SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
   [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000
                                       or
   [ ]         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)

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

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

Securities registered under Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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. [ ]

State issuer's revenues for its most recent fiscal year:  $2,782,000

Based upon the closing price of the issuer's  Common Stock on March 7, 2001, the
aggregate market value of the 2,421,044  outstanding shares of Common Stock held
by non-affiliates of the issuer was $2,345,507.  Solely for the purposes of this
calculation,  shares  held by  directors  and  officers  of the issuer have been
excluded. Such exclusion should not be deemed a determination or an admission by
the issuer that such individuals are, in fact, affiliates of the issuer.

As of March 7, 2001,  4,192,024  shares of the issuer's Common Stock,  $.001 par
value (the "Common Stock") were issued and outstanding.

                    DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>



                                TABLE OF CONTENTS

                                                                        PAGE NO.
                                     PART I

Item 1.           Description of Business                                  2

Item 2.           Description of Property                                  4

Item 3.           Legal Proceedings                                        4

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

                                     PART II

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

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

Item 7.           Financial Statements                                     9

Item 8.           Changes In and Disagreements With
                  Accountants on Accounting and
                  Financial Disclosure                                     9

                                    PART III

Item 9.           Directors, Executive Officers, Promoters
                  and Control Persons; Compliance With
                  Section 16(a) of the Exchange Act                       10

Item 10.          Executive Compensation                                  12

Item 11.          Security Ownership of Certain Beneficial
                  Owners and Managers                                     14

Item 12.          Certain Relationships and Related
                  Transactions                                            15

Item 13.          Exhibits and Reports on Form 8-K                        16

Signatures                                                                17
<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 or full-time  employees from
December  1996 to March 2000,  when it acquired  all of the  outstanding  common
stock of  Oaktree  Systems  Inc.  ("Oaktree").  The  Company  had  entered  into
transactions  which  could have  allowed it to acquire an interest in or operate
Only Multimedia Network Incorporated and Marsel Mirror and Glass Products, Inc.,
as described below, however it have never operated such companies.

         The Company's Chairman and President and Steel Partners Services,  Ltd.
(an entity  controlled by the Company's  Chairman)  devote time to the Company's
administration and the exploration of potential  acquisitions and other business
opportunities.

OAKTREE SYSTEMS, INC.

         The Company  acquired Oaktree  Systems,  Inc.  ("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 an eighteen year-old company  specializing in providing cost
effective database and fulfillment  solutions to direct marketing  organizations
requiring sophisticated Information Management tools. In the past, these systems
were generally  found 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  implemented a  state-of-the-art  Data Center facility that
incorporates the latest  Client/Server  based PC architecture.  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.

         The  products  and services of Oaktree are  marketed,  in part,  by MDM
Technologies,  Inc.  ("MDM"),  an entity  controlled by the Company's  Chairman,
pursuant  to a  reciprocal  agency  agreement,  dated  March  2000.  Under  this
agreement,  each of Oaktree  and MDM have  agreed to act as agent to market each
other's  products and services as  independent  contractors  of each other.  For
every client developed by a sales lead made by MDM for which Oaktree's  products
and  services  are  used to fill  an  order,  Oaktree  has  agreed  to pay MDM a
commission,  and for every client  developed by a sale made by Oaktree for which
MDM develops  products or to which MDM provides its services,  MDM has agreed to
pay to Oaktree a commission.  See "Item 12.  Certain  Relationships  and Related
Transactions."  Oaktree's  products and services are also  marketed by Oaktree's
senior management.

         Oaktree had revenues for the 12 months ended December 31, 2000 and 1999
of approximately $3.5 million and $3.0 million,  respectively.  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.  Significant software development expenses were also incurred in 2000.
The  Company   believes  that  these   expenditures   will  enable   Oaktree  to
significantly enhance the services provided to its customers.

         During the first  quarter of 2001,  Oaktree  expects to release its new
Database  Fulfillment  System. This Internet based product will allow Oaktree to
capture new  customers  looking for more  efficient  marketing  and  operational
fulfillment  environments.  Oaktree has already procured several contracts based
on this new product line.

         The Company's  growth  strategy  regarding  Oaktree  includes  adding a
formal sales and marketing function and personnel and exploring  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  Oaktree's
competitors possess  substantially greater financial,  technical,  marketing and
other resources than does Oaktree.

         Employees

         As of March 8, 2001, Oaktree employed 43 full-time  employees.  None of
the employees are subject to any collective bargaining agreements and management
believes that its relationship with the Company's employees is good.

FORMER INVESTMENTS

         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 a 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 third party of
the  proceeds  from the sale or  liquidation  of Marsel or the sale of equity in
Marsel by the third party, if either occurs.  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 $100,000, in complete and
court-approved  settlement of all amounts due from Marsel.  The Company expended
$79,000 in 1999 in professional fees to secure this settlement. 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.
<PAGE>
ITEM 2.  Description of Property.

         The Company leases  approximately  2,500 square feet of office space at
150 East 52nd Street,  New York, New York 10022.  The lease expired on March 30,
2001  and is  currently  being  renegotiated.  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  41%  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 $280,000,
which  includes  its  share of rent  expense,  to SPS.  See  "Item  12,  Certain
Relationships and Related Transactions."

         The Oaktree subsidiary leases approximately 2,500 square feet of office
space at 4462 Middle Country Road, Calverton,  New York 11933. The lease expires
on February 1, 2003.  The space is rented from a partnership in which two of the
senior managers of Oaktree each owns a material interest.

ITEM 3.  Legal Proceedings.

         There is no action, suit,  proceeding,  or investigation pending or, to
the  Company's  knowledge,   threatened  against  the  Company,   including  any
investigation of any governmental authority or body.

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

         The Common  Stock of the Company has been  eligible  for trading on the
OTC Bulletin Board since November 17, 1994.  The Common Stock  currently  trades
under the symbol  "GWAY."  The  following  table sets forth the high and low bid
prices of the Common Stock  during the periods  indicated.  Such prices  reflect
inter-dealer prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions.

