<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 September 30, 2000
[ ] 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)
500 Dallas Street, Suite 2615
Houston, TX 77002
(Address of principal executive offices)
Issuer's telephone number : (713) 336-0844
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 November 14, 2000, the Issuer had 15,312,120 shares of its common
stock outstanding.
Transitional Small Business Disclosure Format: Yes No X
------- -------
1
<PAGE>
FORM 10-QSB
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Unaudited Consolidated Balance Sheet
as of September 30, 2000. 3
Unaudited Consolidated Statements of Operations for the three
months and nine months ended September 30, 2000
and September 30, 1999. 4
Unaudited Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000
and September 30, 1999. 5
Notes to Consolidated Financial Statements 6
</TABLE>
2
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents........................................................... $ 78,506
Certificates of deposit............................................................. 691,387
Trade accounts receivable........................................................... 1,659,035
Inventories ........................................................................ 70,040
Prepaid expenses and other assets .................................................. 190,927
------------------
Total current assets........................................................... 2,689,895
------------------
Property and Equipment - at cost
Gas gathering, processing and transportation........................................ 8,838,894
Equipment and office furniture...................................................... 664,933
------------------
9,503,827
Less accumulated depreciation....................................................... 3,167,638
------------------
6,336,189
------------------
Other Assets
Notes receivable.................................................................... 119,751
Equity investment in partnership.................................................... 265,758
Other............................................................................... 259,303
------------------
644,812
------------------
$ 9,670,896
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................................................... $ 1,423,691
Notes payable....................................................................... 130,000
Current maturities of long-term debt................................................ 234,328
Accrued expenses and other liabilities.............................................. 106,235
------------------
Total current liabilities...................................................... 1,894,254
------------------
Long-term Debt, less current maturities................................................ 608,440
------------------
Stockholders' Equity
Preferred stock - $1.00 par value; 10,000 shares authorized; no shares issued and
outstanding...................................................................... -
Common stock - $0.25 par value; 17,500,000 shares
authorized; 15,312,120 shares issued and outstanding............................ 3,828,030
Additional paid-in capital.......................................................... 16,047,437
Accumulated deficit................................................................. (12,707,265)
-------------------
7,168,202
-------------------
$ 9,670,896
===================
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ----------------------------------
2000 1999 2000 1999
------------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Operating revenues
Natural gas sales................................$ 3,099,495 $ 1,940,649 $ 6,192,398 $ 4,179,350
Transportation and processing.................... 102,737 195,754 300,012 863,887
Other............................................ 23,657 51,577 68,502 153,156
--------------- ---------------- ---------------- ----------------
3,225,889 2,187,980 6,560,912 5,196,393
Operating costs and expenses
Cost of natural gas purchased................... 2,435,156 1,437,399 4,989,940 3,187,120
Operation and maintenance....................... 207,513 286,055 706,009 842,161
Depreciation and amortization................... 171,796 191,491 514,333 587,019
General and administrative...................... 519,876 745,416 1,391,120 1,859,552
--------------- ---------------- ---------------- ----------------
3,334,341 2,660,361 7,601,402 6,475,852
--------------- ---------------- ---------------- ----------------
Operating loss...................................... (108,452) (472,381) (1,040,490) (1,279,459)
Other income (expense)
Interest income................................. 11,708 16,903 41,776 57,778
Interest expense................................ (34,158) (41,685) (101,182) (120,118)
Equity in earnings of partnership............... 26,790 24,962 68,860 65,900
Other income, net............................... 190 923 275,864 10,743
--------------- ---------------- ---------------- ----------------
4,530 1,103 285,318 14,303
--------------- ---------------- ---------------- ----------------
Loss before income taxes............................ (103,922) (471,278) (755,172) (1,265,156)
Income taxes........................................ - - - -
