oaktree to significantly  enhance its services provided
to its customers.

     The purchase price of Oaktree consisted of $2 million in cash, the issuance
of 600,000  restricted shares of common stock of the Company,  the assumption of
approximately  $650,000  of debt which was repaid in full at closing and certain
fees and expenses.

     Assuming no other  acquisitions are completed in 2000,  Oaktree will be the
Company's only operations.

     Although the Company has not identified any other  acquisition  candidates,
management is considering various strategic  alternatives relating to additional
acquisitions. There can be no assurance, however, that any such transaction will
be consummated.

MANAGEMENT'S DISCUSSION AND ANALYSIS

     The Company had no revenues for the years ended December 31, 1999 and 1998.
Expenses for 1999 and 1998 were $654,000 and $359,000,  respectively.  Increased
expenses are principally attributable to compensation expense of options granted
to non-employee consultants, legal fees and general and administrative expenses.

     During the year ended December 31, 1999, the Company recognized $272,000 of
other income which was primarily  interest  income.  For the year ended December
31,  1998,  the Company  recognized  other  income of  $748,000,  consisting  of
interest  income of  $375,000,  gain of $13,000  and a $360,000  reversal  of an
allowance for  uncollectibility  which had been recorded in the prior year.  The
larger  amount of 1998 interest  income  resulted from interest paid on the OMNI
debt.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents  totaled $5,465,000 at December 31,
1999, compared with $5,140,000 at December 31, 1998.  $2,000,000 was expended in
March 2000 for the Oaktree acquisition.  The increase was primarily generated by
the  collection  of the  Company's  receivable  of the  OMNI  debt  and  related
interest.   See  "Item  1.  Description  of  Business."  Aside  from  the  lease
commitments,  the Company has no significant  capital  commitments at this time.
Based on the Company's cash position  management  anticipates that the Company's
current cash flows are adequate to meet its liquidity  needs for the next twelve
months.
<PAGE>
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

     On June 22, 1999, Gateway Industries,  Inc. (the "Company") was informed by
Ernst & Young LLP,  that it had  resigned  as the  Company's  auditors.  Ernst &
Young's  reports  on the  financial  statements  for the past two years have not
contained  any adverse  opinion or  disclaimer  of opinion,  nor was any opinion
qualified or modified as to uncertainty, audit scope, or accounting principles.

     In  connection  with the  audits of the  Company's  consolidated  financial
statements  for each of the two fiscal  years ended  December 31, 1998 and 1997,
and in the interim period subsequent to December 31, 1998, preceding the date of
Ernst & Young's  resignation,  there  were no  "disagreements,"  as that term is
defined in the instructions to Form 8-K and the regulations applicable to Item 4
of Form 8-K,  with  Ernst & Young on any  matter  of  accounting  principles  or
practices,  financial statement  disclosure or auditing scope or procedure which
"disagreement", if not resolved to the satisfaction of Ernst & Young, would have
caused  Ernst  &  Young  to  make   reference  to  the  subject  matter  of  the
"disagreement" in their report.

     On June 29,  1999,  the Board of  Directors  of the Company  engaged  Grant
Thornton LLP as the Company's auditors. The Company has not consulted with Grant
Thornton  LLP during the past two fiscal years  concerning  the  application  of
accounting  principles  or  any  issues  relating  to  accounting,  auditing  or
financial reporting.

     A letter from Ernst & Young  concerning the  disclosures  made in Item 4 of
the Report on Form 8-K is annexed hereto as Exhibit 99.1.
<PAGE>
                                    PART III

ITEM 9. Directors and Executive Officers

     The  information  required by this item will be included under the captions
"ELECTION OF DIRECTORS"  and  "EXECUTIVE  OFFICERS" of the Company's  definitive
proxy statement to be filed with the Securities and Exchange  Commission  within
120 days after the end of the  Company's  fiscal year covered by this report and
is incorporated herein by reference.

ITEM 10. Executive Compensation

     The  information  required by this item will be included  under the caption
"EXECUTIVE COMPENSATION" in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days after the end of the
Company's  fiscal  year  covered by this  report and is  incorporated  herein by
reference.