                                                             BID PRICES
                                                     HIGH($)             LOW($)
              1999
              FIRST QUARTER                          2.1250              1.8125
              SECOND QUARTER                         1.8750              1.5000
              THIRD QUARTER                          2.0625              1.5000
              FOURTH QUARTER                         2.2500              1.8750

              2000
              FIRST QUARTER                          4.0625              1.8750
              SECOND QUARTER                         3.0725              1.7500
              THIRD QUARTER                          2.1875              1.5000
              FOURTH QUARTER                         1.5156                .8750

              2001
              FIRST QUARTER   March 8, 2001          1.0625                .9375

HOLDERS OF RECORD

         At March  7,  2001,  there  were  approximately  1,369  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 Operation

FORWARD LOOKING STATEMENTS

         Certain forward-looking statements,  including statements regarding the
Company's  expected  financial  position,   business  and  financing  plans  are
contained in this Annual Report on Form 10-KSB. These forward-looking statements
reflect   management's  views  with  respect  to  future  events  and  financial
performance.  The words,  "believe,"  "expect,"  "plans"  and  "anticipate"  and
similar expressions  identify  forward-looking  statements.  Although management
believes that the expectations reflected in such forward-looking  statements are
reasonable,  management can give no assurance that such  expectations will prove
to have been  correct.  Important  factors  that could cause  actual  results to
differ  materially from such expectations are disclosed in this Annual Report on
Form  10-KSB.  All  subsequent  written  and  oral  forward-looking   statements
attributable  to the Company are  expressly  qualified in their  entirety by the
cautionary  statements.  Readers are  cautioned  not to place undue  reliance on
these  forward-looking  statements,  which  speak  only as of their  dates.  The
Company   undertakes   no   obligation   to   publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

PLAN OF OPERATION

         On March 21, 2000, the Company acquired Oaktree.  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.
Oaktree is the Company's only operating business at this time.

         Oaktree had revenues  for its full fiscal year ended  December 31, 1999
of $2,979,000 million 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.  For the full year
ended December 31, 2000, Oaktree had revenues of approximately $3.4 million,  of
which $2,800,000 were earned after the acquisition date.

         The Company had revenues for the years ended December 31, 2000 and 1999
of  $2,782,000  and $0,  respectively.  Oaktree had revenues for the full fiscal
years  ended  December  31,  2000  and  1999  of  $3,441,000   and   $2,979,000,
respectively,  a 16% increase.  Oaktree received new annual  contracts  totaling
$1.2  million of  recurring  revenues  starting  in the second  half of 2000.  A
portion of the contract  amount is recorded as deferred  revenue at December 31,
2000.   These  new  contracts  were  secured  through   Oaktree's  new  Internet
initiatives  and the release of its new database  product,  DB-Cultivator  2000.
Expansion of services to existing customers generated  significant  year-to-year
growth  and  Oaktree   continues  to  gain  market  share  from  old  technology
competitors.

         Expenses of the  Company  for the full fiscal  years 2000 and 1999 were
$3,617,000  and  $654,000,  respectively.  Increased  expenses  are  principally
attributable to operating expenses of Oaktree. Oaktree operating expense rose to
$2,881,000  for the full  fiscal  year  ended  December  31,  2000  compared  to
$2,270,000 in 1999, a 27% increase.
<PAGE>
         In 2000, Oaktree completed its strategic business plan that is expected
to enable it to achieve rapid growth during the next five years.  This strategic
business plan has been adopted by the Company. These initiatives are as follows:

         o Explore strategic partners, mergers or acquisition alternatives.

         o Build an infrastructure for rapid growth. This included the migration
         to the MS SQL.

         o Expand Internet  presence.  In 2000,  Oaktree completed several major
         projects  that  have  become  showcases  for  its  web-based  technical
         capabilities.

         The  infrastructure  expansion of Oaktree had a negative  impact on its
results from  operations  for fiscal year 2000  resulting in a $393,000 loss for
that entity.  However,  management  expects that this new  infrastructure and an
expanded  sales  force will  allow  Oaktree to obtain  additional  database  and
fulfillment revenues with higher profit margins for fiscal 2001.

         Management  believes that the competitive  landscape continues to favor
Oaktree's  PC Database  and  Internet  business  model.  To  capitalize  on this
environment,  Oaktree will expand its sales force to  aggressively  market these
new products.

         Management  believes  that the declining  economy  should be an ally to
Oaktree as  customers  begin to look for  improved  operating  efficiencies  and
improved income potential.  Oaktree's  products offer both  opportunities and at
lower costs than traditional, mainframe competitors.

         Currently, 5 customers make up 56% of Oaktree's revenues. Oaktree's new
business  initiatives  will help minimize  this  dependence on a small number of
customers.

         The Company expects its relationship with MDM, a company  controlled by
the  Company's  Chairman and other SPS  investors,  which  provides  third-party
mailing  data  processing,   laser  printing  and  related  services,  to  yield
additional  sales  opportunities  as the two companies can present a unified and
more  comprehensive  array of service  offerings to their customers or potential
customers.

         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.

Income and Expenses Not Associated with Oaktree

         During  the  years  ended  December  31,  2000 and  1999,  the  Company
recognized  $212,000  and  $272,000,  respectively  of  other  income  that  was
primarily  interest earned on available cash and cash equivalents.  The decrease
in interest  income in 2000 over 1999 was due to cash  expended for the purchase
of Oaktree.  General  and  administrative  expenses  and  professional  fees not
associated with Oaktree totaled $327,000 and $225,000, respectively for the year
ended  December 31, 2000 and $510,000 and  $144,000,  respectively  for the year
ended  December 31,  1999.  The  decrease is due  primarily to the  recording of
compensation expense of $128,000 related to option grants in 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash and cash equivalents  totaled $2,604,000 at December
31,  2000,  compared  with  $5,465,000  at  December  31,  1999.   Approximately
$2,700,000 was expended in 2000 for the Oaktree  acquisition  and about $100,000
was  expended  for legal  fees  related to the  Marsel  situation.  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.

New Accounting Pronouncements

         In  June,  1998,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 133 (SFAS 133),  "Accounting for
Derivative  Instruments."  SFAS 133, as amended,  is effective  for fiscal years
beginning  after June 15, 2000.  SFAS 133  establishes  accounting and reporting
standards  for  derivative  instruments  and for  hedging  activities.  SFAS 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  and measure those  instruments at fair market value.  Under certain
circumstances,  a portion of the derivative's gain or loss is initially reported
as a component of income when the transaction affects earnings. For a derivative
not  designated as a hedging  instrument,  the gain or loss is recognized in the
period of change.  We believe  that the adoption of SFAS 133 will have no impact
on our financial position or results of operations.

         In December 1999,  the staff of the Securities and Exchange  Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition," to provide guidance
on the  recognition,  presentation,  and  disclosure  of  revenue  in  financial
statements.  Our  policies  on  revenue  recognition  are  consistent  with this
bulletin.

         In  March  2000,  the  Financial   Accounting  Standards  Board  issued
Financial  Interpretation No. 44 (FIN 44),  "Accounting for Certain Transactions
Involving  Stock  Compensations  - and  Interpretation  of APB No.  25."  FIN 44
clarifies  the  application  of APB 25 for  certain  issues  including:  (a) the
definition  of an employee for purposes of applying APB No. 25, (b) the criteria
for  determining  whether a plan  qualifies as a  noncompensatory  plan, (c) the
definition  of the  date  of  granting  employee  stock  options,  and  (d)  the
accounting  consequences of various  modifications  to the terms of a previously
fixed stock option or award.  FIN 44 became  effective July 1, 2000,  except for
the provisions that relate to modifications  that directly or indirectly  reduce
the exercise price of an award and the  definition of an employee,  which became
effective  after  December 15, 1998.  We adopted in the  accompanying  financial
statements the provisions for the definition of the grant date for options whose
grant  was  subject  to  stockholder  approval.  The  adoption  of FIN 44 had no
material impact on the accompanying financial statements.
<PAGE>
ITEM 7.  Financial Statements

         See the Company's financial statements beginning on page F-1.