--------------- ---------------- ---------------- ----------------
Net loss.............................................$ (103,922) $ (471,278) $ (755,172) $ (1,265,156)
=============== ================ ================ ================
Basic and diluted loss per share.....................$ (0.01) $ (0.03) $ (0.05) $ (0.08)
=============== ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999
-------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities
Net loss................................................................ $ (755,172) $ (1,265,156)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in undistributed earnings of partnerships..................... (7,763) (16,646)
Depreciation and amortization........................................ 514,333 587,019
Gain on sale of properties........................................... (170,034) -
Stock option compensation expense.................................... 86,036 -
Non-cash expenses.................................................... 42,191 (20,236)
Settlement of Rosenthal lawsuit...................................... - 213,607
Net change in cash and cash
equivalents, resulting from changes in:
Trade accounts receivable.......................................... (613,701) 198,102
Inventories........................................................ (10,724) 5,546
Prepaid expenses and other current assets.......................... (76,104) 102,424
Accounts payable................................................... 611,839 150,885
Accrued expenses and other liabilities............................. (252,414) (43,944)
----------------- -----------------
Net cash used in operating activities........................... (631,513) (88,399)
----------------- -----------------
Cash flows from investing activities
Capital expenditures.................................................... (209,693) (171,949)
Proceeds from sale of properties........................................ 909,589 -
Collections of notes receivable......................................... - 75,663
Decrease (increase) in certificates of deposit.......................... 282,153 (40,582)
---------------- -----------------
Net cash provided by (used in) investing activities............. 982,049 (136,868)
---------------- -----------------
Cash flows from financing activities
Proceeds from borrowings................................................ 330,000 233,500
Payments on borrowings.................................................. (628,119) (86,424)
Issuance of common stock................................................ - 14,975
---------------- ----------------
Net cash (used in) provided by financing activities............. (298,119) 162,051
----------------- ----------------
Net increase (decrease) in cash and cash equivalents....................... 52,417 (63,216)
Cash and cash equivalents at beginning of period........................... 26,089 152,174
---------------- ----------------
Cash and cash equivalents at end of period................................. $ 78,506 $ 88,958
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Principles of Consolidation and Nature of Business
The consolidated financial statements include the accounts of
Gateway Energy Corporation and its wholly owned subsidiary companies, Gateway
Pipeline Company, Gateway Offshore Pipeline Company, Gateway Energy Marketing
Company, Fort Cobb Fuel Authority, L.L.C. and Gateway Processing Company,
plus a small amount of activity in one joint venture and one partnership.
Based on its ownership, the Company proportionally consolidates its joint
venture interest, and accounts for its partnership interest on the equity
method. All significant intercompany transactions have been eliminated in
consolidation.
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 ten months ended December 31, 1999. Certain minor reclassifications to
the prior period statements have been made to conform with the September 30,
2000 presentation.
The Company owns and operates natural gas gathering, transportation
and distribution systems and related facilities in Texas, Oklahoma and
Louisiana, and offshore in Texas and federal waters of the Gulf of Mexico.
The Company also operates a natural gas distribution company in Oklahoma.
(2) Earnings Per Share
Basic earnings per share is computed by dividing 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 shares outstanding, after giving
effect to potentially dilutive common share equivalents outstanding during
the period. Potentially dilutive common share equivalents are not included in
the computation of diluted earnings per share if they are anti-dilutive. For
the three-month and nine-month periods ended September 30, 2000 and 1999, the
diluted loss per common share is the same as basic since the effect of
potentially dilutive common shares arising from 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 September 30, 2000 and 1999 and the nine-month periods ended
September 30, 2000 and 1999 were 15,312,172, 15,312,262, 15,312,195, and
15,259,773.
(3) Notes Payable
The Company has an operating line of credit with a bank that
provides for maximum borrowings of $500,000 through September 2001. Interest
is payable monthly at 7.06% per
6
<PAGE>
GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
annum and principal is due on demand, or if no demand is made, at maturity.
