<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from
__________to __________
Commission File No. 1-4766
GATEWAY ENERGY CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 44-0651207
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10842 Old Mill Road, Suite #5
Omaha, NE 68154
----------------------------------------
(Address of principal executive offices)
Issuer's telephone number (402) 330-8268
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes_____X_____ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 1998 the Issuer had 14,449,500 shares of its
common stock outstanding.
Transitional Small Business Disclosure Format: Yes____ No___X___
<PAGE>
FORM 10-QSB
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Unaudited Consolidated Balance Sheet
as of May 31, 1998. 8
Unaudited Consolidated Statements of Operations for
the three months ended May 31, 1998, and May 31, 1997. 9
Unaudited Consolidated Statements of Cash Flows for
the three months ended May 31, 1998, and May 31, 1997. 10
Notes to Consolidated Financial Statements 11
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following management's discussion and analysis contains
trend analysis and other forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements throughout
this document as a result of the risk factors set forth below in the section
entitled "Factors Affecting Future Results" and elsewhere in this document.
RESULTS OF OPERATIONS
The following table sets forth information for the three months ended May
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating Revenues $1,558,500 $2,995,800
Operating Margin 190,500 597,400
Depreciation and Amortization 177,800 227,800
General and Administrative 535,100 319,900
Other Income (Expense) (33,200) 13,700
Net Earnings (Loss) (556,600) 60,400
</TABLE>
Comparisons between the first quarter of fiscal 1999 and the first
quarter of fiscal 1998 are significantly affected by two major transactions.
First, in September 1997, the Company reached agreement with Shoreham
Pipeline Company ("Shoreham") to dissolve all of the joint ventures between
the parties. The Company transferred its interests, ranging from 60% to 80%,
in six joint ventures to Shoreham. The Company acquired Shoreham's
interests, ranging from 5% to 20%, in nine joint ventures. The Company also
acquired Shoreham's
2
<PAGE>
20% minority interest in Gateway Offshore Pipeline Company and transferred an
offshore system to Shoreham.
Second, in September 1997, the Company sold its limited partnership
interest in Castex LP and its other oil and gas producing properties. As of
May 31, 1998, the proceeds received from the above transactions have not yet
been reinvested in revenue producing assets.
Natural gas prices remained steady in the first quarter of fiscal 1999.
Index prices at Henry Hub in southern Louisiana averaged $2.26 in the current
quarter compared to $1.93 in the prior year. Natural gas prices have
remained firm in spite of the downward pressure on oil prices. Natural gas
producers continue to exploit new drilling opportunities.
Operating revenues declined $1,437,300 from the prior quarter. Sales
attributable to the Company's interests in properties sold to Shoreham were
$1,539,000 and oil and gas production revenues were $43,000 in fiscal 1998.
These decreases were offset by increased revenues from offshore operations
and higher volumes at Fort Cobb. Also, revenues on those joint venture
interests acquired from Shoreham increased 34% in the first quarter of fiscal
1999 reflecting the Company's efforts to connect additional volumes and
improve the profitability of these systems.
Operating margins, that is, revenues less cost of gas purchased and
operating expenses, decreased $406,900 in fiscal 1999 from the prior quarter.
Operating margins from the joint ventures sold to Shoreham and the oil and
gas properties were $420,000 in fiscal 1998. Operating margins on the
properties retained by the Company increased slightly in fiscal 1999
reflecting management's attention to improving the margins on all of its gas
gathering and transportation assets.
General and administrative expenses increased $215,200 in the first
quarter of fiscal 1999. During 1997, the Company changed its management
philosophy and opted to terminate all of its joint venture arrangements and
operate and manage its properties with company employees. In connection
therewith, the Company hired operating management and support staff who
manage the Company's operations from the office in Houston. This change in
Company strategy added significant general and administrative costs. The
cost of six additional personnel and the costs associated with opening a new
office added $187,000 to general and administrative expenses. Legal fees and
insurance also increased reflecting the costs associated with operation of
properties.
General and administrative expenses are expected to continue at the
current level. However, the Company expects to continue to improve the
profitability of its properties and is actively seeking to acquire or invest
in new properties.