ITEM 8.  Changes  in  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

         None.

<PAGE>

                                    PART III

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

         The  following  sets  forth  the  name,   address,   present  principal
occupation,   employment  and  material  occupations,   positions,  offices  and
employment  for the  past  five  years  and  ages as of  March  8,  2001 for the
executive  officers  and  directors  of the  Company.  Members  of the  Board of
Directors  shall be elected at the next annual meeting of  stockholders  to hold
office until the next annual meeting of stockholders  and until their respective
successors shall have been duly elected and qualified.

NAME                                        AGE                 POSITION


Warren G. Lichtenstein                      35                  Director
150 East 52nd Street                                       Chairman of the Board
New York, NY  10022

Ronald W. Hayes                             63                  Director
810 Saturn Street
Suite 16-432
Jupiter, FL  33477-4398

Gary W. Ullman                              59                  Director
420 Woodland Acres Crescent
Maple, Ontario Canada

Jack L. Howard                              39                  Director
2927 Montecito Avenue                                           President
Santa Rosa, CA  95404

Glen M. Kassan                              57               Vice President
8 Barkley Court                                          Chief Financial Officer
East Brunswick, NJ 08816


         Warren G.  Lichtenstein  has served as a director of the Company  since
May 1994 and as Chairman of the Board since October 1995. He served as President
and Director of Marsel from its  inception in July 1995 until  shortly after its
acquisition  by the Company in November  1995, and continued as a director until
its disposition in December 1996. Mr. Lichtenstein has served as the Chairman of
the Board,  Secretary and the Managing Member of Steel Partners,  L.L.C. ("Steel
LLC"), the general partner of Steel Partners II, L.P.  ("Steel"),  since January
1, 1996. Prior to such time, Mr. Lichtenstein was the Chairman and a director of
Steel Partners,  Ltd., the general partner of Steel Partners  Associates,  L.P.,
which was the general partner of Steel,  from 1993 and prior to January 1, 1996.
Mr.  Lichtenstein  was the  acquisition/risk  arbitrage  analyst  at  Ballantrae
Partners,  L.P.,  a  private  investment  partnership  formed  to invest in risk
arbitrage,  special situations and undervalued companies, from 1988 to 1990. Mr.
Lichtenstein   is  a  director  of  the  following   publicly  held   companies:
Tandycrafts, Inc., a manufacturer of picture frames and framed art; WebFinancial
Corporation, a commercial and consumer lender; Puroflow Incorporated, a designer
and manufacturer of precision  filtration  devices;  ECC International  Corp., a
manufacturer  and  marketer  of  computer-controlled   simulators  for  training
personnel to perform  maintenance and operator  procedures on military  weapons;
and CPX Corp., a company with no significant  operating business. He is a former
director  of  Saratoga  Beverage  Group,  Inc.,  a  beverage   manufacturer  and
distributor,  Alpha Technologies,  Inc., an electronics components manufacturer,
Tech-Sym Corporation,  an electronics engineering and manufacturing company, and
PLM  International,  Inc., an equipment leasing company.  Mr.  Lichtenstein also
served as Chairman of the Board of Aydin Corporation, a provider of products and
systems for the  acquisition  and  distribution  of information  over electronic
communications  media, from October 5, 1998 until its sale to L-3 Communications
Corporation in April 1999.

         Ronald W. Hayes has served as a director of the Company since May 1993.
Mr. Hayes is the owner of Lincoln Consultors & Investors, Inc., an investing and
consulting firm.

         Gary W. Ullman  has  served as a director of the  Company since October
2000.  Mr.  Ullman has been  President and Chief  Executive  Officer of Unitron,
Inc., a designer, manufacturer and distributor of hearing aids since March 1998.
During  1996  through  1997,  Mr.  Ullman was Chief  Executive  Officer of Fluid
Packaging, a contract manufacturer of pharmaceuticals and beauty products. Prior
to 1996,  Mr.  Ullman  served  for 26 years as Chief  Executive  Officer  of CCL
Industries, Inc., a manufacturer of consumer products, containers, and labels.

         Jack L. Howard has served as President of the Company  since  September
1994 and as director of the Company  since May 1994.  Since before 1994,  he has
been a principal of Mutual  Securities,  Inc., a registered  broker-dealer.  Mr.
Howard  serves  on the  Boards  of  Directors  of  WebFinancial  Corporation,  a
commercial  and consumer  lender;  Pubco  Corporation,  a printing  supplies and
construction  equipment  manufacturer  and  distributor;  Castelle,  a maker and
marketer of application server  appliances;  and US Diagnostic Inc., an operator
of outpatient diagnostic imaging.

         Glen M. Kassan has served as Vice President and Chief Financial Officer
of the Company since June 2000.  He has also served as Vice  President and Chief
Financial  Officer  of  WebFinancial  Corporation  since  June  2000 and as Vice
President of Steel Partners Services Ltd. since October 1999. From 1997 to 1998,
Mr. Kassan was chairman and Chief Executive  Officer of Long Term Care Services,
Inc., a privately owned healthcare services company which he co-founded prior to
1995 and initially  served as Vice  Chairman and Chief  Financial  Officer.  Mr.
Kassan serves on the Board of Directors of Tandycrafts,  Inc., a manufacturer of
picture frames and framed art; and US Diagnostic Inc., an operator of outpatient
diagnostic imaging.
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's directors and executive officers, and persons who own more than 10% of
a  registered  class  of the  Company's  equity  securities,  to file  with  the
Securities and Exchange  Commission  initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers,  directors  and  greater-than  10%  shareholders  are  required by SEC
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.  The Company  believes  that all such reports  required to be filed during
fiscal 2000 were filed on a timely basis,  with the  exception of Messrs.  Hayes
and Kassan whose  acquisitions  of securities of the Company were  inadvertently
reported late.

ITEM 10. Executive Compensation

         The following table sets forth all  compensation  paid to the Company's
President and principal  executive officer during the fiscal year ended December
31, 2000. No other executive officer received annual compensation.

                           SUMMARY COMPENSATION TABLE

                                      Annual Compensation             Long Term
                                                                    Compensation
                                                                       Awards
Name and Principal Position              Salary      Bonus($)
---------------------------     Fiscal   ------      --------         All Other
                                 Year       Compensation               Options
                                 ----       ------------               -------
Jack L. Howard,                  2000       --           --              --
President                        1999       --           --              --
                                 1998       --      $50,000              --

<PAGE>
Option Grants in Last Fiscal Year

         No options were granted to Mr. Howard in fiscal 2000.

         Mr. Howard did not exercise any options as  of  December 31, 2000.  The
following  table sets forth  certain  information  regarding  unexercised  stock
options held by Mr. Howard as of December 31, 2000.

Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>                                                                                  Value of
                          Number                            Number of                     Unexercised
                            of                        Securities Underlying              in-the-Money
                          Shares                     Unexercised Options at               Options at
                         Acquired        Value             FY-End (#)                     FY-End($)(1)
                            On         Realized
Name                    Exercise(#)       ($)       Exercisable/Unexercisable      Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>           <C>                                 <C>
Jack L. Howard,              0             0             79,167/28,334                       0/0
President

-----------
<FN>
    (1) Based on the market  value as reported  on the OTC  Bulletin  Board,  of
    $.9375 per share of Common Stock at December 31, 2000 and an exercise  price
    of $3.01 per share.
</FN>
</TABLE>
Director Compensation

         Directors  who are not employees or officers of the Company are granted
2,000 options upon  appointment to the Company's Board, and 2,000 options on the
day of each annual meeting of  shareholders in which such director is elected or
re-elected to office.


<PAGE>

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

         The  following  table  sets  forth  information  as of  March  8,  2001
regarding the  beneficial  ownership of the Common Stock by each person known by
the  Company  to own  beneficially  more than 5% of the  Common  Stock,  by each
director and executive officer, individually, and by all directors and executive
officers as a group.

 Name and Address                       Amount and Nature of           Percent
of Beneficial Owner                     Beneficial Ownership           of Class
-------------------                     --------------------           --------
Steel Partners II, L.P.
150 East 52nd Street
New York, NY  10022                          1,674,208                  37.55%

Warren G. Lichtenstein
150 East 52nd Street
New York, NY  10022                          1,749,093  (1)             41.72%

Ronald W. Hayes
810 Saturn Street
Suite 16-432
Jupiter, FL  33477-4398                        102,840  (2)              2.45%

Jack L. Howard
2927 Montecito Avenue
Santa Rosa, CA  95404                          159,387  (3)              3.80%

Gary W. Ullman
420 Woodland Acres Crescent
Maple, Ontario Canada                                0                     *

Glen M. Kassan
7 Barkley Court
East Brunswick, NJ 08816                        13,333  (4)                *

George Soros
888 Seventh Avenue
New York, NY 10022                             827,716  (5)              19.75%

All directors and executive officers
as a group (five persons)                    2,024,653                   48.29%

*Less than 1%
<PAGE>
(1)  Includes:  (i) 1,674,208 shares of Common Stock owned by Steel Partners II,
     L.P, (ii) 41,552 shares of Common stock owned directly by Mr. Lichtenstein,
     and (iii)  33,333  shares of Common  Stock  issuable  upon the  exercise of
     options  within  60 days of March 8,  2001.  Mr.  Lichtenstein  is the sole
     managing  member of the general  partner of Steel  Partners  II,  L.P.  Mr.
     Lichtenstein  disclaims  beneficial ownership of the shares of Common Stock
     owned by Steel  Partners  II,  L.P.  except to the extent of his  pecuniary
     interest therein.
(2)  Includes  (i) 48,340  shares  owned  directly by Mr.  Hayes and (ii) 54,500
     shares of Common Stock issuable upon the exercise of options within 60 days
     of March 8, 2001.
(3)  Includes (i) 55,220  shares owned  directly by Mr.  Howard and (ii) 104,167
     shares of Common Stock issuable upon the exercise of options within 60 days
     of March 8, 2001.
(4)  Includes  13,333  shares of Common  Stock  issuable  upon the  exercise  of
     options within 60 days of March 8, 2001.
(5)  As reported in the shareholder's most recent Schedule 13D.

ITEM 12. Certain Relationships and Related Transactions

         The Company occupies office space at 150 East 52nd Street, New York, NY
10022  under a lease  that  expired  on March 31,  2001,  at an  annual  cost of
approximately  $100,000. It sub-leases offices, at one-third of its cost for the
space, to Steel Partners  Services,  Ltd.  ("SPS"),  an entity controlled by Mr.
Lichtenstein.  The Company also sub-leases offices, at one-third of its cost for
the space,  to WebFinancial  Corporation,  a company in which Steel Partners II,
L.P.  and Mr.  Lichtenstein  have a 41%  aggregate  ownership  interest.  Messr.
Lichtenstein and Howard are also directors of WebFinancial Corporation.

         During the years ended  December 31, 2000 and 1999,  the Company paid a
management  fee of  approximately  $280,000  and  $275,000  to SPS  for  certain
management,  consulting  and  advisory  services.  The  fee  also  included  the
Company's one-third share of rent expense. The Company believes that the cost of
obtaining the type and quality of services  rendered by SPS is no less favorable
than the cost at which the Company could obtain from unaffiliated entities.

         The products and services of Oaktree are marketed,  in part, by MDM, an
entity  controlled  by the Company's  Chairman,  and investors of SPS, an entity
which is also  controlled  by the Company's  Chairman,  pursuant to a reciprocal
agency  agreement,  dated March 2000. Under this agreement,  each of Oaktree and
MDM have agreed to act as agent to market each other's  products and services as
independent  contractors  of each other.  For every client  developed by a sales
lead made by MDM for which  Oaktree's  products and services are used to fill an
order,  Oaktree has agreed to pay MDM a commission  equal to fifteen  percent of
gross  sales for the period  beginning  on the date the first sale is closed and
ending on the date immediately  preceding the one-year  anniversary of the sale,
and seven and  one-half  percent of gross sales to such client  thereafter.  For
every client developed by a sale made by Oaktree for which MDM develops products
or to which MDM  provides  its  services,  MDM has agreed to pay to Oaktree  ten
percent of gross  sales for the period  beginning  on the date the first sale is
closed for such client and ending on the date immediately preceding the one-year
anniversary  of such  sale,  and  five  percent  of gross  sales to such  client
thereafter.  During the year ended  December 31, 2000,  the Company had sales to
MDM of $30,000 and  accounts  receivable  from MDM of  $28,000.  During the same
period,  the Company had purchases  from MDM of $54,000 and accounts  payable to
MDM of $1,500.  The initial term of the  agreement is two years,  which  initial
term will  automatically be extended for one additional year unless either party
gives  written  notice to the other party to terminate the  arrangement  no less
than sixty days prior to the expiration of the initial term.
<PAGE>
ITEM 13. Exhibits, Lists and Reports on Form 8-K

(a)      Exhibits

         See exhibits index immediately following the signature page.

(b)      Reports on Form 8-K:

         The  Company  filed a Current  Report on Form  8-K dated March 21, 2000
         (the "March 21 Current  Report"),  reporting  under Item 2. Acquisition
         or  Disposition  of Assets.  The  Company  amended the March 21 Current
         Report  and filed a Form 8-K/A  dated  May 22,  2000,  to  provide  the
         financial statements of  Oaktree Systems,  Inc. as of December 31, 1999
         and pro forma financial information as of March 31, 2000.

