UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

                              FORM 10-K

[X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
             For the Fiscal Year Ended December 31, 1998
                                  OR
[ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
              For the Transition Period from    to

                    Commission File Number 1-1525

                      GLADSTONE RESOURCES, INC.
        (Exact name of Registrant as specified in its charter)

          Washington                                    91-0234563
     (State of Incorporation)                        (I.R.S. Employer
                                                     Identification No.)

      3800 Oak Lawn, Suite 590
           Dallas, Texas                                 75219
(Address of principal executive offices)               (Zip Code)

                            (214) 528-9620
                   (Registrant's telephone number,
                         including area code)

     Securities registered pursuant to Section 12(b) of the Act:
                      Common Stock, No Par Value

     Securities registered pursuant to Section 12(g) of the Act:
                                 None
                           (Title of Class)
                    ______________________________

     Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve (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 ninety (90) days.

                    YES  [X]       NO  [ ]

     Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment of this Form 10-K.  [ ]

     The number of shares of Common Stock, no par value, of the
Company outstanding at March 31, 1999 was 4,244,060 shares. The
aggregate market value of the Common Stock held by nonaffiliates (all
directors, officers and 5% or more shareholders are presumed to be
affiliates) of the Company on March 31, 1999 was $101,587 based on the
sale price of the Common Stock on January 19, 1999, as disclosed on
the Schedule 13D filed by certain purchasers of Common Stock.

                 DOCUMENTS INCORPORATED BY REFERENCE

                                 None

______________________________________________________________________

<PAGE>

                      GLADSTONE RESOURCES, INC.
                              FORM 10-K
             FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                PART I

     Other than historical and factual statements, the matters and
items discussed in this Annual Report on Form 10-K are forward-looking
statements that involve risks and uncertainties.  The Company's actual
results may differ materially from the results discussed in the
forward-looking statements.  Certain factors that could contribute to
such differences are discussed in the forward-looking statements and
are summarized in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward-Looking Information -
Cautionary Statements."

ITEM 1.   BUSINESS

GENERAL

     The principal activity of Gladstone Resources, Inc., a Washington
corporation (the "Company"), is its involvement in the acquisition of,
exploration for and production of oil and natural gas. The Company
continually reviews and evaluates potential oil and gas prospects. In
evaluating prospects, the Company sometimes obtains engineering and
technical assistance from independent consultants at prevailing
industry rates.

     The Company's acquisition, exploration, development and
production activities are conducted primarily in Texas and New Mexico.
The Company made net lease acquisition expenditures of $29,939,
$45,059, and 10,978 during the fiscal years ended December 31, 1998,
1997, and 1996, respectively. At December 31, 1998, the Company owned
interests in approximately 1418 gross (508 net) acres of developed oil
and gas properties and 3010 gross (602 net) acres of undeveloped oil
and gas properties.

     The Company has financed its acquisition, exploration and
development expenditures primarily through internally generated funds.
The Company typically attempts to obtain outside participants to drill
the prospect or to enter into other types of sharing arrangements
(such as joint ventures and farmout arrangements) pursuant to which
other parties assume the majority or all of the costs of drilling. The
involvement of outside participants permits the Company to spread its
drilling funds over a larger number of prospects and to reduce the
potential amount of loss on any one prospect. Funds required to be
expended by the Company will generally be proportionately less than
the Company's interest in any production obtained from the wells
drilled. From time to time, the Company may sell interests in, or
enter into sharing arrangements with respect to, drilling prospects in
which the Company has an interest to or with directors, officers,
principal stockholders or other affiliates of the Company, provided
such transactions are on terms and conditions substantially similar to
those offered to nonaffiliated parties. The Company's ability to
continue to fund its exploration and development activities depends
upon its ability to secure the necessary financing for such
activities. The Company made exploration and development expenditures
of $248,216, $312,285 and $117,732 during fiscal 1998, 1997 and 1996,
respectively.

                                  -2-


<PAGE>

OPERATING ACTIVITIES

     The Company contracts with other parties, including officers,
directors, principal stockholders or other affiliates of the Company,
to act as operator of the oil and gas prospects in which it owns an
interest; provided such transactions are on terms and conditions
substantially similar to those offered by nonaffiliated parties. The
operator of an oil and gas property supervises production, maintains
production records, employs field personnel and performs other
functions required in the production and administration of such
property. The fees for such services customarily vary from well to
well, depending on the nature, depth and location of the well being
operated. Generally, the operator of an oil and gas prospect is
determined by such factors as the size of the working interest held by
a participant in the prospect, a participant's knowledge and
experience in the geological area in which the prospect is located and
geographical considerations. The Company's wells are drilled by
independent drilling contractors.

SALE OF DEVELOPED AND UNDEVELOPED ACREAGE

     The Company normally expects to hold most of its producing
properties until the economically recoverable reserves attributable to
such properties are depleted. However, during the course of normal
business, the Company may dispose of marginal producing properties and
undeveloped acreage if the Company believes that such sale is in its
best interests.  In fiscal 1998 and 1997, the Company sold no
properties; however, on January 19, 1999, the Company sold its oil and
gas properties in Schleicher and Kent Counties, Texas to EXCO
Resources, Inc., a Texas corporation ("EXCO"). These properties
included 66 gross productive wells (9.75 net productive wells) with
current net production of approximately 42.18 barrels of oil and
126,000 cubic feet of natural gas per day, and 6 gross (.75 net) non-
producing wells. These properties constituted approximately 90.418% of
the gross productive wells (71.17% net productive wells) and
approximately 88.68% of the barrels of oil and 59.38% of the cubic
feet of natural gas per day produced by all of the Company's oil and
gas properties.

PRODUCTS, MARKETS AND REVENUES

     Oil and natural gas are the principal products produced by the
Company. The Company does not refine or process the oil and natural
gas that it produces. The Company sells the oil it produces under
short-term contracts at market prices in the areas in which the
producing properties are located, generally at F.0.B. field prices
posted by the principal purchaser of oil in such areas.

     Natural gas produced from the Company's properties is sold under
both short-term and long-term contracts with transmission and utility
companies that have pipelines in the vicinity of the producing
properties or that will construct pipelines to such properties. The
contracts are of a type common within the industry, and a separate
contract is usually negotiated for each property. Typically, the
Company's contracts are made for terms ranging from day to day up to
six months.

     The availability of a ready market for oil and gas and the prices
of oil and gas depend on a number of factors that are beyond the
control of the Company. These factors include, among other things, the
level of domestic production and economic activity generally, the
availability of imported oil and gas, actions taken by foreign oil
producing nations, the availability of gas pipelines with adequate
capacity and other transportation facilities, the availability and
marketing of other competitive fuels, fluctuating and seasonal demand
for oil, gas and refined products and the extent of governmental

                                  -3-

<PAGE>

regulation and taxation (under both present and future legislation) of
the production, refining, transportation, pricing, use and allocation
of oil, natural gas, refined products and substitute fuels.
Accordingly, in view of the many uncertainties affecting the supply
and demand for crude oil, natural gas and refined petroleum products,
it is not possible to predict accurately the prices or marketability
of the oil and gas from any producing well in which the Company has or
may acquire an interest.

     Crude oil prices are generally determined by global supply and
demand, while natural gas prices are influenced by North American
supply and demand. There can be no assurance that the Company will be
able to market all oil or gas that it is able to produce or, if such
oil or gas can be marketed, that favorable price and contractual terms
can be negotiated.  Changes in oil and natural gas prices
significantly affect the revenues and cash flow of the Company and the
value of its oil and gas properties.  Significant declines in the
prices of oil and natural gas could have a material adverse effect on
the business and financial condition of the Company.  See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations."

     In certain areas in which the Company engages in gas exploration
and production activities, the supply of natural gas available for
delivery from time to time exceeds the demand. During such times
companies purchasing gas in such areas reduce the amount of gas that
they will purchase or take. If buyers cannot be readily located for
newly discovered gas reserves, newly completed gas wells may be
shut-in for various periods of time. There are no assurances that the
over-supply of natural gas in certain areas will not in the future
cause the Company to experience "take" problems or adversely affect
the Company's ability to obtain contracts to market gas discovered in
wells in which the Company owns an interest.

     The following table sets forth the amount of the Company's oil
sales, gas sales and the percent of oil and gas sales to total
revenues for the periods indicated.

                                                 Percent of Oil/Gas
                                                    Sales to Total
   Year                                               Revenues
  Ended                                    Total  --------------------
December 31, Oil Sales    Gas Sales    Oil/Gas Sales  (Oil)  (Gas)
------------ --------     ---------    -------------  -----  ------
   1998      $144,311     $119,691       $264,002     55%      45%
   1997       276,814      234,663        511,477     54%      46%
   1996       334,012      138,903        472,915     70%      30%

DELIVERY COMMITMENTS

     The Company is not presently obligated to provide a fixed and
determinable quantity of oil or gas under any existing contract or
agreement.

CUSTOMERS

     During fiscal 1998 and fiscal 1997, Eott Energy Operating Limited
Partnership accounted for 47% and 51% of the Company's total revenues,
respectively. During fiscal 1998 and fiscal 1997, E. B. Brooks, Jr.
accounted for 23% and 17% of the Company's total revenues,
respectively. However, all properties for which revenues were received
from Eott Energy Operating Limited Partnership and E. B.

                                  -4-

<PAGE>

Brooks, Jr. were included in the sale that occurred on January 19,
1999, effective however as of October 1, 1998.  See "Item 1. Business
- Sale of Developed and Undeveloped Acreage." Although the loss of any
one of the Company's oil and gas purchasers could temporarily cease or
delay the Company's production and sale of its oil and gas in the
purchasers' particular service area, the Company believes it would be
able, under current economic circumstances, to contract with other
purchasers for its oil and gas production.

COMPETITION

     The oil and gas industry is highly competitive. The Company
encounters strong competition from other independent operators and
from major oil companies in acquiring properties suitable for
exploration, in contracting for drilling equipment and in securing
trained personnel. Many of these competitors have financial resources
and staffs substantially larger than those available to the Company.

     Exploration for and production of oil and gas is also affected by
competition for drilling rigs and the availability of tubular goods
and certain other equipment. While the oil and gas industry has
experienced shortages of drilling rigs and equipment, pipe and
personnel in the past, the Company is not presently experiencing any
shortages and does not foresee any such shortages in the near future.
The Company is unable to predict how long current market conditions
will continue.

     Competition for attractive oil and gas producing properties,
undeveloped leases and drilling rights is also strong, and there is no
assurance that the Company will be able to compete satisfactorily in
the acquisition of such properties. Many major oil companies have
publicly indicated their decisions to concentrate on overseas
activities and have been actively marketing certain of their existing
producing properties for sale to independent producers.

