<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 13, 1999
GATEWAY ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-4766 44-0651207
(State of incorporation) (Commission File Number) (IRS Employer ID Number)
500 DALLAS STREET, SUITE 2615
HOUSTON, TX 77002
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 336-0844
(Former name or former address, if changed since last report)
N/A
<PAGE>
Item 5. Other Events
In its Form 10-KSB for the fiscal year ended February 28, 1999, the
Company reported on a legal action entitled STANLEY ROSENTHAL V. SHOREHAM
PIPELINE COMPANY, which was filed in District Court of Milam County, Texas on
September 23, 1994. Mr. Rosenthal alleged that he had an agreement with
Shoreham Pipeline Company to provide natural gas from a gas gathering system
known as the Rockdale System. Shoreham Pipeline and the Company acquired the
Rockdale System on October 1, 1994 through a joint venture managed and
operated by Shoreham Pipeline. Mr. Rosenthal alleged that Shoreham Pipeline
failed to provide natural gas to him causing alleged damage to him. Mr.
Rosenthal alleged fraud, negligent misrepresentation, breach of contract,
unlawful discrimination and violations of the Texas Deceptive Trade Practices
Act ("TDTPA").
In August 1996, Mr. Rosenthal joined the Company as a defendant.
Company management and its counsel believed that a contract did not exist
between Rosenthal and Shoreham Pipeline and consequently Mr. Rosenthal could
not have been damaged in the manner that he alleged. Nonetheless, on May 20,
1999 following a trial on the issues, the jury in the action awarded actual
damages to Mr. Rosenthal in the amount of $1,656,072 and exemplary damages
and damages under the TDTPA which when tripled represented $1,500,000 against
each of Shoreham Pipeline and the Company. A final judgment was entered on
July 28, 1999 as noted above, except that no TDTPA damages were awarded, but
exemplary damages were allowed in the amount of $750,000 against each of
Shoreham Pipeline and the Company.
On September 13, 1999, in an attempt to avoid further costly
litigation, the Company entered into mediation with Rosenthal and Shoreham to
settle all claims between the parties. As a result of the mediation,
Rosenthal agreed to dismiss the Company from the lawsuit, and the Company and
Rosenthal agreed to release each other from any and all claims related to the
aforementioned action. In consideration, the Company agreed to assign without
recourse its right to receive payments for the monthly periods from October
1, 1999 through November 1, 2001 to which it is entitled under its note
receivable from Shoreham dated November 18, 1999 in the original principal
amount of $400,000. Such payments include interest at an annual rate of 7%
and total $249,662. The Company will retain its right to receive the
payments, totaling $124,831, due for the monthly periods from December 1,
2001 through December 1, 2002. In addition, the Company and Shoreham have
agreed to release each other from any claims or controversies that exist or
may arise from the lawsuit. The execution of the final documents and the
filing of the releases with the court is expected within 30 days.
The financial statements of the Company for the quarter ending
November 30, 1999 will reflect a charge to earnings for $213,607 reflecting
the assignment to Rosenthal of the principal portion of the note receivable
from Shoreham.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Gateway Energy Corporation
(Registrant)
By: /s/ S. D. Heflin
S. D. Heflin
Chief Financial Officer