<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 12, 2001

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

                                   Date:  April 12, 2001

                                   By /s/Glen M. Kassan
                                   --------------------
                                   Glen M. Kassan,
                                   Vice President
                                   Chief Financial Officer


<PAGE>

                                POWER OF ATTORNEY

         Gateway Industries,  Inc. and each of the undersigned do hereby appoint
Jack L. Howard and Glen M. Kassan,  and each of them singly, its or his true and
lawful  attorney  to  execute  on behalf of  Gateway  Industries,  Inc.  and the
undersigned  any and all  amendments  to the Annual Report on Form 10-KSB and to
file the same with all  exhibits  thereto  and  other  documents  in  connection
therewith, with the Securities and Exchange Commission.

         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.

         /s/ Jack L. Howard                    Date: April 12, 2001
         ------------------
         Jack L. Howard,
         President
         Director

         /s/Glen M. Kassan                     Date: April 12, 2001
         -----------------
         Glen M. Kassan,
         Chief Financial Officer

         /s/Warren G. Lichtenstein             Date: April 12, 2001
         -------------------------
         Warren G. Lichtenstein,
         Director

         Ronald W. Hayes                       Date: April 12, 2001
         ---------------
         Ronald W. Hayes,
         Director

         Gary W. Ullman                        Date: April 12, 2001
         --------------
         Gary W. Ullman,
         Director

<PAGE>


                                  EXHIBIT INDEX


2.1      Agreement and Plan of Merger  - Incorporated by reference to Exhibit C
         to Proxy Statement on Schedule 14A filed August 16, 1994.


3.1      Articles of Incorporation - Incorporated  by reference  to Exhibit D to
         Proxy Statement on Schedule 14A filed August 16, 1994.

3.2      By laws - Incorporated by reference to Exhibit E to  Proxy Statement on
         Schedule 14A filed August 16, 1994.

10.8     Amended and Restated 1990 Incentive Stock Option Plan and 1990
         Nonstatutory Stock Option Plan - Incorporated  herein  by  reference to
         Exhibit 10.8 to Annual Report on Form 10-KSB filed April 16, 1996.

10.9     Form of Indemnity  Agreement  between the Registrant and certain of its
         Officers and Directors.  - Incorporated by reference to Exhibit 19.1 to
         Quarterly Report on Form 10-Q filed August 14, 1989.

10.10    Stock  Purchase  Agreement, dated  December 21, 1996,  between  Gateway
         Industries, Inc.and Richard A. Hickland. - Incorporated by reference to
         Exhibit 1 to Current Report on Form 8-K filed January 6, 1997.

10.11    Stock Purchase Agreement, dated as of March 21, 2000, by and among
         Gateway  Industries, Inc., Frank C. Mackay, Jr., Thomas Tomaszewski and
         Edward W. Testa, Jr. - Incorporated by reference to Exhibit 2.1 to
         Current Report on Form 8-K filed March 31, 2000.


*21.1    Subsidiaries of Registrant.

------------
*Filed Herein.
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


                                                                           PAGE


Reports of Independent Certified Public Accountants                         F-2

Financial Statements

     Balance Sheets as of December 31, 2000 and 1999                        F-3

     Statements of Operations for the Years Ended
        December 31, 2000 and 1999                                          F-4

     Statement of Shareholders' Equity for the Years Ended
        December 31, 2000 and 1999                                          F-5

     Statements of Cash Flows for the Years Ended
        December 31, 2000 and 1999                                          F-6

     Notes to Financial Statements                                    F-7 - F-19


                                    SCHEDULES



Schedule II - Valuation and Qualifying Accounts and Reserves                S-1

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




The Board of Directors and Shareholders
    Gateway Industries, Inc.


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Gateway
Industries, Inc. and Subsidiary as of December 31, 2000 and 1999 and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
the years 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 of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Gateway Industries,
Inc.  and  Subsidiary  at  December  31,  2000 and 1999 and the  results  of its
operations and its cash flows for the years ended December 31, 2000 and 1999, in
conformity with accounting principles generally accepted in the United States of
America.



/s/GRANT THORNTON LLP
Grant Thornton LLP


New York, New York
March 2, 2001

<PAGE>


                     GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                                 BALANCE SHEETS

                                  December 31,
<TABLE>
<CAPTION>
                                    ASSETS                                        2000            1999
                                                                               ----------      ----------

<S>                                                                           <C>              <C>
Current assets
    Cash and cash equivalents                                                 $ 2,604,000      $ 5,465,000
    Accounts receivable, net of allowance for doubtful accounts
       of $10,000 at December 31, 2000                                            497,000               --
    Prepaid expenses                                                               43,000           10,000
    Other current assets                                                           13,000               --
                                                                               ----------       ----------

         Total current assets                                                   3,157,000        5,475,000


Security deposits and other                                                        42,000           84,000

Fixed assets, net of accumulated depreciation of $39,000                          382,000               --

Intangible assets, net of accumulated amortization of $217,000                  3,267,000               --
                                                                               ----------       ----------

         Total assets                                                         $ 6,848,000      $ 5,559,000
                                                                               ==========       ==========


                   Liabilities and Shareholders' Equity

Current liabilities
    Accounts payable and accrued expenses                                     $   162,000      $    75,000
    Deferred income                                                               253,000               --
    Customer deposits                                                             202,000               --
    Capital lease obligation                                                        7,000               --
                                                                               ----------       ----------

         Total current liabilities                                                624,000           75,000
                                                                               ----------       ----------


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; 4,192,024 and 3,592,024 shares issued and outstanding
       at December 31, 2000 and 1999, respectively                                  4,000            4,000
    Capital in excess of par value                                             11,046,000        9,683,000
    Accumulated deficit                                                        (4,780,000)      (4,157,000)
    Treasury stock, 11,513 shares of common stock, at cost                        (46,000)         (46,000)
                                                                               ----------       ----------

         Total shareholders' equity                                             6,224,000        5,484,000
                                                                               ----------       ----------

         Total liabilities and shareholders' equity                           $ 6,848,000      $ 5,559,000
                                                                               ==========       ==========
</TABLE>

        The accompanying notes are an integral part of these statements.
<PAGE>

                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,
<TABLE>
<CAPTION>


                                                                                  2000             1999
                                                                               ----------       ----------

<S>                                                                           <C>              <C>
Revenues                                                                      $ 2,782,000      $        --

Costs and expenses
     Personnel costs                                                            1,707,000           28,000
     General and administrative                                                   891,000          401,000
     Cost of revenues                                                             456,000               --
     Amortization of intangible assets                                            219,000               --
     Professional fees                                                            246,000          225,000
     Occupancy                                                                     98,000               --
                                                                               ----------       ----------

           Total costs and expenses                                             3,617,000          654,000
                                                                               ----------       ----------

Operating loss                                                                   (835,000)        (654,000)

Other income
    Interest                                                                      193,000          251,000
    Net settlement of unsecured claims related to Marsel                               --           21,000
    Other income                                                                   19,000               --
                                                                               ----------       ----------