RISKS

     The Company's operations are subject to all of the risks normally
incident to the exploration for and production of oil and gas,
including blowouts, cratering, pollution and fires, each of which
could result in damage to or destruction of oil and gas wells or
formations or production facilities or damage to persons and property.
As is common in the oil and gas industry, the Company is not fully
insured against these risks either because insurance is not available
or because the Company has elected not to procure insurance due to
prohibitive premium costs. The occurrence of such an event not fully
insured against could have a material adverse effect on the Company's
financial position.

     The Company's oil and gas activities involve in part exploratory
drilling, which carries a significant risk that no commercial oil or
gas production will be obtained. The cost of drilling, completing and
operating wells is often uncertain. Further, drilling may be curtailed
or delayed as a result of many factors, including title problems,
weather conditions, delivery delays, shortages of pipe and equipment
and the unavailability of drilling rigs.

EMPLOYEES

     At March 31, 1999, the Company had no employees, either in field
operations or office and administrative activities.  The Company
contracts with other parties, including officers, directors, principal
stockholders or other affiliates of the Company, to perform the office
and administrative activities of the Company; provided such
transactions are on terms and conditions substantially similar

                                  -5-

<PAGE>

to those offered by nonaffiliated parties.  The Company also utilizes
the services of outside consultants on a contract basis.

REGULATION

     General.  Domestic exploration for, and production and sale of,
oil and gas are extensively regulated at the national, state and local
levels. Legislation affecting the oil and gas industry is under
constant review for amendment or expansion, frequently increasing the
regulatory burden. Also, numerous departments and agencies, both
federal and state, are authorized by statute to issue and have issued
rules and regulations binding on the oil and gas industry and its
individual members, compliance with which are often difficult and
costly and which carry substantial penalties for the failure to
comply. The heavy and increasing regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently,
affects its profitability.  The following are some specific
regulations that may affect the Company.  This summary should by no
means be relied upon as a complete review of regulatory matters that
may affect the Company's oil and natural gas production.

     Federal Regulation of Natural Gas.  The interstate transportation
and sale for resale of natural gas is subject to federal regulation,
including regulation of tariffs charged and various other matters, by
the Federal Energy Regulation Commission (the "FERC") under the
Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of
1978 (the "NGPA").  Beginning in 1978, the NGPA regulated maximum
selling prices of certain categories of gas in either interstate or
intrastate commerce.  The Natural Gas Wellhead Decontrol Act of 1989
terminated all NGA and NGPA price controls on wellhead sales of
domestic natural gas on January 1, 1993.

     In 1992, FERC issued Orders Nos. 636 and 636-A, which generally
open access to interstate pipelines by requiring operators of such
pipelines to unbundle transportation services from sales services and
allow customers to pay for only the services they require, regardless
of whether the customer purchases gas from such pipelines or from
other suppliers.  The orders also require upstream pipelines to permit
downstream pipelines to assign upstream capacity to their shippers,
and place comparable, unbundled access requirements on the downstream
pipelines. The United States Court of Appeals upheld the unbundling
provisions and other components of FERC's orders but remanded several
issues to that commission for further explanation. On February 27,
1997, the FERC issued Order No. 636-C, addressing the court's concern.
Petitions for rehearing on Order No. 636-C were denied on May 28,
1998. That order remains subject to judicial review and may change as
a result of that review. Although these regulations should generally
facilitate the transportation of gas produced from the Company's
properties and the direct access to end-user markets, the impact of
these regulations on marketing the Company's production or on its gas
transportation business cannot be predicted. The Company, however,
does not believe that it will be affected any differently than other
natural gas producers and marketers with which it competes.

     Federal Regulation of Oil.  Sales of crude oil, condensate and
natural gas liquids are not federally regulated and are made at market
prices.  The net price received from the sale of these products is
affected by market transportation costs.  A significant part of the
Company's oil production is transported by pipeline.  The Energy
Policy Act of 1992 required the FERC to adopt a simplified ratemaking
methodology for interstate oil pipelines.  In 1993 and 1994, the FERC
issued Order Nos. 561 and 562 adopting rules that establish new rate
methods for such pipelines.  Under those rules, interstate oil
pipelines can change rates based on an inflation index, though other
rate mechanisms may be used in


                                  -6-

<PAGE>


specific circumstances.  The United States Court of Appeals upheld the
FERC's orders in 1996. The Company's cost of transporting oil has not
been affected to any significant extent by these rules.

     State Regulation.  Certain states in which the Company operates
and will operate regulate the spacing, drilling, plugging and
abandonment of wells, limit the number of days in a given month during
which a well can produce and otherwise limit the rate of allowable
production from a well on the basis of a number of factors, including
market demand for gas.  The Company has not experienced any material
reductions in production due to proration.  Nevertheless, these
measures or future federal and/or state proration regulation revisions
may materially affect the Company's production.  Local, state and
federal environmental controls will also effect the Company's
operations through regulations enacted to protect against waste,
conserve natural resources, prevent pollution and otherwise guard
against abusing the environment.  Such regulations could affect the
Company's operations and could require spending funds on environmental
protection measures, rather than on drilling operations.  Further,
penalties imposed on the Company for violating such regulations could
seriously inhibit the Company's operations.

     Environmental Regulation.  Various federal, state and local laws
and regulations covering the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, directly impact oil and gas exploration, development and
production operations and consequently may impact the Company's
operations and costs.  It is not anticipated that the Company will be
required in the near future to expend amounts that are material in
relation to its total capital expenditure program by reason of
environmental laws and regulations, but inasmuch as such laws and
regulations are constantly being changed, the Company is unable to
predict the ultimate cost to it of complying with present and future
environmental laws and regulations.

     Other Proposed Legislation.  In the past, Congress has been very
active in the area of natural gas regulation.  There are legislative
proposals pending in the legislatures of various states which, if
enacted, could significantly affect the petroleum industry.  It is
currently impossible to predict what proposals, if any, might actually
be enacted by Congress or the various state legislatures and what
effect, if any, such proposals might have on the Company's operations.


ITEM 2.   PROPERTIES

LOCATION AND GENERAL CHARACTER

     The Company pays rent on a month-to-month basis and does not have
a commitment on a lease contract.  Rent expense for 1998, 1997 and
1996 was $6,606, $5,919 and $6,426.  The Company considers this
arrangement adequate for its present needs.

     The Company's principal producing areas are in Texas and New
Mexico. The Company's acquisition and exploration activities are
conducted principally in Texas.

TITLE TO PROPERTIES

     As is common industry practice, little or no investigation of
title is made at the time of acquisition of undeveloped properties,
other than a preliminary review of local mineral records. Title

                                  -7-

<PAGE>

investigations are made, and in most cases a title opinion of local
counsel is obtained, before commencement of drilling operations. The
Company believes that its methods of investigating title to its
properties in connection with the acquisition of such properties are
consistent with practices customary in the oil and gas industry and
that such practices are adequately designed to enable the Company to
acquire good title to such properties. Some title risks, however, are
not avoided, despite such practices.

     The Company's properties are generally subject to customary
royalty and overriding royalty interests, liens incident to operating
agreements, liens for current taxes and other burdens and minor
encumbrances, easements and restrictions, and may be mortgaged to
secure indebtedness of the Company. The Company believes that none of
such burdens materially detracts from the value of such properties or
materially interferes with their use in the operation of the Company's
business.

OIL AND GAS RESERVES

     At December 31, 1998, and after giving effect to the sale of the
Schleicher and Kent County properties that occurred on January 19,
1999, effective however the 1st day of October, 1998, the Company's
oil and gas reserves included direct working interests in 5 wells in
the states of Texas and New Mexico. The Company has no reserves
offshore or outside the United States. At December 31, 1998, 100% of
the present value of the estimated future net revenues attributable to
the Company's properties were attributable to Proved Developed
Reserves and none were attributable to other Proved Undeveloped
Reserves. In addition, none of the total Proved Reserves were
attributable to oil and 100% to gas, based on six mcf of gas being
equivalent to one barrel of oil.

     The following table summarizes the Company's proved reserves at
December 31, 1998, and was prepared in accordance with the rules and
regulations of the Securities and Exchange Commission.

                           PROVED RESERVES
                         At December 31, 1998

                                  Before Giving      After Giving
                                  Effect to January  Effect to January
                                  1, 1999 Sale of    1, 1999 Sale of
                                  Schleicher and     Schleicher and
                                   Kent County        Kent County
                                   Properties         Properties
                                  -------------     -----------------
Oil and Liquids (Bbls)                               
Proved Developed                       75,122                0
Proved Undeveloped                          0                0
                                                     
     Total                             75,122                0
                                       --------          --------
                                                     
Natural Gas (Mcf)                                    
Proved Developed                      709,511             183,784
Proved Undeveloped                          0                   0
                                      -------            --------
     Total                            709,511             183,784
                                     =========           =========

     The reserve estimates presented have been prepared by management
of the Company. Estimates of oil and gas reserves are, of necessity,
projections based on engineering data. There are uncertainties
inherent in the interpretation of such data, and there can be no
assurance that the reserves set forth herein will ultimately be
realized. See Supplementary Oil and Gas Disclosures included in "Item
8. Financial

                                  -8-

<PAGE>

Statements and Supplementary Data" for additional information
regarding the Company's oil and gas reserves, including the present
value of future net revenues.

RESERVES REPORTED TO OTHER AGENCIES

     Estimates of oil and gas reserves have not been filed with or
included in reports to any federal authority or agency other than the
Securities and Exchange Commission.

PRODUCTION

     The following table summarizes for the periods indicated, the
Company's revenues, net production of oil and gas sold (including
condensate and natural gas liquids) and the average sales price per
unit of oil (Bbl) and gas (Mcf):

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  -----------------------------------
                                                   1998            1997        1996
                                                  --------       --------    --------
     <S>                                          <C>                 <C>    <C>
     Oil and Condensate:
     -------------------
          Revenues                                $144,311       $276,814    $334,012      
          Production sold (Bbls)                    11,057         14,732      16,175
          Average sales
            price per Bbl.                        $  13.05       $  18.78    $  20.64

     Natural Gas:
     ------------
          Revenues                                $119,691       $234,663    $138,903
          Production sold (Mcf)                     62,690         93,117      85,729
          Average sales
            price per Mcf                         $   1.90       $   2.52    $   1.62

</TABLE>


     The Company's net production reported in the preceding table only
includes production that is owned by the Company and produced to its
oil and gas interest, less royalties.  Fiscal 1998 oil production was
25% lower than fiscal 1997 and gas production was 33% lower.  On the
basis of 6 mcf of gas being equivalent to 1 barrel of oil, total
fiscal 1998 production decreased 29%.  Total oil and gas revenues
dropped 48% due to declines in production and a drop in prices.