The net loss for the quarter of $556,600 reflects the i) effect of the
settlement with Shoreham and related sale of joint venture interests, ii)
sale of the Castex LP partnership interest, and iii) higher general and
administrative expenses to manage and operate properties and seek out
additional investment opportunities. These negative effects were slightly
offset
3
<PAGE>
by decreased depreciation expense, higher interest income and increased
margins on properties retained by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company substantially improved its financial condition with the
completion of the Recapitalization in the first quarter of fiscal 1998.
Monthly cash requirements of approximately $175,000 for preferred dividends
were eliminated and total debt service reduced to $22,000 per month. The
Company's debt to total capitalization is approximately 15% at May 31, 1998
which should provide opportunity for the Company to utilize conventional
long-term financing to fund acquisitions or construction opportunities.
The Company has in place an operating line of credit with a bank with
maximum borrowings of up to $500,000. As of May 31, 1998 the amount
available under this operating line was $490,000.
The Company has cash and cash equivalents and a certificate of deposit
totaling $2.3 million as of May 31, 1998. The Company also receives
approximately $100,000 per month on the note receivable resulting from the
Shoreham transaction. The Company experienced a deficit in cash flow from
operations of $246,600 in the first quarter of fiscal 1999. However, the
Company believes that the cash received on the note receivable will be
sufficient to offset any deficits from cash generated from operations for the
remainder of this fiscal year. The Company intends to use approximately $2.0
million of its cash to invest in acquisitions or capital expansion.
The Company has retained the services of an investment banker with
experience in helping growth-oriented companies in the oil and gas industry.
The investment advisor is expected to assist the Company in obtaining reasonably
priced long-term debt or equity capital to finance its acquisition strategies.
FACTORS AFFECTING FUTURE RESULTS
One of the principal objectives of the Recapitalization was to facilitate
access to reasonably priced capital to enable the Company to build enhanced
stockholder value through the execution of certain strategies. These strategies
include, among other things, i) focusing on gathering, processing, transporting
and marketing of natural gas, ii) expanding the Company's asset base in core
geographic areas, iii) developing a niche that will create demand for our
services, and iv) acquiring or constructing properties in one or more new core
areas.
The Company must provide services to its customers, primarily producers, at
a competitive price. Therefore, in order to be successful the Company must
contain its costs in line with industry competitors. The Company's access to
reasonably priced long-term capital will have a significant effect on its
ability to acquire additional properties to increase operating margins
sufficiently to cover its fixed overhead costs. The Company believes that the
Recapitalization, the retention of an investment advisor with experience in
growing middle market oil and gas companies and experienced operating management
will allow the Company
4
<PAGE>
to access capital and find properties which can provide attractive returns.
However, there can be no assurance that the Company will be successful in
this endeavor.
The Company's ability to generate long-term value for the common
stockholder is dependent upon the enhancement of its core assets and the
successful acquisition of additional midstream assets. There are many companies
participating in the midstream segment of the natural gas industry, many with
resources greater than the Company. Greater competition for profitable
operations can increase prices and make it more difficult to acquire assets at
reasonable multiples of cash flow.
The Company believes that it will be able to compete in this environment
and will be able to find attractive investments which compliment its existing
properties; however, it is not possible to predict competition or the effect
this will have on the Company's operations.
The Company's operations are also significantly affected by factors which
are outside the control of the Company. Gas gathering and processing is
dependent on throughput volume. Throughput on the Company's systems is dependent
on natural gas production which is significantly affected by natural gas prices
as prices affect the willingness of producers to invest the required capital to
obtain geological and geophysical information, drill development or exploratory
wells, and to rework or maximize production on existing wells. Natural gas
prices have recently stabilized at levels which should provide adequate
incentive to producers; however, there is no assurance that such prices will
remain at current levels, and that producers will continue to react positively
to the current prices.
The Company's revenues, particularly in its retail operations, are also
affected by weather. Much of the retail demand is for crop irrigation and
drying. Favorable precipitation in the growing season and hot, dry weather in
the fall can significantly reduce demand for natural gas.