           Total other income                                                     212,000          272,000
                                                                               ----------       ----------


Net loss                                                                      $  (623,000)     $  (382,000)
                                                                               ==========       ==========

Net loss per share - basic and diluted                                        $      (.15)     $      (.11)
                                                                                     =====            =====


Weighted average shares outstanding used in
    computing basic and diluted net loss per share                              4,058,873        3,592,024
                                                                                =========        =========

</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                        STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 1999 and 2000
<TABLE>
<CAPTION>


                                                         Common stock         Capital in
                                                   ---------------------      excess of     Accumulated    Treasury
                                                   Shares         Amount      par value       deficit        stock         Total
                                                   ------         ------     -----------      -------      ---------     ---------

<S>                                               <C>          <C>           <C>           <C>            <C>           <C>
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 for the year ended December 31, 1999
                                                                                              (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

Shares issued in connection with
acquisition of Oaktree Systems, Inc.                600,000                    1,363,000                                  1,363,000

Net loss for the year ended December 31, 1999
                                                                                                            (623,000)      (623,000)
                                                  ---------     ---------     ----------   -----------    ----------    -----------


Balance at December 31, 2000                      4,192,024    $    4,000    $11,046,000   $(4,780,000)   $  (46,000)   $ 6,224,000
                                                  =========    ==========    ===========   ===========    ==========    ===========

</TABLE>








         The accompanying notes are an integral part of this statement.

<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,
<TABLE>
<CAPTION>
                                                                                  2000             1999
                                                                               ----------       ----------

<S>                                                                           <C>              <C>
Cash flows from operating activities:
    Net loss                                                                  $  (623,000)     $  (382,000)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
         Depreciation and amortization                                            256,000               --
         Compensation charge for options granted to consultants                        --          128,000
         Net changes in operating assets and liabilities:
             Accounts receivable                                                 (121,000)              --
             Prepaid expense and current other assets net of assets and
             liabilities acquired                                                  65,000           18,000
             Account payable and accrued expenses                                (104,000)          (1,000)
             Deferred income                                                      253,000               --
             Customer deposits                                                    202,000               --
                                                                               ----------       ----------

         Net cash used in operating activities                                    (72,000)        (217,000)
                                                                               ----------       ----------

Cash flows from investing activities:
    Collection of note receivable - OMNI                                               --          566,000
    Purchase of property, plant and equipment                                    (100,000)              --
    Purchase of Oaktree Systems, Inc., net of cash acquired                    (2,674,000)         (24,000)
                                                                               ----------       ----------

         Net cash provided by (used in) investing activities                   (2,774,000)         542,000

Cash flows from financing activities:
    Payments of capital lease                                                     (15,000)              --
                                                                               ----------       ----------

         Net cash used in financing activities                                    (15,000)              --

         Net increase (decrease) in cash and cash equivalents                  (2,861,000)         325,000

Cash and cash equivalents at beginning of year                                  5,465,000        5,140,000
                                                                                ---------       ----------

Cash and cash equivalents at end of year                                      $ 2,604,000      $ 5,465,000
                                                                               ==========       ==========

Supplemental cash flow information:
    Cash paid during the year for
       Income taxes                                                           $     2,000      $     1,000
       Interest                                                               $    29,000               --
</TABLE>

Supplemental information:
On March 21,  2000,  the Company  acquired  100% of the common  stock of Oaktree
Systems,  Inc. for $4,078,000,  which included the issuance of 600,000 shares of
common stock of Gateway Industries, Inc., valued at $2.27 per share.


        The accompanying notes are an integral part of these statements.
<PAGE>


                     GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2000 and 1999


NOTE A - ORGANIZATION AND BUSINESS ACTIVITIES

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 from December 31, 1996
to March 2000.

2.       Acquisition of Oaktree Systems, Inc.

         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 of
$4,087,000  consisted  of $2 million in cash paid at closing and the issuance of
600,000  shares of common  stock of the Company  with an average  quoted  market
value of $2.27 per share, the assumption of approximately  $650,000 of bank debt
(which was repaid in full at the closing date) and expenses of $75,000.

         The  acquisition  was  accounted  for as a purchase,  and,  accordingly
includes the results of operations since the date of acquisition.  The excess of
purchase  price over the fair  value of net  assets  acquired  was  recorded  as
goodwill of $3,122,000 and other  intangible  assets of $362,000,  which will be
amortized over 15 and 5 years,  respectively.  Assets  acquired and  liabilities
acquired at estimated fair value at March 21, 2000 are as follows:

Cash                                                                $     8,000
Accounts receivable                                                     376,000
Other current assets                                                     99,000
Fixed assets, net                                                       320,000
Security deposits                                                        13,000
Accounts payable and accrued expense                                   (191,000)
Capital leases                                                          (22,000)
                                                                     ----------

Total tangible net assets                                           $   603,000
                                                                     ==========
<PAGE>

                     GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999


NOTE A (continued)

         The  following   consolidated   condensed   pro  forma   statements  of
operations, as if the Oaktree acquisition had occurred at January 1, 1999.

                                                           Year ended
                                                           December 31,
                                                     2000              1999
                                                 ------------------------------

Sales                                           $   3,441,000     $   2,979,000
Cost of expenses                                   (4,399,000)       (3,571,000)
Other income                                          213,000           235,000
                                                  -----------      ------------
Net loss                                        $    (745,000)    $    (357,000)
                                                 ============      ============

Net loss per share--basic and diluted           $        (.18)    $        (.09)
                                                 ============      ============
Weighted average shares outstanding
  used in computing basic and diluted net
  loss per share                                    4,192,024         4,192,024

The pro forma statements of operations shown above should be read in conjunction
with the related historical information and is not necessarily indicative of the
results that would have been attained had the transaction actually taken place.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.       Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its  subsidiary.  All  significant  intercompany  balances have been
eliminated in consolidation.

2.       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, 2000 and 1999,  cash and cash
equivalents were held principally at one financial institution.
<PAGE>
                     GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999
NOTE B (continued)

3.       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.

4.       Net Loss Per Share

         For the years ended  December 31, 2000 and 1999,  the  weighted-average
number of shares  outstanding  used in the  basic and  diluted  weighted-average
numbers were 4,058,873 and 3,592,024,  respectively.  The effect of common stock
equivalents  for 2000 and 1999 which  aggregated  460,500  and  343,500  shares,
respectively, has not been considered as such items are antidilutive.

5.       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.  A  valuation  allowance  is
provided  if there is  uncertainty  as to the  ability to utilize  deferred  tax
assets.

6.       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  as  clarified by  Financial  interpretation  No. 44 ("FIN 44"),
"Accounting  for  Certain   Transactions   Involving  Stock   Compensation,"  in
accounting for its employee stock options.