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

     The  information  required by this item will be included under the captions
"PRINCIPAL  STOCKHOLDERS" and "Beneficial Ownership of Directors and Management"
in the Company's  definitive proxy statement to be filed with the Securities and
Exchange  Commission  within 120 days after the end of the Company's fiscal year
covered by this report and is incorporated herein by reference.

ITEM 12. Certain Relationships and Related Transactions

     The information required by this Item is will be included under the caption
"CERTAIN  RELATIONSHIPS  AND RELATED  TRANSACTIONS" in the Company's  definitive
proxy statement to be filed with the Securities and Exchange  Commission  within
120 days after the end of the  Company's  fiscal year covered by this report and
is incorporated herein by reference.

<PAGE>
ITEM 13.  Exhibits, Lists 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)

16.1  Report on form 8-K dated June 29, 1999  reporting  the  termination of the
      Company's relationship with the audit firm of Ernst & Young, LL P.(d)

16.2  Report on form 8-K dated June 29, 1999 as amended.(d)

27    Financial Data Schedule.

99.1  Letter  dated July 21, 1999 from Ernst & Young LLP to the  Securities  and
      Exchange Commission. (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-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 an exhibit to the  Company's  10-KSB  filed on or about  March 31,
     1999, and incorporated herein by reference.
(e)  Filed as an exhibit to the Company's Form 8-K/A filed on July 29, 1999, and
     incorporated herein by reference.

     (b) Reports on form 8-K

     The Company filed the following  current report on Form 8-K during the last
quarter covered by this report:

     (i)  Report on Form 8-K  filed on or about  March 31,  2000  reporting  the
          stock purchase agreement with Oaktree.

<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    GATEWAY INDUSTRIES, INC.

                                    Date:  April 13, 2000

                                    By:/s/ Jack L. Howard
                                           Jack L. Howard,
                                           Acting President
                                           Principal Executive Officer


                                    Date:  April 13, 2000


                                    By:/s/ Warren G. Lichtenstein
                                           Warren G. Lichtenstein,
                                           Chairman of the Board and
                                           Principal Accounting Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


Date:  April 13, 2000
By:/s/ Jack L. Howard
       Jack L. Howard
       Director

Date:  April 13, 2000
By:/s/ Warren G. Lichtenstein
       Warren G. Lichtenstein
       Director

Date:  April 13, 2000
By:/s/ Ronald W. Hayes
       Ronald W. Hayes
       Director
<PAGE>
                                 EXHIBIT INDEX


     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)

     16.1 Report on form 8-K dated June 29, 1999  reporting the  termination  of
          the  Company's  relationship  with  the  audit  firm of Ernst & Young,
          LLP.(d)

     16.2 Report on Form 8-K dated June 29, 1999 as amended.(d)

     16.3 Report  on form 8-K dated  March  31,  2000  reporting  the  Company's
          acquisition of Oaktree.(e)

     27   Financial Data Schedule.

     99.1 Letter  dated July 21,  1999 from Ernst & Young LLP to the  Securities
          and Exchange Commission. (f)


---------------
(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 an exhibit to the  Company's  10-KSB  filed on or about  March 31,
     1999, and incorporated herein by reference.
(e)  Filed as an exhibit to the  Company's  10-KSB  filed on or about  April 12,
     2000 and incorporated herein by reference.
(f)  Filed as an exhibit to the Company's Form 8-K/A filed on July 29, 1999, and
     incorporated herein by reference.
<PAGE>
                            Gateway Industries, Inc.

                         INDEX TO FINANCIAL STATEMENTS


                                                                       PAGE NO.


     Reports of Independent Certified Public Accountants
     and Independent Auditors                                            F-2


     Financial Statements

          Balance Sheets as of December 31, 1999 and 1998                F-4

          Statements of Operations for the Years Ended
                December 31, 1999 and 1998                               F-5

          Statement of Shareholders' Equity for the Years Ended
                December 31, 1999 and 1998                               F-6

          Statements of Cash Flows for the Years Ended
                December 31, 1999 and 1998                               F-7

          Notes to Financial Statements                            F-8 - F-15

<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




The Board of Directors and Shareholders
        Gateway Industries, Inc.