     The average production (lifting) costs per barrel-equivalent (gas
production being converted to barrel-equivalents at 6,000 cubic feet
per barrel of oil) for the fiscal years ending December 31, 1998, 1997
and 1996, were, $5.52, $3.76 and $4.66, respectively. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information on production costs.
Depreciation, depletion and amortization expense for the fiscal years
ended December 31, 1998, 1997 and 1996 was $59.55, $41.30 and $40.95,
respectively, per barrel of oil and gas equivalent produced.

PRODUCTIVE WELLS

     The following table sets forth the Company's interest in
productive wells (producing wells and wells capable of production) at
December 31, 1998. The total gross oil and gas wells does not include
any multiple completions. At December 31, 1998, the Company did not
own an interest in any well that was being completed.

                                  -9-

<PAGE>

<TABLE>
<CAPTION>

                    Gross Wells(1)(2)              Net Wells(1)(3)
              -----------------------------  ----------------------------
              (Oil)     (Gas)     (Total)   (Oil)     (Gas)    (Total)
<S>           <C>       <C>       <C>       <C>       <C>      <C>
Texas           0         1          1         0       .20        .20
New Mexico      0         4          4         0      1.50       1.50
               --        --         --        --      ----       ----
     Total      0         5          5         0      1.70       1.70
               ==        ==         ==        ==       ===       =====

________________________
(1)  After giving effect to the sale of the Schleicher and Kent County
     properties that occurred on January 19, 1999, effective however the 1st day
     of October, 1998.
(2)  A gross well is a well in which a working interest is owned. The number of
     gross wells is the total number of wells in which a working interest is
     owned.  Wells in which only an overriding royalty interest is owned are
     excluded from this presentation.

(3)  A net well is deemed to exist when the sum of fractional ownership working
     interests in gross wells equals one.  The number of net wells is the sum of
     the fractional working interests owned in gross wells expressed as whole
     numbers and fractions thereof.

</TABLE>

DEVELOPED ACREAGE

     The following table sets forth the Company's interest in
developed acreage (acreage spaced or assignable to productive wells)
at December 31, 1998:

                                    Developed Acreage(1)
                                    -------------------
                                    Gross (1)  Net (3)
                                   --------------------

              Texas                  138          28
                                     ---          ---
              New Mexico            1280          480
                                    ----          ---
                         Total      1418          508
                                    ====          ===

__________________
(1)  After giving effect to the sale of the Schleicher and Kent County
     properties that occurred on January 19, 1999, effective however
     the 1st day of October, 1998.

(2)  A gross acre is an acre in which a working interest is owned.

(3)  A net acre is deemed to exist when the sum of fractional
     ownership working interests in gross acres equals one. The total
     of net acres is the sum of the fractional working interests owned
     in gross acres expressed as whole numbers and fractions thereof.

UNDEVELOPED ACREAGE

     In addition to its developed oil and gas properties, the Company
held interests in 3010 gross undeveloped acres (602 net acres) at
December 31, 1998. The following table shows the location of the
Company's undeveloped acreage:


                                 -10-

<PAGE>
                              Undeveloped Acreage*
                              --------------------
                                Gross        Net
                                -----      ------
              New Mexico            0          0
              Texas              3010        602
                                -----       ------
              Total              3010        602
                                =====       ======

*  After giving effect to the sale of the Schleicher and Kent County
properties that occurred on January 19, 1999, effective however the
1st day of October, 1998.

     The primary terms of the oil and gas leases covering the majority
of the Company's undeveloped acreage expire at various dates,
generally ranging from one to five years.  The Company can retain its
interest in undeveloped acreage by drilling activity that establishes
commercial reserves sufficient to maintain the lease.  Certain of the
Company's undeveloped acreage in Texas is being "held by production,"
for which expiration will not occur until production ceases from all
wells on the particular leases. As defined by the Securities and
Exchange Commission, undeveloped acreage is considered to be lease
acreage on which wells have not been drilled or completed to a point
that would permit the production of commercial quantities of oil and
gas regardless of whether such acreage contains proved reserves.

DRILLING ACTIVITIES

     The following table summarizes the Company's approximate gross
and net interests in the exploratory and development wells drilled
during the periods indicated:
<TABLE>
<CAPTION>
                                             EXPLORATORY WELLS
                                             -----------------
                              Gross                                   Net
                    --------------------------         ------------------------------
Year Ended          Productive    Dry   Total          Productive     Dry   Total
----------          -----------  -----  -------        ----------     ----  -----
<S>                    <C>      <C>    <C>             <C>           <C>     <C>
December 31, 1998       0        3      3               0             .55     .55
December 31, 1997       0        2      2               0             .50     .50
December 31, 1996       0        2      2               0             .40     .40


                                             DEVELOPMENT WELLS
                                             -----------------
                              Gross                                   Net
                    ---------------------------             -------------------------
Year Ended          Productive    Dry   Total               Productive   Dry   Total
----------          ----------   ----   -------             ----------  -----  -----

December 31, 1998      0          0      0                    0         0      0
December 31, 1997      0          0      0                    0         0      0
December 31, 1996      0          0      0                    0         0      0

</TABLE>


     For purposes of the foregoing table, a dry well (hole) is an
exploratory or development well found to be incapable of producing
either oil or gas in sufficient quantities to justify completion of an
oil or gas well. A productive well is an exploratory or a development
well that is not a dry hole. The number of wells drilled refers to the
number of wells (holes) completed at any time during the fiscal years,
regardless of when drilling was initiated. The term "completed" refers
to the installation of permanent

                                 -11-

<PAGE>


equipment for the production of oil or gas, or, in the case of a dry
hole, to the reporting of abandonment to the appropriate agency. All
drilling activities in fiscal 1998 were conducted in the state of
Texas.

PRESENT ACTIVITIES

     At March 31, 1999, the Company was not participating in the
drilling of any development or exploratory wells.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is not presently party to, nor is any of its property
the subject of, any material pending legal proceedings other than
routine litigation incidental to the Company's business.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of the fiscal year, no matter was
submitted by the Company to a vote of its shareholders through the
solicitation of proxies or otherwise.

                                 -12-

<PAGE>

                               PART II


ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

MARKET INFORMATION

     There is no established public trading market for the Common
Stock.

SHAREHOLDERS

     According to the records of the Company's transfer agent, there
were 529 holders of record of the Common Stock at March 31, 1999.

DIVIDENDS

     The Company has not paid any cash dividends on its Common Stock,
and it is not anticipated that dividend payments would be considered
in the foreseeable future. The Board of Directors of the Company
presently plans to retain the Company's earnings, if any, to finance
the development and expansion of the Company's operations. Future
dividend policy is subject to the discretion of the Board of Directors
and will depend on a number of factors, including future earnings,
capital requirements and the financial condition of the Company.

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

     The comparative selected consolidated financial data of the
Company is presented for the five (5) years ended December 31, 1998.
The information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Result
of Operations" and the Company's Financial Statements and notes
thereto included elsewhere herein.

<TABLE>
<CAPTION>
                                            Year Ended December 31,
                               ------------------------------------------------------
                                 1998        1997        1996         1995      1994
                               -------     --------    -------      --------   ------
<S>                            <C>         <C>          <C>          <C>          <C>              
Operations
Revenues                       $ 264,002    $ 511,477    $ 472,915    $ 405,366 $  429,556
Net Income (loss) before
 extraordinary item            (486,267)    (196,662)      73,752       (48,110)   (20,606)
Net income (loss)              (486,267)    (196,662)      73,752       (48,110)   (20,606)
Net income (loss) per
 share (1)                     (    .11)    (    .05)         .02       (   .01)     (.00)

Balance Sheet
Current assets                  $29,501     $274,282     $314,791     $ 160,584 $  175,314
Current liabilities              21,729       55,005       59,900        54,510   
Working capital (deficit)         7,772      219,277      254,891       106,074      5,484
Total assets                    620,450    1,141,293    1,369,710     1,276,059  1,450,263
Long-term debt                        0            0            0             0     60,000       
Stockholders' equity            598,721    1,084,988    1,369,710     1,207,898  1,256,008

Current ratio                      1.35         4.98         5.25          2.94       1.03

(1)  The Company has not declared nor paid any dividends during any of the periods
     presented.

</TABLE>

                                      -13-
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

FISCAL 1998 RESULTS COMPARED TO FISCAL 1997 RESULTS

     The net loss for fiscal 1998 was $486,267, or $.11 per share,
compared to net loss of $196,662, or $.05 per share, in fiscal 1997.
This difference of $289,605 was primarily the result of a decrease in
revenue, as discussed below.

     Oil and gas sales decreased $247,475, or 48%, to $264,002 in
fiscal 1998 from $511,477 in fiscal 1997.  Fiscal 1998 oil and gas
production was 28% lower than 1997 (continued depletion of current
properties with no new wells being added). On the basis of 6 mcf of
gas being equivalent to 1 barrel of oil, total fiscal 1998 gas
production decreased 32%. The total oil and gas revenue drop of 48%
was due to  decrease in production and a decrease in prices.

     The Company's costs and expenses decreased $104,618, or 16%.  Oil
and gas production costs decreased $7,343 or 5%, to $130,912 in fiscal
1998 from $138,255 due to decreased production. Dry hole and
abandonment costs decreased $218,867 or 47% to $243,764 in fiscal 1998
due to participation  in fewer wells. Depletion, depreciation and
amortization decreased from $133,103 to $102,215, or 23%, in fiscal
1998 due to decreased production. General and administrative costs
decreased from $12,851 to $11,162 or 13% in fiscal 1998 as a result of
small decreases in a variety of items. The Company reversed entry of
an accrued tax to the State of Texas for franchise taxes that resulted
in a current year income of $35,648. Legal, audit and accounting costs
increased from $9,623 to $12,704, or 32%, in fiscal 1998 as a result
of the Company's proposed merger with Exco Resources, Inc., which
merger was terminated January 19, 19999.  The decreases in costs were
more than offset by an asset impairment charge of $181,946 to reflect
the value of the Schleicher and Kent County properties that were sold
on January 19, 1999. See Note 9 to the Financial Statements.

FISCAL 1997 RESULTS COMPARED TO FISCAL 1996 RESULTS

     The net loss for fiscal 1997 was $196,662, or $.05 per share,
compared to net income of $73,752, or $.02 per share, in fiscal 1996.
This difference of $270,414 was primarily the result of an increase in
dry hole and abandonment costs.