7.       Advertising

         The Company  follows the policy of charging the costs of advertising to
expense as incurred.  Total advertising expense was $57,000 and $18,000, for the
years ended December 31, 2000 and 1999, respectively.
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE B (continued)

8.       Long Lived Assets

         Long-lived assets, such as ongoing client  relationships,  goodwill and
property and equipment,  are evaluated for impairment  when events or changes in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable through the estimated  undiscounted future cash flows resulting from
the use of these assets.  When any such  impairment  exists,  the related assets
will be written down to fair value.


9.       Revenue Recognition

         Revenues  are  recognized  upon  delivery  of  services.   Billings  on
contracts  that extend  beyond one month are  deferred  and then  recognized  as
earned. Customer deposits are used to pay for printing and materials.

10.      Property, Equipment and Depreciation

         Property and  equipment  are carried at cost.  Property  and  equipment
obtained  upon the  acquisition  of Oaktree  are  carried at fair  value,  which
approximates  cost at the date of  acquisition.  Depreciation  of  property  and
equipment  is computed  using  straight-line  and  accelerated  methods over the
estimated  useful lives of the assets.  The estimated useful lives of the assets
are as follows:

                  Leasehold improvements           30 years
                  Furniture and fixtures          5-7 years
                  Equipment                         7 years

11.      Segments

         The Company has adopted Statement of Financial Accounting Standards No.
131 ("SFAS No. 131"),  "Disclosures  About Segments of an Enterprise and Related
Information.  SFAS No. 131  establishes  standards for the way companies  report
information about operating  segments in annual financial  statements.  SFAS No.
131 also  establishes  standards  for related  disclosures  about  products  and
services,  geographic areas and major customers. The Company has determined that
it  operates  as  a  one-business  segment,  a  provider  of  Internet  database
management services.

12.      Reclassification

         Certain prior year account  balances have been  reclassified to conform
to the current year's presentation.
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE B (continued)

13.      New Accounting Pronouncements

         In  June,  1998,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 133 (SFAS 133),  "Accounting for
Derivative  Instruments."  SFAS 133, as amended,  is effective  for fiscal years
beginning  after June 15, 2000.  SFAS 133  establishes  accounting and reporting
standards  for  derivative  instruments  and for  hedging  activities.  SFAS 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  and measure those  instruments at fair market value.  Under certain
circumstances,  a portion of the derivative's gain or loss is initially reported
as a component of income when the transaction affects earnings. For a derivative
not  designated as a hedging  instrument,  the gain or loss is recognized in the
period of change.  We  believe  that the  adoption  of SFAS 133 will not have an
impact on our financial position or results of operations.

         In December 1999,  the staff of the Securities and Exchange  Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition," to provide guidance
on the  recognition,  presentation,  and  disclosure  of  revenue  in  financial
statements.  Our  policies  on  revenue  recognition  are  consistent  with this
bulletin.

         In  March  2000,  the  Financial   Accounting  Standards  Board  issued
Financial  Interpretation No. 44 (FIN 44),  "Accounting for Certain Transactions
Involving  Stock  Compensations  - and  Interpretation  of APB No.  25."  FIN 44
clarifies  the  application  of APB 25 for  certain  issues  including:  (a) the
definition  of an employee for purposes of applying APB No. 25, (b) the criteria
for  determining  whether a plan  qualifies as a  noncompensatory  plan, (c) the
definition  of the  date  of  granting  employee  stock  options,  and  (d)  the
accounting  consequences of various  modifications  to the terms of a previously
fixed stock option or award.  FIN 44 became  effective July 1, 2000,  except for
the provisions that relate to modifications  that directly or indirectly  reduce
the exercise price of an award and the  definition of an employee,  which became
effective  after  December 15, 1998.  We adopted in the  accompanying  financial
statements the provisions for the definition of the grant date for options whose
grant  was  subject  to  stockholder  approval.  The  adoption  of FIN 44 had no
material impact on the accompanying financial statements.
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE C - PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 2000 is summarized as follows:



                  Leasehold improvements            $     23,000
                  Furniture and fixtures                  43,000
                  Equipment                              355,000
                                                    ------------
                  Total                                  421,000

                  Accumulated depreciation               (39,000)
                                                    ------------

                                                    $    382,000

<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE D - INCOME TAXES

         The Company has not provided for income taxes since they have generated

net operating losses. Deferred income tax assets have been fully reserved in all
periods.  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 are as follows:

                                                        2000           1999
                                                        ----           ----

Reserves                                            $     4,000    $     11,000

Compensation charge for options issued
  to non-employees                                           --          44,000
Tax effect of net operating loss carryforward         3,152,000       3,236,000
                                                    -----------     -----------

     Total deferred tax assets                        3,156,000       3,291,000

Valuation allowance                                  (3,156,000)     (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.

         At December  31,  2000,  the Company  has  Federal net  operating  loss
carryforwards of approximately  $7,900,000 that expire through 2020. 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 E - 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 had been reserved for grant
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE E (continued)

at December  31, 1998 and 1999.  At the annual  meeting,  stockholders  approved
increasing  the number of shares  issuable  under the Plans to  850,000  shares.
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,  which  generally vest over 2 to 4 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 2000 and 1999  risk-free  interest  rates of 5.447% and 6.194%;
respectively.  Volatility  factors of the expected market price of the Company's
Common  Stock  are  81.49%  and  113.0%  for 2000 and  1999,  respectively.  The
weighted-average  expected  life of the  option for 2000 and 1999 is 3.9 and 5.3
years, respectively. Dividends are not expected in the future.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly different from those 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.
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE E (continued)

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:

                                                 Year ended December 31,
                                                 2000              1999
                                                 ----              ----

 Pro forma net loss                        $     (875,000)    $    (596,000)

 Pro forma net loss per
   share - basic and diluted               $         (.22)    $        (.17)

         Employee  and  non-employee  stock  option  activity is  summarized  as
follows:

                                                                      Weighted-
                                                                       average
                                                                      exercise
                                                           Shares       price
                                                           ------       -----
Options outstanding at December 31, 1998                  248,000       $2.99
Granted                                                    95,500        2.26
                                                          -------

Options outstanding at December 31, 1999                  343,500        2.98
Expired and cancelled                                    (127,000)       3.47
Granted                                                   244,000        3.62
                                                         --------


Options outstanding at December 31, 2000                  460,500        $3.04
                                                         ========

         The table  above  includes  outstanding  options  of  83,500  and 8,500
granted to  non-employees  with weighted  average  exercise  prices of $1.83 and
$1.81 as of December 31, 1999 and 2000, respectively.

         The exercise prices for employee options outstanding as of December 31,
2000 ranged from $1.50 to $5.00. With  substantially all exercisable  options at
$2.11 per share,  the fair value of options  granted  during  2000 and 1999 were
$1.94 and $1.83, respectively.  The weighted- average remaining contractual life
of these  options is 4.00 years.  At December  31, 2000,  approximately  232,000
employee  options  had vested  and were  therefore  exercisable  with a weighted
average price of approximately $2.35 per share. No options were exercised during
the years ended December 31, 1999 or 2000.