We have audited the accompanying balance sheet of Gateway Industries, Inc. as of
December  31,  1999 and the  related  statements  of  operations,  shareholders'
equity, and cash flows for the year then ended.  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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Gateway  Industries,  Inc. at
December 31, 1999 and the results of its  operations  and its cash flows for the
year ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.




/s/GRANT THORNTON LLP


New York, New York
February 28, 2000
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS




The Board of Directors and Shareholders
        Gateway Industries, Inc.


We have audited the accompanying balance sheet of Gateway Industries, Inc. as of
December  31,  1998 and the  related  statements  of  operations,  shareholders'
equity, and cash flows for the year then ended.  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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Gateway  Industries,  Inc. at
December 31, 1998,  and the results of its operations and its cash flows for the
year then ended in conformity with accounting  principles  generally accepted in
the United States.




/s/Ernst & Young LLP


Los Angeles, California
April 6, 1999
<PAGE>
                            Gateway Industries, Inc.

                                 BALANCE SHEETS

                                  December 31,
<TABLE>
<CAPTION>

          ASSETS
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
Current assets
  Cash and cash equivalents..........................         $  5,465,000   $  5,140,000
  Note receivable....................................                   --        566,000
  Prepaid expenses and other.........................               10,000         28,000
                                                              ------------   ------------
     Total current assets............................            5,475,000      5,734,000

Prepaid acquisition costs............................               24,000             --

Security deposit.....................................               60,000         80,000
                                                              ------------   ------------
     Total assets....................................         $  5,559,000   $  5,814,000
                                                              ============   ============
          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable and accrued expenses..............         $     75,000   $     76,000
                                                              ------------   ------------
     Total current liabilities.......................               75,000         76,000
                                                              ------------   ------------
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
    and outstanding at December 31, 1999 and 1998....                4,000          4,000
  Capital in excess of par value.....................            9,683,000      9,555,000
  Accumulated deficit                                           (4,157,000)    (3,775,000)
  Treasury stock, 11,513 shares of common stock,
    at cost..........................................              (46,000)       (46,000)
                                                              ------------   ------------
     Total shareholders' equity......................            5,484,000      5,738,000
                                                              ------------   ------------
     Total liabilities and shareholders' equity......         $  5,559,000   $  5,814,000
                                                              ============   ============

</TABLE>




        The accompanying notes are an integral part of these statements.
<PAGE>
                            GATEWAY INDUSTRIES, INC.

                            STATEMENTS OF OPERATIONS

                            Year ended December 31,
<TABLE>
<CAPTION>

                                                                  1999           1998
                                                              -----------    ------------
<S>                                                           <C>            <C>
 Revenues............................................         $        --    $        --

 General and administrative expenses.................             654,000        359,000
                                                              -----------    -----------
 Operating loss......................................            (654,000)      (359,000)
                                                              -----------    -----------
 Other income
   Interest..........................................             251,000        375,000
   Gain on sale of investment........................                  --         13,000
   Reversal of reserve for uncollectible
     note receivable - OMNI..........................                  --        360,000
   Net settlement of unsecured claims - Marsel.......              21,000             --
                                                              -----------    -----------
     Total other income..............................             272,000        748,000
                                                              -----------    -----------

 Net income (loss)...................................         $  (382,000)   $   389,000
                                                              ===========    ===========
 Net income (loss) per share
   - basic and diluted...............................         $      (.11)   $       .11
                                                              ===========    ===========
 Weighted average shares outstanding used
   in computing basic and diluted
   net income (loss) per share.......................           3,592,024      3,592,000

</TABLE>







        The accompanying notes are an integral part of these statements.
<PAGE>
                            Gateway Industries, Inc.

                       STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 1998 and 1999
<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, 1997         3,592,024    $     4,000    $ 9,555,000    $(4,164,000)   $   (46,000)   $ 5,349,000

Net income                                                                          389,000                       389,000
                                   -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31, 1998         3,592,024          4,000      9,555,000     (3,775,000)       (46,000)     5,738,000

Compensation charge for options
  granted to consultants                                             128,000                                      128,000

Net loss                                                                           (382,000)                     (382,000)
                                    ----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31, 1999         3,592,024    $     4,000    $ 9,683,000    $(4,157,000)   $   (46,000)   $ 5,484,000
                                    ==========    ===========    ===========    ===========    ===========    ===========

</TABLE>








         The accompanying notes are an integral part of this statement.
<PAGE>
                            Gateway Industries, Inc.