     Oil and gas sales increased $38,562, or 8%, to $511,477 in fiscal
1997 from $472,915 in fiscal 1996 due to increased gas production and
increased average oil price.

     The Company's costs and expenses increased by $386,750, or 165%,
from $234,363 in fiscal 1996 to $621,113 in fiscal 1997.  Oil and gas
production costs decreased $25,819, or 15%, to $138,255 in fiscal 1997
from $164,074 in fiscal 1996 due to a decrease in operating expenses.
Dry hole and abandonment costs increased to $462,631 in fiscal 1997
from $97,544 in fiscal 1996.  Changes in this item are due to
increased drilling.  The $22,756, or 20%, increase in depreciation,
depletion and amortization from $110,347 in fiscal 1996 to $133,103 in
fiscal 1997 is a result of increased production.  General and
administrative costs were $12,851 for fiscal 1997 as compared to
$18,222 in fiscal 1996, an decrease of $5,371, or 29%, due to
relatively small decreases in a variety of items.

                                 -14-

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operating and capital expenditure
requirements to date principally through cash flow from operations.

     Cash decreased $90,699 to $23,372 at December 31, 1998, from
$114,071 at December 31, 1997. Accounts receivable decreased $45,948
to $6,129 from $52,077 during the corresponding periods, and accounts
payable increased $2,372 to $21,729 from $19,357. These amounts for
cash, accounts receivable and accounts payable reported by the Company
at its fiscal year-end Balance Sheet dates reflect temporary
fluctuations related to the timing and status of the Company's
projects and the timing of payments, invoices and billings related to
such projects.  Accounts receivable includes accounts due from joint
interest owners for operating and drilling costs paid by the Company
on their behalf.

     As of the date of this report, the Company did not have bank
credit facilities.

INFLATION AND CHANGING PRICES

     The impact of inflation, as always, is difficult to assess.
During the three years ended December 1998, the oil and gas industry
remained depressed.  As a result, the Company experienced continued
weakness in demand and in prices received for its oil and gas
production.  The general softening of the market has, however, also
reduced the cost of labor, materials, contract services, and other
operating costs.  The Company cannot anticipate whether the present
trend of low inflation will remain; however, a sudden increase in
inflation and/or an increase in operating costs coupled with a
continuation of low oil prices could have an adverse effect on the
operations of the Company.

YEAR 2000 READINESS DISCLOSURE

     "Year 2000," or the ability of computer systems to process dates
with years beyond 1999, affects almost all companies and
organizations. Computer systems that are not Year 2000 compliant by
January 1, 2000 may cause material adverse effects to companies and
organizations that rely upon those systems. 

The Company's timely receipt of royalty income will largely 
depend upon performance of computer systems and computer-controlled 
equipment of the operators of the Company's oil and gas producing 
properties and other third parties including oil and natural gas 
purchasers and significant service providers such as electric 
utility companies and natural gas plant, pipeline and gathering 
system operators. The Company is seeking written verification from 
its operators that they will be Year 2000 compliant. The Company 
anticipates that the cost of seeking verification will be minimal. 
The Company believes that it is not practical to independently 
verify the response it receives because the cost would not be affordable.

    The Company has undertaken an inventory of its financial software
and hardware systems for Year 2000 readiness.  The Company used an 
outside consultane to assist in this review.  The outside consultant
has completed his review and identified the required upgrades.  All
required upgrades to the Company's financial software and hardware
systems are expected to be complete by October 30, 1999.  The cost 
of the outside consultant, as well as the cost of the upgrade, is 
expected to be minimal.

     The failure to remediate critical systems (software or hardware) or 
the failure of a material third party to resolve critical Year 2000
issues could have a serious adverse impact on the Company's 
ability to continue operations and meet obligations.  Any Year 2000
problems that do occur will likely manifest themselves in reduced 
production through equipment shut down or impaired liquidity
through an inability of the Company's customers to take delivery
or to process payment.  At the current time, the Company believes
that any interuption in operation will be minor and short-lived.
However, until the Company's review has progressed, it is 
impossible to accurately identify the risks, quantify potential
impacts or establish a contingency plan.  The Company currently
intends to complete its contingency planning by October 30, 1999. 


                                 -15-


<PAGE>

FORWARD-LOOKING INFORMATION - CAUTIONARY STATEMENTS

     Other than the historical and factual matters set forth herein,
the matters and items set forth in this report are forward-looking
statements that involve risks and uncertainties.  The Company's actual
results may differ materially from the results discussed in the
forward-looking statements.  Factors that could cause or contribute to
such differences include, but are not limited to, the following:

     Certain Industry and Marketing Risks.  The Company's operations
are subject to the risks and uncertainties associated with drilling
for, and production and transport of, oil and natural gas.  The
Company must incur significant expenditures for the identification and
acquisition of properties and for the drilling and completion of
wells.  Drilling activities are subject to numerous risks, including
the risk that no commercial productive oil or gas reservoirs will be
encountered.  The Company's operations may be materially curtailed,
delayed or canceled as a result of numerous factors, including the
presence of unanticipated pressure or irregularities in formations,
accidents, title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of
equipment.  The Company's prospects for future growth and
profitability will depend predominately on its ability to replace
present reserves through acquisition as well as its ability to
successfully develop additional reserves.  The Company's ability to
market its oil and gas production is dependent upon the availability
and capacity of oil and gas gathering systems and pipelines.  Federal
and state regulation of oil and gas production and transportation,
general economic conditions, changes in supply and in demand all could
materially adversely affect the Company's ability to market its oil
and gas production.

     Uncertainty of Estimates of Oil and Gas Reserves.  Numerous
uncertainties are inherent in estimating quantities of proved oil and
gas reserves, including many factors beyond the control of the
Company.  This report contains an estimate of the Company's proved oil
and gas reserves based upon reports of the Company's operators.  The
process of estimating gas and oil reserves is complex, requiring
significant decisions and assumptions in the evaluation of available
geological, engineering and economic data for each reservoir.  As a
result, such estimates are inherently an imprecise evaluation of
reserve quantities.  Actual future production, revenue, taxes,
development expenditures, operating expenses and quantities of
recoverable gas and oil reserves may vary substantially from those
assumed in the estimate.  Any significant variance in these
assumptions could materially affect the estimated quantity and value
of reserves set forth in this report.  In addition, the Company's
reserves may be subject to downward or upward revision, based upon
production history, results of future exploration and development,
prevailing oil and gas prices and other factors.

     Inability to Develop Additional Reserves.  The Company's future
success as an oil and natural gas producer, as is generally the case
in the industry, depends upon its ability to find, develop and acquire
additional oil and gas reserves that are economically recoverable.
Except to the extent that the Company conducts successful development
activities or acquires properties containing proved reserves, the
Company's proved reserves will generally decline as reserves are
produced.  There can be no assurance that the Company will be able to
locate additional reserves or that the Company will drill economically
productive wells or acquire properties containing proved reserves.

     Effects of Changing Oil and Gas Prices.  The future financial
condition and results of operations of the Company depend upon the
prices it receives for its oil and natural gas production and the
costs of acquiring, developing and producing oil and natural gas.  Oil
and natural gas prices have historically been volatile and are subject
to fluctuations in response to changes in supply, market uncertainty
and a variety of

                                 -16-

<PAGE>

additional factors that are also beyond the control of the Company.
These factors include, without limitation, the level of domestic
production, the availability of imported oil and natural gas, actions
taken by foreign oil and natural gas producing nations, the
availability of transportation systems with adequate capacity, the
availability of competitive fuels, fluctuating and seasonal demand for
oil and natural gas, conservation and the extent of governmental
regulation of production and general economic conditions.  A
substantial or extended decline in oil or natural gas prices could
have a material adverse effect on the estimated value of the Company's
oil and gas reserves, and on its financial position, results of
operations and access to capital.

     Operating Hazards and Uninsured Risks.  The Company's operations
are subject to the risks inherent in the oil and gas industry,
including the risks of fire, explosions, blow-outs, pipe failure,
abnormally pressured formations and environmental accidents such as
oil spills, gas leaks, ruptures or discharges of toxic gases. The
occurrence of any of these risks could result in substantial losses to
the Company due to injury or loss of life, severe damage to or
destruction of property, natural resources and equipment, pollution or
other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations.  In
accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance will be adequate to cover
any losses or liabilities.  Further, the Company cannot predict the
continued availability of insurance, or availability at commercially
acceptable premium levels.

     Government Regulation.  Oil and gas operations are subject to
certain federal, state and local laws and regulations that may be
changed from time to time in response to economic and political
conditions.  Such laws and regulations have generally become more
stringent in recent years, often imposing greater environmental
operating requirements on an increasing number of parties.  Because
the requirements imposed by such laws and regulations are frequently
changed, the Company is unable to predict the effect or cost of
compliance with such requirements or their effects on oil and natural
gas usage or prices.  In addition, a number of legislative proposals
have been introduced in Congress and state legislatures which, if
enacted, would significantly affect the oil and gas industry.  In view
of the many uncertainties which exist with respect to any legislative
proposals, the Company cannot predict the effect on the Company of any
legislation which might be enacted.

     Environmental Liabilities. The Company's operations could result
in liability for oil spills, discharge of hazardous materials and
other environmental damages. In addition, the Company may be liable
for environmental damages caused by previous owners of property
purchased by the Company. As a result, substantial liabilities to
third parties or governmental entities may be incurred, the payment of
which could reduce or eliminate the funds available for project
investment or result in loss of the Company's properties. Although the
Company maintains insurance coverage it considers to be customary in
the industry, it is not fully insured against certain of these risks,
either because such insurance is not available or because of high
premium costs. Accordingly, the Company may be subject to liability or
may lose substantial portions of properties due to hazards that cannot
be insured against or have not been insured against due to prohibitive
premium costs or for other reasons.

     Substantial Competition.  The oil and gas industry is highly
competitive and there are many other companies engaged in the oil and
gas business.  Many of the companies with which the Company competes
have substantially greater financial, technical and other resources
and may have greater experience in the oil and gas business than the
Company.


                                 -17-


<PAGE>

     Need for Additional Capital.  The Company's ability to acquire
and exploit oil and gas properties is dependent upon its ability to
obtain necessary outside funding or to generate cash flow from
operations.  There is no assurance that any such required additional
funds would be available on satisfactory terms and conditions, if at
all.  The amount and timing of the Company's future capital
requirements, if any, will depend upon a number of factors, including
drilling costs, transportation costs, equipment costs, marketing
expenses, staffing levels and competitive conditions, and any
purchases or disposition of assets, many of which are not within the
Company's control.  Failure to obtain any required additional
financing could materially adversely affect the growth, cash flow and
earnings, of the Company.  In addition, the Company's pursuit of
additional capital could result in the incurrence of additional debt
or potentially dilutive issuances of additional equity securities.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Not applicable.