         Subsequent to the  acquisition of Oaktree  Systems the Company  granted
options to the three previous  shareholders of Oaktree Systems pursuant to their
employment  agreements.  The options contain a cashless exercise provision.  The
aggregate option grant was  for 200,000  options with an exercise price of $4.00
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE E (continued)

per share. Half of the options granted vest on the first anniversary of the date
of grant and the balance vest on the second anniversary of the date of grant and
the options expire in five years. Under the current  accounting  guidance of FIN
44 a cashless option is treated as a variable option and therefore requires that
a  portion  of the  difference  between  the  market  value of the stock and the
exercise price of the option be charged to earnings of the current period. As of
December  31, 2000 the  Company  has not  recorded an expense for this since the
market  value of the  underlying  stock is less than the  exercise  price of the
option.

         The Company has granted  40,000  options to a consultant of the Company
during 2000. The options are  exercisable at $1.9375 per share and vest on a pro
rata  basis  over 36 months  from the date of grant.  Under  the  provisions  of
Statement of Financial  Accounting  Standards  #123 (SFAS #123)  Accounting  for
Stock Based  Compensation  the Company is required to record an expense for this
option based upon the Fair Market  Value of the option,  as of December 31, 2000
the expense for this was not  material.  The expense  will be recorded  over the
life of the option.


NOTE F - FORMER BUSINESS ACTIVITIES

         There  are  substantially  no  assets or  liabilities  recorded  by the
Company relating to these activities at December 31, 2000 and 1999.

1.       Note Receivable - Only Multimedia Network, Incorporated

         The Company owns 50,000 shares of restricted  stock of Only  Multimedia
Network,  Incorporated,  a privately  held  company in the business of providing
casting directors with Internet access to text,  pictorial and video information
regarding  actors.  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.

2.       Marsel Mirror & Glass Products, Inc.

         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. Subsequent to the closing,  Glass
Acquisition  Corp.  changed  its name to Marsel  Mirror & Glass  Products,  Inc.
("Marsel").
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE F (continued)

         On December 21, 1996,  the Company sold all  outstanding  shares of its
wholly owned subsidiary, Marsel, to a 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.

         On December 23, 1996,  Marsel filed for bankruptcy  under Chapter 11 of
the Bankruptcy Code. During 1999, the Company received $100,000, in complete and
court- approved  settlement of all amounts due from Marsel. The Company expended
$79,000 in 1999 in professional fees to secure this settlement. 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.


NOTE G - RELATED PARTY TRANSACTIONS

1.       MDM Technology

         During  2000  the  Company  and  MDM  Technology   ("MDM"),  a  company
controlled by the Company's  Chairman and other  investors in SPS entered into a
joint marketing  agreement.  MDM provides  mailing  services to a variety of its
customers.  The Company had sales to MDM of $30,000 for the year ended  December
31,  2000 and  accounts  receivable  from MDM of $28,000  as of such  date.  The
Company had purchases  from MDM of $54,000 for the year ended December 31, 2000,
and accounts payable to MDM of $1,500 as of such date.

2.       Rent

         The Company  occupies  offices at 150 East 52nd Street,  New York,  New
York  10022,  under a lease  agreement  extending  through  March 31,  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 41% 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. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE G (continued)

         For the year  ended  December  31,  2000 and  1999,  the  Company  paid
$280,000 and $275,000,  respectively  in management  fees to SPS, which included
its one-third share of rent expense. (See Note H).

NOTE H - COMMITMENTS

1.       Leases

         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
G). Oaktree leases 9,008 square feet of office space in Calverton, New York. The
lease  expires  on  February  28,  2003 and has an annual  lease  commitment  of
$143,000 per year.  The space is rented from a  partnership  in which two of the
senior managers of Oaktree each own a material interest. Oaktree has a lease for
1,650 square feet in St. Paul, Minnesota,  which expired on Dec 31, 2000. Future
minimum lease payments under the leases are as follows:



                                         Deduct                  Net
                                        sublease               rental
               Commitments               rentals             commitments

2001        $        165,000       $         16,000       $        149,000
2002                 163,000                     --                163,000
2003                  28,000                     --                 28,000
            ----------------       ----------------       ----------------

            $        356,000       $         16,000       $        340,000
            ================       ================       ================


         The  Company  has  sublet a portion of its  office  space to  companies
affiliated with its Chairman.  Rent expense for the year ended December 31, 2000
and 1999 was $153,000 and $125,000, respectively.

2.       Capital Leases

         The Company has entered into capital  leases for certain  machinery and

equipment utilized by Oaktree. The gross value of the assets that were leased is
$38,500 and as of December 31, 2000 the Company recorded  depreciation of $3,900
against these assets.  As of December 31, 2000 the gross remaining  payments for
the Capital leases approximate $6,700 of which $800 represents imputed interest.
In 2001 the  Company  is  required  to pay  $4,700  and in 2002 the  Company  is
required to pay $2,000 under the terms of the capital leases.
<PAGE>
                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 2000 and 1999

NOTE H (continued)

3.       Major Customers

         Sales to five major customers  amounted to 56% of all net sales for the
year ended December 31, 2000. A breakdown of these customers is as follows:


                  Customer A                          18%
                  Customer B                          13%
                  Customer C                           9%
                  Customer D                           8%
                  Customer E                           8%

         For the year  ended  December  31,  1999,  the  make up of the  Oaktree
customers  were  generally  the same as for the year ended  December  31,  2000.
Amounts  receivable  from  these  major  customers  were 52% of  total  accounts
receivable at December 31, 2000.

4.       401K Plan

         The Company has a defined  contribution pension plan for the employees.
The Company's  contributions to the plan are based on management  determination.
For the year ended December 31, 2000 and 1999 the Company  recorded  expenses of
$19,000 related to this plan.
<PAGE>


                     GATEWAY INDUSTRIES, INC. AND SUBSIDIARY

                                    SCHEDULES

                           December 31, 2000 and 1999

                                       S-1


                                   Schedule II

                 Valuation and Qualifying Accounts and Reserves


                         Provision for Doubtful Accounts

                        Opening                                      Ending
                        Balance       Provision      Write-off       Balance
                        -------       ---------      ---------       -------
January 1, 1999       $        0     $       --     $       --     $        0

January 1, 2000       $        0     $   11,607     $   (2,000)    $    9,607





                     Deferred Tax Asset Valuation Allowance

                        Opening                                      Ending
                        Balance       Provision      Write-off       Balance
                        -------       ---------      ---------       -------
January 1, 1999       $3,137,000     $  154,000      $      --     $3,291,000

January 1, 2000       $3,291,000     $    11,000     $(146,000)    $3,156,000

<PAGE>


                                                                    Exhibit 21.1

                    GATEWAY INDUSTRIES, INC. AND SUBSIDIARY


                           Subsidiaries of Registrant


                          State of Corporate
Name                         Incorporation                  Percentage Ownership
----                         -------------                  --------------------
Oaktree Systems, Inc           New York                             100%