The line is collateralized by $500,000 of the Company's certificates of
deposit. At September 30, 2000, the Company had available borrowing capacity
under the line of credit totaling $370,000.
(4) Long-term Debt
Long-term debt at September 30, 2000 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Subordinated notes $ 842,768
Less current maturities 234,328
-------------
$ 608,440
=============
</TABLE>
(5) New Accounting Rules
The Company has adopted Financial Accounting Standards Board
Interpretation 44, INTERPRETATION OF APB OPINION 25, ("FIN 44"), issued
effective July 1, 2000, which modifies accounting rules governing stock
compensation. Under FIN 44, the Company is required to use variable award
accounting for outstanding common stock options that were repriced during
1999. Variable award accounting requires recognition of compensation expense
in certain circumstances when the market price of the Company's stock exceeds
the exercise price of the stock option. The adoption of FIN 44 resulted in
recognition of $86,000 of non-cash stock compensation expense in the
accompanying financial statements.
(6) Supplemental Disclosures of Cash Flow Information
Cash paid during the periods is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
--------------------- -------------------
<S> <C> <C>
Interest $ 81,841 $ 98,870
</TABLE>
7
<PAGE>
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
GENERAL
The Company evaluates each of its activities based on the operating
margin it produces. The Company defines operating margin as revenues, less
the cost of purchased gas and operating and maintenance expenses. Management
reviews and evaluates the operations of three main segments - Onshore
operations, Offshore operations and Fort Cobb operations. The Company
continues to actively pursue opportunities in all three segments.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
TOTAL OPERATIONS
The following table sets forth information for the three months
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ ----------------
<S> <C> <C>
Revenues............................... $ 3,225,889 $ 2,187,980
Operating margins...................... 583,220 464,526
Depreciation and amortization.......... 171,796 191,491
</TABLE>
Operating margins for the three months ended September 30, 2000
increased by $119,000 compared to the same period of the prior year. All
operating segments reported higher operating margins than for the same
quarter of last year - Fort Cobb operating margins increased by $74,000,
Onshore by $38,000 and Offshore by $7,000. These segments are discussed
individually below in greater detail. In 2000 the Company continues to focus
on enhancing the profitability of its existing systems by reviewing and
renegotiating transportation agreements and purchase/sale contracts, when
appropriate, and controlling operating and maintenance expenses.
8
<PAGE>
ONSHORE OPERATIONS
The following table sets forth information for the three months
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ -----------------
<S> <C> <C>
Revenues............................... $ 1,936,485 $ 1,344,762
Operating margins...................... 335,069 297,625
Depreciation and amortization.......... 95,123 114,079
</TABLE>
Operating margins for Onshore operations increased in the third
quarter by $38,000 from the same period of the prior year. The increase was
due to additional throughput volumes on several systems, partially offset by
$31,000 of operating margins related to properties sold effective January 1,
2000.
OFFSHORE OPERATIONS
The following table sets forth information for the three months
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
<S> <C> <C>
Revenues............................... $ 67,157 $ 83,636
Operating margins...................... (6,927) (14,302)
Depreciation and amortization.......... 35,198 33,918
</TABLE>
Operating margins for Offshore operations increased in the third
quarter by $7,000 over the same period of the prior year. The increase was
primarily due to a reduction in third party operating expenses of $24,000,
partially offset by a decrease in revenues of $16,000. The Company continues
to actively pursue several opportunities offshore in the Gulf of Mexico.
FORT COBB OPERATIONS
The following table sets forth information for the three months
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
<S> <C> <C>
Revenues............................... $ 1,222,247 $ 759,582
Operating margins...................... 255,078 181,203
Depreciation and amortization.......... 41,475 43,494
</TABLE>
Operating margins for Fort Cobb operations increased in the third
quarter by $74,000 from the same period of the prior year primarily due to
increased sales volumes and a $19,000 reduction in operating expenses.