                                 -18-

<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Set forth below is the index to the financial statements of
Gladstone Resources, Inc. and Subsidiary.

                                                                 Page
                                                                 -----
Independent Auditor's Report                                       20
Consolidated Balance Sheet                                         21
Consolidated Statement of Operations                               22
Consolidated Statement of Stockholders' Equity                     23
Consolidated Statement of Cash Flows                               24
Notes to Consolidated Financial Statements                         25
Independent Auditor's Report on Additional Information             31
Summary of Operations                                              32
Schedules II, V, and VI                                            33
Capitalized Costs of Oil and Gas Producing Activities              34
Costs Incurred in Oil and Gas Property Acquisitions,
   Exploration and Development Activities                          35
Results of Operations for Producing Activities                     36
Reserve Quantity Information                                       37
Unaudited Pro Forma Consolidated Balance Sheet                     38
Unaudited Pro Forma Consolidated Statement of Operatons-1988       39
Unaudited Pro Forma Consolidated Statement of Operatons-1997       40
Unaudited Pro Forma Consolidated Statement of Operatons-1996       41
Footnotes to Unaudited Pro Forma Consolidated Balance Sheet
   and Statement of Operations                                     42


All other schedules and historical financial information are omitted
because they are not applicable, or the required information is shown
in the financial statements or notes thereto.

                                 -19-

<PAGE>

                     INDEPENDENT AUDITOR'S REPORT


Board of Directors and Stockholders
Gladstone Resources, Inc.

     I have audited the accompanying consolidated balance sheets of
Gladstone Resources, Inc. and Subsidiary (a Washington corporation) as
of December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for the three years
then ended.  These financial statements are the responsibility of the
Company's management.  My responsibility is to express an opinion on
these consolidated financial statements based on my audits.

     I conducted my audits in accordance with generally accepted
auditing standards.  Those standards require that I 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.  I believe that my audits provide a reasonable
basis for my opinion.

     In my opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Gladstone Resources, Inc. as of December 31, 1998 and 1997, and the
results of its operations and its cash flow for the three years then
ended in conformity with generally accepted accounting principles.


                                /s/ Harold Ratcliff

                             Certified Public Accountant


Dallas, Texas
February 19, 1999

                                 -20-


<PAGE>

               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
                      CONSOLIDATED BALANCE SHEET
                      December 31, 1998 and 1997
                                   
ASSETS

                                         1998            1997
                                    ------------   -------------
Current assets:                                     
 Cash                               $   23,372      $ 114,071
 Accounts receivable                     6,129         52,077
 Investments                                 -        108,134
                                   -------------   -------------
 Total current assets                   29,50l        274,282
                                   -------------   -------------
Property and equipment:                             
 Gas and oil properties                             
(successful efforts method)          1,811,235      2,044,925
 Equipment                              17,128         29,851
                                   -------------   ------------
                                     1,828,363      2,074,776
 Less accumulated depletion         (1,280,631)    (1,259,687)
  and depreciation                 -------------   -------------
 Total property and equipment          547,732        815,089
                                   -------------   -------------
Other assets:                                       
 Organizational cost                         -          4,954
  Cost in excess of amount                           
  assigned to net assets of
  subsidiary at date of
  acquisition                          337,000        337,000
                                   -------------   -------------
                                       337,000        341,954
 Less accumulated amortization        (293,783)      (290,032)
                                   -------------   -------------
 Total other assets                     43,217         51,922
                                   -------------   -------------
                                    $  620,450     $1,141,293
                                   =============   =============
                                                   

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:                                
 Accounts payable                   $   21,729      $  19,357
 Accrued expenses                            -         35,648
                                   -------------   -------------
  Total current liabilities             21,729         55,005
                                   -------------   -------------
Deferred income taxes                        -          1,300
                                   -------------   -------------
                                                    
Stockholders' equity:                               
  Common stock                         150,000        150,000
  Capital in excess of stated
    value                            1,230,134      1,230,134
  Retained earnings (deficit)         (781,413)       295,146
                                   -------------   -------------
Total stockholders' equity             598,721      1,084,988
                                   -------------   -------------
                                                    
                                    $  620,450      $1,141,293
                                   =============   =============


The accompanying notes are an integral part of this financial
statement.

                                 -21-

<PAGE>

               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF OPERATIONS
              For the three years ended December 31, 1998

                                            1998        1997      1996
                                          -------    --------   --------
Sales:                                                           
 Gas and oil                             $264,002    $511,477    $472,915
                                                                 
Cost Of Sales:                                                   
 Production taxes                        12,003        24,291      22,021
 Well operating expense                  118,909      113,964     142,053
                                        --------     --------    --------
                                         130,912      138,255     164,074
                                        --------     --------    --------
Gross profit on sales                    133,090      373,222     308,841
                                        --------     --------    --------
Expenses:                                                        
 Dry hole and abandonments               243,764      462,631      97,544
 Depletion                                90,846      115,003     101,275
 Depreciation and amortization            11,369      180,100       9,072
 General and administrative               11,162       12,851      18,222
 Taxes                                       352        2,905         586
 Legal, audit and accounting              12,704       91,623       7,664
 Asset impairment charge                 181,946            -           -
 Recovery of taxes                       (35,648)           -           -
                                        --------     --------    ---------
                                         516,495      621,113      234,363
                                        --------     --------    ---------
Income (loss) from operations           (383,405)    (247,891)      74,478
Other income:                                                    
 Gain on sale of assets                        -       13,429            -
 Unrealized gain (loss) on              (108,134)        (937)           -
    investments
 Interest income                           3,972       11,877        7,637
 Recovery from uncollectable note              -            -        6,146
  receivable                            ---------    ---------  ----------
Income (loss) before taxes              (487,567)    (223,522)      88,261
Income taxes (benefit)-deferred           (1,300)     (26,860)      14,509
                                        ---------    ---------  ----------
NET INCOME (LOSS)                      $(486,267)   $(196,662)     $73,752
                                        =========    =========  ==========
                                                                 
Earnings (loss) per share:                                       
   Basis                                    $(.11)      $ (.05)   $    .02
                                        =========    =========  ==========
   Diluted                                  $(.11)      $ (.05)   $    .02
                                        =========    =========  ==========



The accompanying notes are an integral part of this financial
statement.

                                 -22-

<PAGE>

               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              For the three years ended December 31, 1998

<TABLE>
<CAPTION>
                                                                           Retained
                                                     Capital Excess of     Earnings
                                   Stated Value(A)     Stated Value       (Deficit)        Total
                                   ---------------   -----------------  -----------   ----------- 
<S>                                <C>               <C>                <C>            <C>
Balance at January 1, 1996         $    150,000      $  1,230,134        $ (172,236)    $1,207,898
Net income for the year 1996                  -                 -            73,752         73,752
                                   ---------------   -----------------  ------------  ------------
Balance at December 31, 1996            150,000         1,230,134           (98,484)     1,281,650
Net loss for the year 1997                    -                 -          (196,662)      (196,662)
                                   ---------------   -----------------  ------------  ------------
Balance at December 31, 1997            150,000         1,230,134          (295,146)     1,084,988
Net loss for the year 1998                    -                 -          (486,267)      (486,267)
                                   ---------------   -----------------  ------------  ------------  
Balance at December 31, 1998       $    150,000      $  1,230,134        $ (781,413)    $  598,721
                                   ===============   =================  ============  ============
1998
                                                                                
(A) Common stock consists of no par value shares only.  There are 6,000,000 shares authorized
    and 4,244,060 shares issued and outstanding.  The stated value for all outstanding shares
    is $150,000.

</TABLE>

The accompanying notes are an integral part of this financial
statement.

                                 -23-
<PAGE>
               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF CASH FLOWS
              For the three years ended December 31, 1998
                                   
<TABLE>
<CAPTION>
                                                       1998        1997        1996
                                                  -----------  ----------    -------
<S>                                                <C>          <C>          <C>
Cash flows from operating activities:                                        
 Net earnings (loss)                               $(486,267)   $(196,662)   $  73,752
 Adjustments to reconcile net earnings to                                            -
 net cash provided by operating
 activities:
  Non-productive properties written off               58,970      100,545            -
  Depreciation, depletion and                        102,215      133,112      110,347
    amortization
  Change in accounts receivable                       45,948        2,163      (18,209)
  Decrease in value of producing                     149,267                  
    properties
  Change in accounts payable                           2,372       (7,672)       5,390
  Change in accrued expenses                         (35,648)       2,777            -
  Decrease in value of listed securities             108,134            -            -
  Change in deferred income taxes                     (1,300)     (26,860)      14,509
                                                  ----------   ----------    ---------
  Net cash provided by (used by) operations          (56,309)       7,403      185,789
                                                  ----------   ----------    ---------
Cash flows from investing activities:                                        
 Investment in oil and gas properties                (34,390)     (45,749)     (36,890)
 Purchase of truck                                         -            -      (12,901)
 Purchase of listed securities                             -     (108,134)           -
                                                  ----------   ----------   ----------
  Net cash used by investing activities              (34,390)    (153,883)     (49,791)
                                                  ----------   ----------   ----------
  Net increase (decrease) in cash                    (90,699)    (146,480)     135,998
Cash at beginning of year                            114,071      260,551      124,553
                                                  ----------   ----------   ----------
Cash at end of year                               $   23,372   $  114,071   $  260,551
                                                  ==========   ==========   ==========
Supplemental disclosure of cash flow                                         
information
Cash paid (received) during the period for:                                  
Interest paid                                      $  -         $  -         $   -
Federal income tax (refund)                        $  -         $  -         $   -


</TABLE>


The accompanying notes are an integral part of this financial statement.

                                      -24-

<PAGE>
               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998

NOTE 1 - ORGANIZATION

     Gladstone Resources, Inc. was incorporated in the State of
Washington on July 19, 1916.  In March, 1973, the company acquired
100% ownership of Brooks NM, Inc. a Texas corporation (now named NM
Corporation).  The Company sells oil and gas in Texas and New Mexico.
The sales to the customers are on open accounts receivable, which are
unsecured.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     On an accrual basis, the Company uses the successful efforts
method of accounting.  This method follows the premise that an
enterprise is to capitalize only those costs it incurs that directly
result in an asset that has future benefits measured in terms of
future cash flows.

     For purpose of consolidation all intercompany transactions have
been eliminated.