5
<PAGE>
PART II
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
11 Statement re Computation of Per Share Earnings. *
21 Subsidiaries*
27 Financial Data Schedule.*
</TABLE>
_____________________________
* Included in SEC 10-QSB filing only
6
<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 ENERGY CORPORATION
______/s/ Neil A. Fortkamp__________
Chief Financial Officer
____July 14, 1998____
(Date)
7
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 925,700
Certificate of deposit 1,370,100
Trade accounts receivable 902,700
Note receivable, current portion 1,070,900
Inventories 119,300
Prepaid expenses and other assets 233,700
------------
Total current assets 4,622,400
------------
PROPERTY AND EQUIPMENT, AT COST
Gas gathering, processing and transportation 10,021,300
Equipment and office furniture 626,700
------------
10,648,000
Less accumulated depreciation and amortization 2,085,600
------------
8,562,400
------------
OTHER ASSETS
Note receivable, less current portion 609,800
Other 167,600
------------
777,400
------------
$13,962,200
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 23,900
Current maturities of long-term debt 673,200
Accounts payable 1,110,200
Accrued expenses and other liabilities 241,100
------------
Total current liabilities 2,048,400
------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,164,400
------------
STOCKHOLDERS' EQUITY
Common stock- authorized, 17,500,000 shares
of $.25 par value; issued and outstanding, 14,449,500 shares 3,612,400
Additional paid-in capital 15,896,500
Accumulated deficit (8,759,500)
------------
Total stockholders' equity 10,749,400
------------
$13,962,200
------------
------------
</TABLE>
The accompanying notes are an integral part of this statement.
8
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended May 31
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING REVENUES:
Natural gas sales $1,364,300 $2,625,800
Transportation and processing 167,200 333,600
Other 27,000 36,400
---------- ----------
1,558,500 2,995,800
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of natural gas purchased 1,093,900 1,826,600
Operation and maintenance 274,100 571,800
Depreciation and amortization 177,800 227,800
General and administrative 535,100 319,900
---------- ----------
2,080,900 2,946,100
---------- ----------
OPERATING PROFIT (LOSS) (522,400) 49,700
---------- ----------
OTHER INCOME (EXPENSE)
Equity in earnings of partnership - 90,000
Interest and other income 79,600 6,400
Interest expense (112,800) (82,700)
---------- ----------
(33,200) 13,700
---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES (555,600) 63,400
Income taxes 1,000 3,000
---------- ----------
NET EARNINGS (LOSS) $ (556,600) $ 60,400
---------- ----------
---------- ----------
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (0.04) $ 0.004
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended May 31
--------------------------
1998 1997
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (556,600) $ 60,400
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities-
Equity in undistributed earnings of partnership - (90,000)
Depreciation and amortization 177,800 227,800
Non-cash interest expense 54,000 31,000
Other (9,100) (34,500)
Changes in operating assets and liabilities-
Trade accounts receivable 4,100 777,400
Inventories 2,400 1,000
Prepaid expenses and other current assets 69,100 (25,400)
Accounts payable 52,900 (599,800)
Accrued expenses and other liabilities (41,200) (56,800)
----------- ---------
Net cash provided by(used in) operating activities (246,600) 291,100
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (305,000) (125,200)
Payments on notes receivable 558,800 -
Decrease in certificate of deposit 1,379,900 -
Other 15,300 (41,000)
----------- ---------
Net cash provided by (used in) investing activities 1,649,000 (166,200)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 120,000 579,000
Payments on borrowings (1,036,500) (779,200)
Other - (2,000)
----------- ---------
Net cash provided by (used in) financing activities (916,500) (202,200)
----------- ---------
Net change in cash and cash equivalents 485,900 (77,300)
Cash and cash equivalents at beginning of period 439,800 329,500
----------- ---------
Cash and cash equivalents at end of period $ 925,700 $ 252,200
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an intregal part of these statements.
10
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation and Nature of Business
The accompanying consolidated financial statements have been prepared by
the Company, without audit. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
financial position and results of operations in accordance with generally
accepted accounting principles. The financial statements should be read in
conjunction with the financial statements and the Notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended February 28,
1998. Certain minor reclassifications to the May 31, 1997 statements have
been made to conform with the May 31, 1998 presentation.
The consolidated financial statements include the accounts of Gateway
Energy Corporation ("GEC"), and all of its wholly-owned subsidiaries and
joint venture investments. The Company's investments in its joint ventures
are accounted for using the proportional consolidation method. All
significant intercompany transactions have been eliminated in consolidation.