9
<PAGE>
OPERATIONS SUPPORT
The following table sets forth information for the three months
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <S> <S>
General and administrative................... $ 519,876 $ 745,416
Interest income.............................. 11,708 16,903
Interest expense............................. (34,158) (41,685)
Equity in earnings of partnership............ 26,790 24,962
Other income (expense), net.................. 190 923
</TABLE>
General and administrative expenses for the quarter are 30% lower
than for the same period of last year, due primarily to lower legal fees,
partially offset by $86,000 of non-cash stock compensation expense related to
stock options that were repriced in 1999. Under the Financial Accounting
Standards Board Interpretation 44, INTERPRETATION OF APB OPINION 25, the
Company is required to account for these options under variable award
accounting, due to the change in the option exercise price. Variable award
accounting requires recognition of compensation expense under certain
circumstances when the market price of the Company's stock exceeds the
exercise price of the stock option.
Interest income varies directly with the balance on deposit in the
Company's certificates of deposit and short-term money market accounts.
Interest expense fluctuates directly with the amount of outstanding
long-term debt and the amount of borrowings under the Company's operating
line of credit with a bank.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999
TOTAL OPERATIONS
The following table sets forth information for the nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Revenues..................................... $ 6,560,912 $ 5,196,393
Operating margins............................ 864,963 1,167,112
Depreciation and amortization................ 514,333 587,019
</TABLE>
Operating margins for the nine months ended September 30, 2000
decreased by $302,000 compared to the same period of the prior year. Onshore
and Offshore Operations operating margins decreased $216,000 and $148,000,
respectively, partially offset by an increase in Fort Cobb operating margins
of $62,000. These segments are discussed individually below in greater
detail. In 2000 the Company continues to focus on enhancing the profitability
of its existing systems by reviewing and renegotiating transportation
agreements and purchase/sale contracts, when appropriate, and controlling
operating and maintenance expenses.
10
<PAGE>
ONSHORE OPERATIONS
The following table sets forth information for the nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ -----------------
<S> <C> <C>
Revenues................................ $ 4,708,319 $ 3,677,319
Operating margins....................... 726,812 943,025
Depreciation and amortization........... 287,864 362,468
</TABLE>
Operating margins for Onshore Operations decreased $216,000 in the
nine months ended September 30, 2000 from the same period of the prior year.
The decrease was due to the termination of a short-term contract for
throughput volumes on the Company's LeLeux system in Louisiana, partially
offset by increases on various other systems. Talks continue with the
producer to regain at least a portion of the throughput volumes. Operating
margins related to properties sold effective January 1, 2000 accounted for
$87,000 of the decrease from the prior period.
OFFSHORE OPERATIONS
The following table sets forth information for the nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ ---------------------
<S> <C> <C>
Revenues................................ $ 179,713 $ 349,482
Operating margins....................... (76,090) 71,586
Depreciation and amortization........... 101,298 99,240
</TABLE>
Operating margins for Offshore Operations decreased $148,000 in the
nine months ended September 30, 2000 from the same period of the prior year.
The decrease was primarily due to the combined impact of lower throughput
volumes from anticipated well production declines and a first quarter
non-recurring maintenance expenditure totaling $62,000, partially offset by
lower operating expenses of $84,000. The Company continues to actively pursue
several opportunities offshore in the Gulf of Mexico.
FORT COBB OPERATIONS
The following table sets forth information for the nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------ ---------------------
<S> <C> <C>
Revenues................................ $ 1,672,880 $ 1,169,592
Operating margins....................... 214,241 152,501
Depreciation and amortization........... 125,171 125,311
</TABLE>
11
<PAGE>
Operating margins for Fort Cobb Operations increased by $62,000 in
the nine months ended September 30, 2000 from the same period of the prior
year primarily due to increased sales volumes delivered to local farmers for
crop irrigation fuel.