     For purposes of the statement of cash flows, the Company
considers all short-term debt securities purchased with a maturity of
three months or less to be cash equivalents.  There were no
significant non-cash investing or financing activities during the
three year period ended December 31, 1998.

     Depreciation, depletion and amortization are calculated using the
straight-line and unit of production method over the estimated useful
lives of the assets or production of the estimated recoverable oil and
gas reserves.  Vehicles are depreciated over a five year life.
Organization expenses are amortized on a straight-line basis currently
with a life of five years.

     For income tax reporting, the Company uses accounting methods
that recognize depreciation sooner than for financial statement
reporting.  As a result, the basis of property and equipment for
financial reporting exceeds its tax basis by the cumulative amount
that accelerated depreciation exceeds straight-line depreciation.
Also, for tax purposes the Company deducts intangible drilling costs
and capitalizes them on the successful efforts accounting method.
Deferred income taxes had been recorded in prior years for the excess
deductions, which will be taxable in future periods through reduced
depreciation and cost depletion deductions for tax purposes.

     Investment tax credits are accounted for as a reduction of income
tax expense in the year they are utilized under the flow-through
method.

     Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles.  Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.  Actual
results could vary from the estimates that were used.

                                 -25-
                                   

<PAGE>

               GLADSTONE RESOURCES, INC. AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998
                                   
     
     
NOTE 3 - ACCOUNTS RECEIVABLE

     Of the net revenue interest amount of $6,129 due from oil and gas
sales at December 31, 1998, $2,624 has been received from the
operators as of the date of this report.  Of the receivables due at
December 31, 1997, $18,519 was due from the President/stockholder of
the Company at that time.

NOTE 4 - NOTE RECEIVABLE AND RELATED BAD DEBT EXPENSE (RECOVERY)

     November 1, 1993, Gladstone agreed to loan Advanced Welding
Technologies, Inc. a total of $350,000.  As of December 31, 1993,
$200,000 had been advanced on the loan.  Management did not advance
the balance of $150,000.  The note was secured by substantially all of
the assets of the borrower.  The note was written off in 1994 and
1995.  In 1996, the security was sold for $6,146 net of legal fees.

NOTE 5 - PROPERTY AND EQUIPMENT

Gas and oil properties

     In March, 1973, Gladstone Resources, Inc. acquired 100% ownership
of Brooks NM, Inc. (NM Corporation), a Texas corporation, in exchange
for 338,000 shares of common stock.  An additional 115,000 shares of
common stock were issued October 12, 1975, in further consideration
for additional capital costs incurred in securing price increases.

     NM Corporation, the subsidiary of Gladstone Resources, Inc., owns
a 28.71% net revenue interest in 6 producing gas wells in San Juan
County, New Mexico.

     On January 1, 1982, Gladstone Resources, Inc. purchased producing
properties for $550,000 in Kent County, Texas.  Previously in 1981,
Gladstone purchased a 6.25% interest in a 207 acre lease with one
producing well.  The 1982 purchase consists of four leases on 3,035
acres with 68 producing wells.  The reserves on some of the properties
were reduced by production declines.  These properties were sold for
$20,000 in January, 1999, with an effective date of October 1, 1998,
for income and expenses.

     From 1990 through 1994, the Company participated in successful
wells in Schleicher and Pecos Counties in Texas.  The reserves in
Schleicher County were estimated by management to be 1,524,300 MCF's
in 1994, there are currently seven producing wells and a pipeline.
Gladstone Resources, Inc. has a 40.17% revenue interest in the Wilson-
Pope wells in Schleicher County.  The Schleicher County wells were
sold for $295,000 in January, 1999, with an effective date of October
1, 1998, for income and expenses.

     
     
                                 -26-
                                   
<PAGE>



               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998
                                   
                                   
NOTE 5 - PROPERTY AND EQUIPMENT (CONTINUED)

Gas and oil properties

     A summary of changes in the Company's gas reserves (in MCF'S) is
as follows (oil reserves have been included as MCF's by multiplying
barrels by 6).  ALL RESERVE AMOUNTS INCLUDING THE REVISIONS HAVE BEEN
FURNISHED BY MANAGEMENT.  There are no "proved undeveloped reserves"
according to management, other than in Schleicher County.

                                      Total for United States
                                -------------------------------
                                   1998         1997       1996
                                ---------    ---------   ---------
Beginning of year               1,293,559    2,040,641   2,222,664
Additions through exploration                            
  of leases                             -            -         760
Adjustment to reserve (1)          (4,284)    (565,573)          -
Production                       (129,032)    (181,509)   (182,783)
                                ---------    ---------   ---------
Balance at end of year (2)      1,160,243    1,293,559   2,040,641

(1)  Based on reevaluation of estimated reserves by management.  The
     estimates were based on current production levels of all
     properties.
(2)  In January, 1999, the Kent and Schleicher Counties properties
     including reserves of 976,459 MCF'S were sold.  The remaining
     reserves consist of 183,784 MCF'S.

NOTE 6 - FEDERAL AND STATE INCOME TAXES

     A reconciliation of income tax expense (benefit) computed by
applying the U.S. federal tax rates to loss from continuing operations
before income taxes and extraordinary items and recorded income tax
expense (benefit) is as follows:
                                   1998         1997        1996
                                -----------  ----------  ---------
Tax expense (benefit) at                                 
statutory rate                  $ (73,135)   $ (33,528)  $  13,239
Non-deductible items               34,158       24,846       9,439
Change in valuation allowance      37,677      (18,178)     (8,169)
                                ---------    ---------   ---------
Provision for income tax        $  (1,300)   $ (26,860)  $  14,509
                                ---------    ---------   ---------

The components of the Company's deferred income taxes  for 1998 and
1997 are as follows:

                                           1998          1997
                                        ----------   -----------
Amortization of asset cost              $   (5,556)  $    (4,250)
Depreciation                                11,323         9,972
Cost depletion                             (61,237)      (50,922)
Intangible Development costs                (1,300)      (26,860)
Impairment of asset value                   27,292             -
Net operating loss carryforward             43,150        23,795
Valuation allowance                        (44,512)       (6,835)
                                        ----------   -----------
Total                                   $        -   $     1,300
                                        ----------   -----------

                                 -27-

<PAGE>

NOTE 6 - FEDERAL AND STATE INCOME TAXES (CONTINUED)

Net operating loss deductions and credits carryforward consists of the
following:

From year ending                  Year      Losses     Credit
                                  Expires
12-31-84                          12-31-99  $   -      $384
12-31-94                          12-31-09   100,759     -
12-31-97                          12-31-12    57,877     -
12-31-98                          12-31-13   129,028     -
                                            ---------  ------
                                            $287,664   $384
                                            =========  ======
                                                       

The Company files a consolidated tax return.

NOTE 7 - SIGNIFICANT ESTIMATES AND CONCENTRATIONS

     Generally accepted accounting principles require disclosure of
certain significant estimates and current vulnerabilities due to
certain concentrations.  Those matters included the following.

1.   Year 2000
     Like all entities, the Company is exposed to risks associated
     with the Year 2000 issue which affects computer software and
     hardware; transactions with customers, vendors and other
     entities; and equipment dependent on microchips.  The Company has
     begun but not yet completed the process of identifying and
     remediating potential Year 2000 problems.  It is not possible for
     any entity to guarantee the results of its own remediation
     efforts or to accurately predict the impact of the Year 2000
     issue on third parties with which the Company does business.  If
     remediation efforts of the Company or third parties with which it
     does business are not successful, the Year 2000 problem could
     have negative effects on the Company's financial condition and
     results of operations in the near term.

2. Major Customers
     In 1998, the Company has two customers which represent 47% and
     23% of its total revenue.

NOTE 8 - RENT EXPENSE

     The Company pays rent on a month-to-month basis.  The Company
does not have a commitment on a lease contract.  Rent expense for
1998, 1997 and 1996 was $6,606, $5,919 and $6,426, respectively.

NOTE 9 - COMMITMENTS

     Exco Resources, Inc. purchased all of the Company's producing 
properties in Schleicher and Kent Counties,  Texas for $315,000 and 
the funds were received on January 19, 1999.  The agreement to purchase
 the properties was completed on January 19, 1999, but was effective 
as of October 1, 1998.  All revenue less all expenses relating to 
these properties will be paid to the purchaser for the period after
 October 1, 1998.  Because the sale was completed in January, 1999, 
the sale was not entered on the books of the Company until 1999.  

                             -28-

<PAGE>

            GLADSTONE RESOURCES, INC. AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     December 31, 1998

NOTE 9 - COMMITTMENTS (CONTINUED)

     The sales price of the properties was $181,946 less than the 
amount on the books of the Company; therefore a loss was recorded 
in 1998 for the impairment of asset value.  The merger that had 
previously been entered into as of April 30, 1998, by an "Agreement 
and Plan of Merger" with EXCO Resources, Inc., was terminated.  In 
a separate transaction the same day, Mr. Brooks, individually, 
purchased the same properties from EXCO Resources, Inc. for $315,000.
On January 19, 1999, Mr. E. B. Brooks, Jr. agreed to sell all of the 
shares in the Company that he and his three daughters owned to a 
group of investors.


NOTE 10 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to certain operating agreements by and between the
Company and Edward B. Brooks, Jr., Mr. Brooks serves as the operator
of certain of the Company's oil and gas interests.  Pursuant to such
operating agreements, the Company paid the following described amounts
to Mr. Brooks in 1997 and 1998 and Mr. Brooks paid the following
described amounts to the Company in 1997 and 1998.

     Mr. Brooks paid the Company $90,802 and $72,602, respectively, in
1997 and 1998 as the Company's share of gas sales from properties in
Schleicher County.  The Company paid Mr. Brooks $68,881 and $52,306,
respectively, in 1997 and 1998 for the Company's share of operating
costs on properties in Kent County and Schleicher County.  In 1998,
the Company also paid Mr. Brooks $4,734 for the Company's share of
operating expenses on the Schleicher and Kent County properties that
were paid by Mr. Brooks in 1997.

     In 1997, the Company paid Mr. Brooks $228,472 for the Company's
share of the cost of a seismic study on properties in Stonewall County
and the cost of drilling two wells in other counties in Texas which
turned out to be non-productive.  In 1998, the Company paid Mr. Brooks
$18,915 for the Company's share of the seismic study on properties in
Stonewall County and $37,591 for the Company's share of the cost of
drilling a well in Stonewall County that was nonproductive.  In 1998,
the Company paid $24,334 to Mr. Brooks for the Company's share of
lease costs of properties in Stonewall County.