                            STATEMENTS OF CASH FLOWS

                            Year ended December 31,
<TABLE>
<CAPTION>

                                                                   1999           1998
                                                               -----------    -----------
<S>                                                            <C>            <C>
Cash flows from operating activities:

  Net income (loss)...................................         $  (382,000)   $   389,000

  Adjustments to reconcile net income (loss)
   to net cash used in operating activities:
      Gain on sale of securities......................                  --        (13,000)
      Compensation charge for options
        granted to consultants........................             128,000             --
      Reversal of reserve for uncollectible
        note receivable...............................                  --       (360,000)
      Net changes in assets and liabilities:
          Prepaid expense and other...................              18,000        (13,000)
          Securiy deposit.............................              20,000        (80,000)
          Accounts payable and accrued expenses.......              (1,000)       (24,000)
                                                               -----------    -----------
      Net cash used in operating activities...........            (217,000)      (101,000)
                                                               -----------    -----------
Cash flows from investing activities:

  Collection of note receivable - OMNI................             566,000       (206,000)
  Prepaid acquisition costs - Oaktree.................             (24,000)            --
  Purchase of equities available for sale.............                  --        (92,000)
  Sale of equities available for sale.................                  --        106,000
                                                               -----------    -----------
      Net cash provided by (used in)
        investing activities..........................             542,000       (192,000)
                                                               -----------    -----------
      Net increase (decrease) in cash and
        cash equivalents..............................             325,000       (293,000)

Cash and cash equivalents at beginning of year........           5,140,000      5,433,000
                                                               -----------    -----------
Cash and cash equivalents at end of year..............         $ 5,465,000    $ 5,140,000
                                                               ===========    ===========
Supplemental cash flow information:

  Cash paid during the year for income taxes..........         $     1,000    $       800
</TABLE>





        The accompanying notes are an integral part of these statements.
<PAGE>
                            Gateway Industries, Inc.

                         NOTES TO FINANCIAL STATEMENTS

                           December 31, 1999 and 1998



NOTE A - ORGANIZATION, BUSINESS ACTIVITIES AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES

1.      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.

The Company had no operating business at December 31, 1999.  Management has been
pursuing various  strategic  alternatives  which include the possible use of the
Company's  remaining net assets to acquire,  merge,  or consolidate or otherwise
combine with an operating  business or  businesses;  and in March 2000  acquired
Oaktree Systems, Inc. (See Note G.)

2.      Marsel Mirror & Glass Products, Inc. Transaction

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
production  of 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 had the right to purchase 50% of the outstanding  shares of Marsel until
December 21, 1999 for $2.00. Pursuant to the Agreement, the Company paid $75,000
to Marsel's lender and issued approximately $300,000 of guarantees to vendors of
Marsel, all of which were fully satisfied by December 31, 1998. In addition, the
Agreement contains provisions relating to the allocation between the Company and
the unrelated third party of the proceeds from the sale or liquidation of Marsel
or the sale of equity in Marsel by the unrelated  third party, if either occurs.
The purchase  price and terms were  determined  by the Company and the unrelated
third party following the (a) expiration of Marsel's credit facility; (b) bank's
demand for immediate repayment of all outstanding  balances (c) Marsel's failure
to negotiate a financing  agreement with a new commercial  lender;  and, (d) the
failure of Marsel to obtain an extension of its letter of credit beyond December
31, 1996.

<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


NOTE A (continued)

On December  23,  1996,  Marsel  filed for  bankruptcy  under  Chapter 11 of the
Bankruptcy Code.  During 1999, the Company received  $21,000,  net of $79,000 of
expenses,  in complete and court-  approved  settlement  of all amounts due from
Marsel. During 1999, the Company also exercised its option to acquire 50% of the
outstanding stock of Marsel. This option has not been approved by the bankruptcy
court, and the creditors' committee of Marsel has put forth other proposals.  It
is uncertain as to whether the option will be approved and consummated. Although
Marsel has current business operations,  there is significant  uncertainty as to
the value of the stock of Marsel. Accordingly,  the Company has not assigned any
value to its holdings of Marsel.