OPERATIONS SUPPORT
The following table sets forth information for the nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------------- ------------------
<S> <C> <C>
General and administrative............... $ 1,391,120 $ 1,859,552
Interest income.......................... 41,776 57,778
Interest expense......................... (101,182) (120,118)
Equity in earnings of partnership........ 68,860 65,900
Other income, net........................ 275,864 10,743
</TABLE>
General and administrative expenses for the nine months ended
September 30, 2000 declined by 25% compared to the same period of the prior
year, due primarily to lower legal and outside professional fees, partially
offset by $86,000 of non-cash stock compensation expense in 2000 related to
stock options that were repriced in 1999. Under the Financial Accounting
Standards Board Interpretation 44, INTERPRETATION OF APB OPINION 25, the
Company is required to account for these options under variable award
accounting, due to the change in the option exercise price. Variable award
accounting requires recognition of compensation expense under certain
circumstances when the market price of the Company's stock exceeds the
exercise price of the stock option.
Interest income varies directly with the balance on deposit in the
Company's certificates of deposit and short-term money market accounts.
Interest expense fluctuates directly with the amount of outstanding
long-term debt and the amount of borrowings under the Company's operating
line of credit with a bank.
Other income for the nine months ended September 30, 2000 includes
gain on the sales of Catarina and Zwolle systems and an adjustment to legal
fees recognized in prior periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities totaled $632,000 for the nine
months ended September 30, 2000, compared to $88,000 used in operating
activities for the same period last year. The difference is due to changes in
current asset and liability accounts, which used $754,000 more cash compared
to the prior year, partially offset by a lower net loss for the nine months
ended September 30, 2000. During the period the Company received $910,000 in
proceeds for the January 2000 sales of its interests in the Catarina and
Zwolle systems.
12
<PAGE>
The Company has cash and cash equivalents and certificates of
deposit totaling $770,000 at September 30, 2000. The Company's operating line
of credit agreement with a bank provides for maximum borrowings of up to
$500,000, and is collateralized with a certificate of deposit for the same
amount. The available borrowing capacity as of September 30, 2000 was
$370,000. The Company's long-term debt to total capitalization was
approximately 8%, which should provide opportunity for the Company to utilize
conventional long-term financing to fund acquisitions or construction
projects.
Absent acquisitions or significant development projects, the Company
will continue to fund its operations through internally generated funds and
available cash and the certificates of deposit. The Company believes its cash
flows from operations and available cash and certificates of deposit will be
sufficient to fund its ongoing operations for the foreseeable future. Any
significant property acquisitions or development projects will require
outside project financing.
During the second quarter of 2000, the Company filed an Application
for General Rate Increase with the Oklahoma Corporation Commission (the
"Commission") on behalf of Fort Cobb. Fort Cobb is entitled under the
Commission rules and guidelines to earn additional annual revenues to cover
the costs of service and to provide a reasonable return on the assets
employed to serve its customers. Under Oklahoma law, the Commission has
complete discretion over the amount and timing of any rate increase granted.
If any rate increase is granted, the Company expects that it would not be
effective before December 2000.
FACTORS AFFECTING FUTURE RESULTS
The Company's strategies for enhancing stockholder value 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 competitive prices. 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 its low debt, available cash reserves and
experienced operating management will allow the Company 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
stockholders 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.
13
<PAGE>
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
significantly dependent on natural gas production which is 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 are 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 from its retail operations, are
also affected by weather. Much of the retail demand is for crop irrigation
and drying. Heavy precipitation in the spring and summer growing season and
hot, dry weather in the fall can significantly reduce demand for natural gas
in the Company's retail service areas.
PART II
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:
27 Financial Data Schedule.
b) Reports on Form 8-K:
None
14
<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/ Michael T. Fadden
-------------------------------------
President and Chief Executive Officer
/s/ Scott D. Heflin
-------------------------------------
Chief Financial Officer and Treasurer
NOVEMBER 14, 2000
--------------------------
(Date)
15