     In 1997 and 1998, the Company reimbursed Mr. Brooks $1,769 and
$1,159, respectively, for expenses incurred by him in operating a
Company owned vehicle that was provided to him for Company business.

     
     
                                 -29-
                                   
<PAGE>


                      OTHER FINANCIAL INFORMATION



Board of Directors and Stockholders
Gladstone Resources, Inc.

My report on my audit of the basic financial statements of Gladstone
Resources, Inc. for 1998 and 1997 appears on page 3. That audit was
made for the purpose of forming an opinion on the basic financial
statements taken as a whole.  The information on pages 31 through 42
is presented for purposes of additional analysis and is not a required
part of the basic financial statements.  Such information has not been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, accordingly, I express no opinion on it.

                                     /s/  Harold Ratcliff
                                     Certified Public Accountant


Dallas, Texas
February 19, 1999

                                 -31-


<PAGE>

               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
                               EXHIBIT A
                         SUMMARY OF OPERATIONS
                    For the year ended December 31,
                                   
<TABLE>
<CAPTION>

                               1998        1997        1996        1995        1994
                              -------     -------     -------   ---------   ---------
<S>                          <C>         <C>         <C>         <C>         <C>
Sales                                                                       
  Gas and oil                $ 264,002   $511,477    $ 472,915   $ 405,366   $ 429,556
Cost of sales:                                                              
  Production taxes              12,003     24,291      22,021      20,556       21,855
  Well operating expenses      118,909    113,964     142,053     127,406      138,664
                             ----------  ---------   ---------   ---------   ----------
Gross profit on sales          130,912    138,255     164,074     147,962      160,519
                             ----------  ---------   ---------   ---------   ----------
                               133,090    373,222     308,841     257,404      269,037
                             ----------  ----------  ---------   ----------  ----------
Expenses:                                                                   
  Depletion                     90,846    115,003     101,275     114,456      130,608
  Depreciation and              11,369     18,100       9,072      11,057       11,035
   amortization
  Dryhole and abandonment      243,764    462,631      97,544      60,915       61,845
  General and administrative    11,162     12,851      18,222      10,704       14,644
  Interest                           -          -           -       6,399       10,255
  Taxes                            352      2,905         586       3,154        1,262
  Legal, audit and              12,704      9,623       7,664      13,107       16,131
   accounting
  Asset impairment charge      181,946          -           -           -            -
  Recovery of taxes            (35,648)         -           -           -            -
                            ----------- ---------   ----------  ----------  ----------
                               516,495    621,113     234,363     219,792      245,780
                            ----------- ---------   ----------  ----------  ----------
Income (loss) from            (383,405)  (247,891)     74,478      37,612       23,257
  operations
Other income (losses)         (104,162)    24,369      13,783     (96,496)     (50,075)
                            ----------  ---------  ----------  ----------  -----------
Income (loss) before taxes    (487,567)  (223,522)     88,261     (58,884)     (26,818)
Income taxes (benefit)          (1,300)   (26,860)     14,509     (10,774)      (6,212)
                            ----------- ---------  ----------  ----------  -----------
NET INCOME (LOSS)             (486,267)  (196,662)     73,752     (48,110)     (20,606)
Retained earnings                                                           
  (deficit) at                                                                
  beginning of year           (295,146)  ( 98,484)   (172,236)   (124,126)   (103,520)
                            ----------- ----------  ----------  ----------  ----------
Retained earnings           $ (781,413) $(295,146)  $  (98,484) $(172,236)  $ (124,126)
  (deficit) at end of year  =========== ==========  ==========  ==========  ==========
Capital stock and paid in   $1,380,134  $1,380,134  $1,380,134  $1,380,134  $1,380,134
  capital                   =========== =========== ==========  ==========  ==========
Average common shares         4,244,060  4,244,060   4,244,060   4,244,060   4,244,060
                            =========== ==========  ==========  ==========  ==========
Income (loss) per common
  share                           $(.11)     $(.05)       $.02       $(.01)      $(.00)
                            =========== ==========  ==========  ==========  ==========

</TABLE>

See auditor's report on other financial information

                                      -32-
<PAGE>
                       GLADSTONE RESOURCES, INC.
                          December 31, 1998




SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES

                     Balance                           Balance
Debtor:               1-1-98   Additions   Deductions  12-31-98
                    ---------- ----------  ---------- ---------
E. B. Brooks, Jr.   $18,519     $63,504     $82,023*   $    --

The above amounts are for working interests in gas sales in Schleicher
County Texas and the amount is paid by Brooks monthly as he receives
the sale proceeds.

  *This amount consists of payments received of $72,602 and $9,421
  offset by the amount owed to Mr. Brooks.



SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT

                         Balance                              Balance
Description:              1-1-98    Additions  Retirement    12-31-98
                       ------------ ---------  ----------   -----------
Oil and gas                                                 
properties             $ 2,044,925  $ 154,481  $   388,171  $ 1,811,235
Automotive equipment        27,751         --       27,751           --
Furniture and                                               
equipment                    2,100     17,128        2,100       17,128
                       ------------ ---------  -----------  -----------
     Totals            $ 2,074,776  $ 171,609  $   418,022  $ 1,828,363
                       ===========  =========  ===========  ===========



         SCHEDULE VI - ACCUMULATED DEPRECIATION,   DEPLETION AND
         AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT

                         Balance                               Balance
Description:             1-1-98     Additions   Retirement     12-31-98
                       -----------  ---------  ------------- -----------
Oil and gas                                                  
properties             $1,249,627   $ 90,846    $ 59,842     $1,280,631
Automotive equipment        7,960      2,664      10,624          --
Furniture and                                                
equipment                   2,100       --         2,100          --
                       -----------  ---------  ------------- -----------
     Totals            $1,259,687    $93,510     $72,566     $1,280,631
                       ===========  =========  ============= ===========



See auditor's report on other financial information

                                 -33-

<PAGE>

                       GLADSTONE RESOURCES, INC.
         CAPITALIZED COSTS OF OIL AND GAS PRODUCING ACTIVITIES
               For the two years ended December 31, 1998



                             DISCLOSURE 2
                             -------------

                                            United States Total
                                      -------------------------------
                                            1998               1997
                                      -------------     -------------

Capitalized costs -
  proved properties                     $1,753,971      $1,966,105
Capitalized costs -
  unproven properties                       57,264          78,820
                                      -------------     -------------
Total capitalized costs                  1,811,235       2,044,925

Accumulated depletion and
   depreciation                         (1,280,631)     (1,249,627)
                                      -------------     -------------
Net costs                                 $530,604      $  795,298
                                      =============     =============





See auditor's report on other financial Information



                                 -34-


<PAGE>


                       GLADSTONE RESOURCES, INC.
                COSTS INCURRED IN OIL AND GAS PROPERTY
          ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
              For the three years ended December 31, 1998



                             DISCLOSURE 3
                             -------------


                                       United States Totals
                                   ------------------------------
                                       1998      1997      1996
                                   ---------    -------   -------
Acquisition of properties:
     Proved                        $   --       $  --     $   --
     Unproven                         29,939      45,059   10,978

Exploration                          243,765     311,595   97,544

Development costs                      4,451         690   20,188

Production costs                     118,909     113,964  142,053



See auditor's report on other financial information



                                 -35-

<PAGE>

                       GLADSTONE RESOURCES, INC.
            RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
              For the three years ended December 31, 1998
                                   


                             DISCLOSURE 4
                              -----------

<TABLE>
<CAPTION>
                                                            For United States
                                                       -----------------------------------
                                                           1998       1997          1996     
                                                       ----------   --------     ---------
<S>                                                    <C>          <C>          <C>

Sales                                                   $264,002     $511,477    $472,915
                                                        --------     --------    --------
Production costs and taxes                               130,912      138,255     164,074

Exploration expenses (dry holes,
     abandonments and delay rents)                       243,765      462,631      97,544
Asset impairment charge                                  181,946           --          --
Depreciation, depletion and amortization                  99,551      127,806     105,466
                                                        ---------    --------    --------
                                                         656,174      728,692     367,084
                                                        ---------    --------    --------
Results of operations from producing
     activities (excluding corporate
     overhead and interest costs)                      $(392,172)   $(217,215)   $105,831
                                                       =========     =========    ==========


</TABLE>


See auditor's report on other financial information


                                 -36-

<PAGE>


                       GLADSTONE RESOURCES, INC.
                     RESERVE QUANTITY INFORMATION
              For the three years ended December 31, 1998
                                   
                             DISCLOSURE 5
                             ------------

<TABLE>
<CAPTION>

                                                      United States and Total
                                  --------------------------------------------------------------
                                         1998                  1997                  1996
                                  ------------------   ------------------    -------------------
                                     Oil     Gas(1)      Oil      Gas(1)       Oil       Gas(1)
                                  --------  --------   --------  --------    --------   --------
<S>                               <C>       <C>        <C>      <C>         <C>        <C>
                                                                                       
Beginning of year                  86,904   772,135    101,636  1,430,825   117,685    1,516,554
                                                                                       
Development of new properties        --        --         --       --          --         --
                                                                                       
Revisions of previous estimates      (725)       66       --     (565,573)     --         --
                                                                                       
Extensions of proved reserves        --        --         --       --          --         --
                                                                                       
Sales of producing properties        --        --         --       --          --         --
                                                                                       
Production                        (11,057)  (62,690)   (14,732)  (93,117)   (16,175)     (85,729)
                                  --------  --------   --------  --------   --------   ---------
End of year                        75,122   709,511    86,904    722,135    101,636     1,430,825
                                                       =======  =========   ========   ==========
                                                                                       
Sale of properties (3)            (75,122)  (525,727)                                  
                                  --------  ---------
                                                                                       
Balance after sale 
   of Jan. 19, 1999                  --      183,784
                                  ========  ========
________________________________
(1)  Gas includes gas liquids.
(2)  Production from two wells drilled in 1996 and at year end were declared  as
     non-productive  due  to  mechanical problems with the  wells.  Other  wells
     drilled on the same Leases in 1997 were non-productive.
(3)  The Company sold the Schleicher and Kent Counties properties on January 19,
     1999, effective as of October 1, 1998.
</TABLE>


Oil quantities are in barrels.
Gas quantities are in MCF'S.




*All  undeveloped  reserves  that may exist  are  on  the  same  Leases  as  the
developed   reserves  and  additional  wells,  if  drilled,  may  or   may   not
produce additional reserves.