3.      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, 1999 and 1998, cash and cash equivalents
were held principally at one financial institution.

4.      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.

5.      Net Income (Loss) Per Share

For 1999 and  1998,  the  basic and  diluted  weighted-average  number of shares
outstanding was 3,592,024.  The effect of common stock  equivalents for 1999 and
1998 has not been considered as such items are antidilutive or not material.

6.      Income Taxes

Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"),  "Accounting for Income Taxes," requires the liability
approach  to  accounting  for  deferred  income  taxes for  financial  reporting
purposes.  Under  the  provisions  of SFAS No.  109,  deferred  tax  assets  and
liabilities are determined  based on tax rates expected to be in effect when the
taxes are actually paid or refunds received.

<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE A (continued)

7.      Stock Options

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
("APB  25"),   "Accounting   for  Stock  Issued  to   Employees,"   and  related
interpretations in accounting for its employee stock options.

8.      Reclassification

Certain prior year account  balances have been  reclassified to conform with the
current year's presentation.


NOTE B - INCOME TAXES

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 are as follows:

                                                      1998           1999
                                                   ----------     ----------
Deferred tax assets
    Reserves...................................    $   11,000     $   11,000
    Compensation charge for options issued
      to non-employees.........................            --         44,000
    Net operating loss carryforward............     3,126,000      3,236,000
                                                   ----------     ----------
        Total deferred tax assets..............     3,137,000      3,291,000

Valuation allowance............................    (3,137,000)    (3,291,000)
                                                   ----------     ----------
Deferred tax assets, net of
  valuation allowance..........................    $       --     $       --
                                                   ==========     ==========

The  deferred  tax  assets  were  offset  by a  valuation  allowance  due to the
uncertainty of realizing the income tax benefits  associated with these deferred
tax assets.


<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


NOTE B (continued)

At December 31, 1999, the Company has Federal net operating  loss  carryforwards
of  approximately  $9,400,000  that  begin to  expire  between  2001  and  2012.
Utilization of the net operating losses may be subject to annual  limitation due
to the ownership  change rules  provided by Section 382 of the Internal  Revenue
Code and similar state provisions.


NOTE C - 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 has been reserved for grant
at December 31, 1998 and 1999.  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.

Directors  who are not  employees  or officers 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.

Pro forma information  regarding net income (loss) per share is required by FASB
Statement  of  Financial   Accounting   Standards  No.  123  ("SFAS  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 1999 risk-free  interest rates of 6.19%;  volatility  factors of
the  expected  market  price  of  the  Company's   common  stock  of  113%.  The
weighted-average  expected  life of the option is 5.3 years.  Dividends  are not
expected in the future. There were no options granted during 1998.

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

<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


NOTE C (continued)

from  those of 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.  Given this method of
amortization,  the  initial  impact of  applying  SFAS No.  123 on pro forma net
income and pro forma net income per share is not representative of the potential
impact on pro forma amounts in future years, when the effect of the amortization
from  multiple  awards would be reflected.  The Company's pro forma  information
follows:


                                                  Year ended December 31,
                                                  1999              1998
                                               ----------        ----------
Pro forma net income (loss)                    $ (596,000)      $  188,000

Pro forma net income (loss) per
  share - basic and diluted                    $     (.17)      $      .05

Employee stock option activity is summarized as follows:

                                                                  Weighted-
                                                                  average
                                                                  exercise
                                                 Shares            price
                                               ----------        ----------

Options outstanding at December 31, 1998
  and 1997                                        248,000        $     2.99

Granted                                            95,500              2.26

Options outstanding at December 31, 1999          343,500        $     2.98
                                               ==========


The  weighted-average  fair value of employee  options  granted  during 1999 was
$1.66 The exercise  prices for employee  options  outstanding as of December 31,
1999 ranged from $ 2.00 to 3.63.  The weighted-  average  remaining  contractual
life of these options is 4.7 years.
<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


NOTE C (continued)

At December 31, 1999,  approximately  293,000  employee options were exercisable
with a weighted-average price of approximately $2.75  per share. No options were
exercised or cancelled during the years ended December 31, 1999 and 1998.