The Company purchases, develops, owns, and operates natural gas
gathering pipeline systems and processing plants and related facilities in
the Gulf Coast and Southwestern states of Texas, Oklahoma and Louisiana, and
in offshore Texas state waters. The Company also operates a natural gas
distribution company in Oklahoma.
(2) Earnings Per Common Share
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, EARNINGS PER SHARE. Basic earnings per share is computed by dividing
the net earnings or loss by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing net earnings or loss by the weighted average number of common shares
outstanding after giving effect to all potentially dilutive common shares
that were outstanding during the period. Potential dilutive common shares
are not included in the computation of diluted earnings per share if they are
anti-dilutive. For the three month periods ending May 31, 1998 and 1997, the
diluted loss per common share is the same as basic since the effect of
potentially dilutive common shares arising from convertible debt and
outstanding stock options and warrants was anti-dilutive.
The weighted average number of common shares outstanding used in the
computation of basic and diluted earnings per share for the three month
periods ended May 31, 1998 and 1997 were 14,454,700 and 14,059,400,
respectively.
11
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) Recapitalization
Effective March 1, 1997 the Company's preferred stockholders approved the
restructuring of all nine series of its preferred stock. As part of the
restructuring the Company's common stockholders authorized a one for twenty-five
reverse split and a reduction of authorized common shares from 75,000,000 to
17,500,000 (collectively the "Recapitalization").
The significant components of the Recapitalization, together with the
applicable accounting effects, are as follows:
- Pursuant to elections by the Series G preferred stockholders, the
Company exchanged $7,769,800 stated value of the Series G mandatory
redeemable preferred stock plus accrued dividends of $505,200 for
$585,900 of 10% subordinated notes, 5,866,500 shares of common stock
and 29,700 common stock purchase warrants and cancelled all Series G
preferred stock.
- The Company exchanged the Series O preferred stock held by Pipeline
Capital, Inc. ("PCI") for 214,000 shares of common stock and cancelled
the promissory note of $298,700 due to the Company from PCI.
- Pursuant to elections by all other preferred stockholders, the Company
exchanged $9,961,500 stated value of Series A (GPC), B, J, K, L, M, &
N preferred stock plus accrued dividends of $403,400, for $585,800 of
10% subordinated notes, 6,292,400 shares of common stock and 32,300
common stock purchase warrants and cancelled all preferred stock of
these series.
The subordinated notes are dated March 1, 1997, with an interest rate of
10%, payable quarterly. Annual equal principal payments begin on March 1, 2000,
and continue through March 1, 2004. The aggregate subordinated notes have a
4.36% interest in the cash distributions and liquidation proceeds of Castex LP
after recovery of the Company's investment and the payment of any related income
taxes.
(4) Notes Payable
Notes payable consist of the following at May 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Operating line of credit $10,000
Other 13,900
-------
$23,900
-------
-------
</TABLE>
12
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's current operating line of credit provides for maximum
available borrowings of $500,000 through August 1998. Interest is payable
monthly at 6.7% per annum and principal is due on demand, or if no demand is
made, at maturity. The line is collateralized by the Company's certificate
of deposit.
The Company used proceeds from the Certificate of Deposit to reduce the
operating lines of credit and pay the note payable to bank which were
outstanding at February 28, 1998.
(5) Long-term Debt
Long-term debt at May 31, 1998 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Promissory notes $ 595,500
Subordinated notes 1,012,500
Note payable to PCI 229,600
----------
1,837,600
Less current maturities 673,200
----------
$1,164,400
----------
----------
</TABLE>
The original conversion privileges of the promissory notes allowed
noteholders to convert at any time into common stock of the Company at a
pre-reverse stock split price of $.40 per share. The promissory notes did
not contain the customary anti-dilution language to effect a change in the
conversion price in the case of stock splits, stock dividends or other
capitalization changes. In 1997, certain noteholders tendered their
promissory notes for conversion at $.40 per share. In lieu of conversion,
the Company and the noteholders agreed at that time to i) a one year
extension on the notes, and ii) a thirty day window for conversion in the
event the Company called the promissory notes as consideration for the
noteholders not converting their notes.
In the opinion of Company's management and Board of Directors, the proper
conversion price for the Venture promissory notes is $10.00 per share, after
giving effect to the one for twenty-five reverse stock split. Although the
intent of the parties was clear at the issuance of the notes, the promissory
noteholders have indicated to the Company they intend to submit their promissory
notes for conversion at the rate of $.40 per share. The Company has informed
the noteholders that the notes will be converted at $10.00 per share.