During 1999,  the Company  issued  options to acquire 78,000 shares at $2.00 per
share  to  consultants  of  the  Company.  Such  options  vest  in  three  equal
installments, 1/3 immediately and 1/3 each on the subsequent annual anniversary.
The Company recorded $ 128,000 of compensation  expense relating to such options
during 1999.


NOTE D - NOTE RECEIVABLE

In October  1997,  the  Company  signed a letter of intent to acquire  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 advanced OMNI $450,000  (including $90,000 in
1998), and OMNI issued a secured promissory note to the Company in the amount of
$500,000  originally  due at December 31,  1998.  After the letter of intent was
signed, OMNI's financial performance was significantly worse than expected, and,
accordingly, the Company reserved as uncollectible the $360,000 advanced to OMNI
as of December 31, 1997.  OMNI defaulted on the promissory note during 1998. The
Company and OMNI  renegotiated  the  promissory  note and also  received  50,000
shares of restricted stock of OMNI. The Company reversed the reserve against its
note receivable  during 1998. The Company received  payments of amounts due from
OMNI of $566,000  including  aggregate interest in March 1999. Since the Company
is uncertain as to the value of its holdings in the restricted stock, no amounts
have been recorded.


NOTE E - RELATED PARTY TRANSACTIONS

The Company occupies offices at 150 East 52nd Street,  New York, New York 10022,
under a lease agreement  extending  through March 30, 2001. It subleased  office
space,  at  one-third of its cost for the space,  to each of (a) Steel  Partners
Services,  Ltd.,  an  entity  controlled  by the  Company's  Chairman,  and  (b)
WebFinancial  Corporation ("WEFN"), a public company in which Steel Partners II,
L.P. ("SPS"), an entity controlled by the Company's Chairman,  and the Company's
Chairman have an  approximately  30% beneficial  interest.  Mr. Howard is also a
director of WEFN. As of January 1, 1999, the rent on the office space is paid by
SPS and the Company pays a management fee to SPS.

<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


NOTE E (continued)

During the year ended December 31, 1998, the Company paid approximately $147,000
to SPS, for certain general administrative services. For the year ended December
31,1999,  the  Company  paid a $275,000  management  fee to that  company  which
included its one-third share of rent expense. (See Note F).


NOTE F - COMMITMENTS

The  Company  entered  into  a  three-year  operating  lease  for  office  space
commencing  April 1,  1998.  During  1999,  the rent was paid by Steel  Partners
Services,  Ltd.  ("SPS") and the Company paid a management  fee to SPS (See Note
E). Future minimum lease payments under this lease are as follows:

                                                     Deduct            Net
                                                    sublease         rental
                                    Commitments      rentals      commitments
                                    -----------    -----------    -----------

2000                                $    97,000         65,000    $    32,000
2001                                     24,000         16,000          8,000
                                    -----------    -----------    -----------

                                    $   121,000    $    81,000    $    40,000



The Company  has sublet a portion of its office  space to  companies  affiliated
with its  Chairman.  Rent  expense  for the year  ended  December  31,  1999 was
$32,000.

<PAGE>
                            Gateway Industries, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE G - SUBSEQUENT EVENT (unaudited)

On March 21, 2000, the Company  acquired all of the outstanding  common stock of
Oaktree Systems, Inc. ("Oaktree"). Oaktree provides database management services
and web site  design  and  maintenance  for  numerous  national  not-for-profit,
healthcare and publishing  entities.  The purchase price consisted of $2 million
in cash paid at closing and the  issuance of 600,000  shares of common  stock of
the Company with a  negotiated  value of $1.30 per share and the  assumption  of
approximately  $650,000 of debt,  which was repaid in full at the closing  date.
Oaktree had  revenues  of  approximately  $3 million in 1999 and was  marginally
profitable.   Assets  and   liabilities   acquired  are  summarized  as  follows
(unaudited):



     Current assets                               $  700,000
     Other assets                                    325,000
                                                  ----------

                                                  $1,025,000
                                                  ==========

     Current liabilities other than
       bank debt                                  $ (325,000)
     Bank debt                                      (650,000)
                                                  ----------

                                                  $ (975,000)
                                                  ==========