The Company is continuing to negotiate with certain noteholders to resolve
the conversion price disagreement. The final resolution of this dispute cannot
be presently determined, however, it is not expected to have a material impact
on the Company's results of operations or financial position.
13
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) Supplemental Disclosures of Cash Flow Information
Cash paid during the periods is as follows:
<TABLE>
<CAPTION>
Three Months Ended May 31
-------------------------
1998 1997
------- -------
<S> <C> <C>
Interest $48,400 $66,600
Income Taxes 12,400 25,700
</TABLE>
(7) Subsequent Event
Effective July 1, 1998, the Company acquired all of the outstanding
stock of Abtech Resources, Inc. ("Abtech") for 285,000 shares of common stock
and $44,000 in cash. The majority of Abtech's outstanding stock is owned by
the Company's president. The principal asset of Abtech is a License
Agreement between Abtech and a company which owns a patented process for the
extraction of nitrogen from natural gas. The License Agreement gives the
Company the exclusive right to utilize this extraction process in the Permian
Basin and for all coalbed methane or landfill gas in the continental United
States.
The Company intends to dedicate meaningful resources over the next
several years to developing projects which involve high nitrogen natural gas.
The Company is required to pay a license fee based upon throughput through
each processing unit so long as there are any unexpired patents covering the
extraction technology. There are also certain minimum installed capacity
requirements which must be met in order to maintain the exclusive nature of
the license.
14
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Quarter ended
-------------
May 31, May 31,
1998 1997
---------- ----------
<S> <C> <C>
Weighted average number of common shares
outstanding for basic earnings per share 14,454,700 14,059,400
Potential dilutive common shares:
Add shares issuable pursuant to warrant
agreements less shares assumed repurchased
at the average market price 56,700 (1) -
Add shares issuable pursuant to stock options
less shares assumed repurchased at the
average market price 22,000 (1) -
Add shares issuable from assumed conversion
of convertible promissory notes 1,863,700 (1) 25,000 (1)
----------- ----------
Tentative number of shares for computation
of diluted earnings per share 16,397,100 14,084,400
----------- ----------
----------- ----------
Earnings (loss) applicable to common stock $ (556,600) $ 60,400
Add back interest expense for convertible
promissory notes assumed converted 13,600 19,000
----------- ----------
Tentative earnings (loss) for computation of
diluted earnings per share $ (543,000) $ 79,400
----------- ----------
----------- ----------
Basic loss per common share $ (0.04) $ 0.004
----------- ----------
----------- ----------
Diluted loss per common share (2) $ (0.04) $ 0.004
----------- ----------
----------- ----------
</TABLE>
(1) Not used in diluted earnings per share calculation as effect would be
antidilutive.
(2) Determined based upon the loss applicable to common stock divided by the
weighted average number of common shares since the effect of potential
dilutive shares is anti-dilutive.
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
SUBSIDIARIES
EXHIBIT 21
Company State Percent Owned
------- ----- -------------
Gateway Pipeline Co. Texas 100%
Gateway Energy Marketing Texas 100%
Gateway Processing Company Texas 100%
Fort Cobb Fuel Authority, L.L.C. Oklahoma 100%
Gateway Offshore Pipeline Company Nebraska 100%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> FEB-28-1998
<PERIOD-END> MAR-01-1998
<CASH> 925,700
<SECURITIES> 1,370,100
<RECEIVABLES> 902,700
<ALLOWANCES> 0
<INVENTORY> 119,300
<CURRENT-ASSETS> 4,622,400
<PP&E> 10,648,000
<DEPRECIATION> 2,085,600
<TOTAL-ASSETS> 13,962,200
<CURRENT-LIABILITIES> 2,048,400
<BONDS> 1,164,400
0
0
<COMMON> 3,612,400
<OTHER-SE> 7,137,000
<TOTAL-LIABILITY-AND-EQUITY> 13,962,200
<SALES> 1,364,300
<TOTAL-REVENUES> 1,558,500
<CGS> 1,093,900
<TOTAL-COSTS> 1,545,800
<OTHER-EXPENSES> 535,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,800
<INCOME-PRETAX> (555,600)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (556,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556,600)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