See auditor's report an other financial information


                                 -37-

<PAGE>

               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
            UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                           December 31, 1998
                                   
                                ASSETS
<TABLE>
<CAPTION>
                                                                   Pro Forma
                                              ------------------------------------------------
                                                 Historical       Adjustments      Pro Forma
                                              ---------------   ---------------  -------------
<S>                                           <C>                <C>              <C>
Current assets:
     Cash                                      $  23,372         $  315,000(2)    $338,372
     Accounts receivable                           6,129               --            6,129
                                              ----------           -----------    -----------
          Total current assets                    29,501            315,000        344,501

Property and equipment:
     Gas and oil properties (successful        1,811,235         (1,188,560 (1)    622,675
          efforts method)
     Equipment                                    17,128               --           17,128
                                               1,828,363         (1,188,560)       639,803
Less accumulated depletion
     and depreciation                         (1,280,631)          873,560(1)      407,071
                                              ------------       ------------     ---------
     Total property and equipment                547,732          (315,000)        232,732

Other assets:
  Cost in excess of amount assigned
  to net assets of subsidiary at
  date of acquisition                           337,000               --            337,000
     Less accumulated amortization             (293,783)              --           (293,783)
                                              ------------        ----------      ----------
          Total other assets                     43,217               --             43,217
                                              ------------        ----------

                                              $ 620,450           $    --          $620,450
                                              ============        ==========      ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                         $ 21,729           $    --           $ 21,729
     Accrued expenses                           --                    --               --
                                              --------           ----------       ---------
          Total current liabilities             21,729                --             21,729
Deferred income taxes                             --                  --               --
                                              ---------          ----------       ---------

Stockholders' equity:
     Common stock                              150,000                --            150,000
     Capital in excess of stated value       1,230,134                --          1,230,134
     Retained earnings (Deficit)              (781,413)               --           (781,413)
                                             -----------         ----------       ---------
          Total stockholders' equity           598,721                --            598,721
                                             ----------          ----------       ---------
                                             $ 620,450            $    --         $ 620,450
                                             ==========          ==========       =========

</TABLE>


     The accompanying notes are an integral part of this financial
                              statement.


                                 -38-

<PAGE>


               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
       UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                 For the year ended December 31, 1998
<TABLE>
<CAPTION>

                                                  Pro Forma
                                  Historical      Adjustments      Pro Forma
                                -------------    -------------    -----------
<S>                             <C>            <C>               <C>
Sales:                                                           
     Gas and oil                $  264,002     $  (213,377)(1)   $   50,625
                                -------------  --------------    ------------
                                                                 
                                                                 
Cost of sales:                                                   
     Production taxes               12,003           8,604(1)         3,399
     Well operating expense        118,909        (57,228)(1)        61,681
                                ------------   ---------------   ------------                          
                                   130,912        (65,832)           65,080
                                -------------  ---------------   -------------
                                                                 
Gross profit on sales              133,090       (147,545)          (14,455)
                                -----------    ----------------  -------------
                                
                                                                 
Expenses:                                                        
     Dry hole and abandonments    243,764            --              243,764
     Depletion                     90,846         (61,433)(1)         29,413
     Depreciation and                                            
      amortization                 11,369            --               11,369
     General and administrative    11,162            --               11,162
     Taxes                            352            --                  352
     Legal, audit and                                            
      accounting                   12,704           --                 12,704
     Asset impairment charge      181,946        (181,946)(3)          --
     Recovery of taxes            (35,648)          --               (35,648)
                                ------------   ---------------   ------------
                                  516,495        (243,379)           273,116
                                ------------   ---------------   ------------
                                                                 
Income (loss) from operations    (383,405)         95,834           (287,571)                                 
                                                                 
Other income:                                                    
     Unrealized gain (loss) on                                   
investments                      (108,134)           --             (108,134)                                                 
     Interest income                3,972            --                 3,972                     
                                -------------  ---------------   ------------
                                                                 
                                                                 
Income (loss) before taxes       (487,567)         95,834           (487,576)           
     Income taxes (benefit)-                                     
      deferred                     (1,300)           --               (1,300)                     
                                ------------   ----------------  -------------
                                                                 
NET INCOME (LOSS)                (486,267)        $95,834          $(390,433)                     
                                ============   ================  =============
                                                                 
Earnings (loss) per share:                                       
     Basic                          $(.11)           $.02              $(.09)   
                                ============    ===============   =============
                                                                 
     Diluted                        $(.11)           $.02              $(.09)  
                                =============  ================  =============
                                                                 
                                        
</TABLE>
                                        


The accompanying notes are an integral part of this financial
statement


                                 -39-
                                   
                                   
<PAGE>
               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
       UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                 For the year ended December 31, 1997
                                   
                                   
                                   

<TABLE>
<CAPTION>





                                                     Pro Forma
                                     ------------------------------------------
                                     Historical   Adjustments      Pro Forma
                                     ----------  --------------  --------------
<S>                                 <C>          <C>             <C>
Sales:                                                       
     Gas and oil                    $511,477     $ (405,929)(1)   $ 105,549            
Cost of sales:                                               
     Production taxes                24,291         (17,239)(1)       7,052
     Well operating expense         113,964         (52,055)(1)      61,909
                                    ----------   --------------  ------------
                                    138,255          69,294          68,961
                                   -----------   --------------   -----------
Gross profit on sales               373,222        (336,634)         36,588 
                                   ----------   --------------    -----------
                                                             
Expenses:                                                    
     Dry hole and abandonments      462,631          --             462,631
     Depletion                      115,003        (71,502)(1)       43,501                                
     Depreciation and                                        
      amortization                   18,100           --             18,100
     General and administrative      12,851           --             12,851
     Taxes                            2,905           --              2,905
     Legal, audit and                                        
       accounting                     9,623           --              9,623
                                   ----------   --------------   -----------
                                    621,113        (71,502)         549,611
                                   ----------   --------------   -----------
                                                             
Income (loss) from operations      (247,891)      (265,132)        (513,023)
                                                             
Other income:                                                
     Gain on sale of assets          13,429         13,429             --            13,429
     Unrealized gain (loss) on                               
investments                           (937)          --                (937)
     Interest income                 11,877          --              11,877
                                   -----------   -------------    ----------
                                                             
Income (loss) before taxes         (223,522)      (265,132)        (488,654)
     Income taxes (benefit)-                                 
deferred                            (26,860)       (31,860)         (58,720)
                                  ------------   -------------    ----------
                                                             
NET INCOME (LOSS)                   $(196,662)   $ (233,272)        $429,934
(429,934)                          ===========  ==============     ==========
                                                             
Earnings (loss) per share:                                   
     Assuming no dilution          $   (.05)     $    (.05)       $     (.10)
                                  ===========  ===============    ==========
     Assuming full dilution         $   (.05)    $    (.05)       $     (.10)
                                  ===========  ===============    ==========


</TABLE>




The accompanying notes are an integral part of this financial
statement.


                                 -40-


<PAGE>
                                   
                                   
               GLADSTONE RESOURCES, INC.  AND SUBSIDIARY
       UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                 For the year ended December 31, 1996


<TABLE>
<CAPTION>

                                                         Pro Forma
                                       Historical        Adjustments         Pro Forma
                                    -------------       -------------      ---------------
<S>                                 <C>                 <C>                <C>
Sales:
     Gas and oil                      $472,915          $(381,064)(1)      $91,851
                                    ------------        -------------      ---------------
Cost of sales:
     Production taxes                   22,021            (15,669)(1)        6,352
     Well operating expense            142,053            (60,159)(1)       81,894
                                    ------------        -------------      ----------------
                                       164,074            (75,828)          88,246
                                    ------------        -------------      ----------------

Gross profit on sales                  308,841           (305,236)           3,605
                                    ------------        --------------     ----------------

Expenses:
     Dry hole and abandonments          97,544              --              97,544
     Depletion                         101,275            (42,243)(1)       59,032
     Depreciation and amortization       9,072              --               9,072
     General and administrative         18,222              --              18,222
     Taxes                                 586              --                 586
     Legal, audit and accounting         7,664              --               7,664
                                    ------------        -----------        ----------------                           
                                       234,363            (42,243)         192,120
                                    ------------        -----------        ----------------

Income (loss) from operations           74,478           (262,993)        (188,515)

Other income:
     Interest income                     7,637              --               7,637
     Recovery from uncollectible
      note receivable                    6,146              --               6,146
                                    -----------         -----------        ---------------

Income (loss) before taxes              88,261          (262,993)         (174,732)
     Income taxes (benefit)-deferred    14,509           (40,719)          (26,210)
                                    -----------         -------------      ----------------

NET INCOME (LOSS)                      $73,752      $   (222,274)         $(148,522)
                                    ===========         ==============     ==================
Earnings (loss) per share:
     Assuming no dilution           $    .02            $   (.05)          $   (.03)
                                    ===========         ==============     ==================

     Assuming full dilution         $    .02            $   (.05)          $   (.03)
                                    ===========         ==============     ==================

</TABLE>




The accompanying notes are an integral part of this financial
statement.



                                 -41-
                                   
<PAGE>
                       GLADSTONE RESOURCES, INC.
                                   
      FOOTNOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                   


(1)  To reflect the elimination of assets relating to and resulting
     from the operations of the Schleicher and Kent Counties (Texas)
     oil and gas wells sold in connection with the Sale.

(2)  To reflect the net proceeds resulting from and related to the
     Sale of the Schleicher and Kent County oil and gas wells
     calculated as follows:

        Gross proceeds from sale of assets             $315,000


        (There were no fees or expenses associated with the sale)

(3)  To reflect the loss for financial statement purposes resulting
     from the Sale of the oil and gas wells calculated as follows:

     Gross proceeds from sale of the wells             $315,000
     Net book value of assets relating to
     the wells                                         (496,946)
     Impairment (loss) in value of assets              ---------
     recorded in 1998                                  $181,946
                                                       ==========


                                 -42-

<PAGE>


ITEM 9.   CHANGES   IN   AND  DISAGREEMENTS  WITH  ACCOUNTANTS   ON   ACCOUNTING
          AND FINANCIAL DISCLOSURE

     None.

                               PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

     The directors of the Company at March 31, 1999, were as follows:
                             Current Office(s) Held  Year First
      Director         Age       in the Company      Elected Director
   --------------      ---     ----------------      -----------------
                            
Johnathan M. Hill       49  President and a Director       1999
Katherine R. Murphy     42  Treasurer, Assistant           1999
                            Secretary and a Director       1999
H. Wayne Gifford        61  Director                       1999
Charles B. Humphrey     43  Director                       1999
Fred Oliver             74  Director                       1999

     Mr. Hill was appointed a Director and President of the Company in
March 1999. Mr. Hill has been the President of Hill & Hill Production
Company, an oil and gas production company, the Secretary and
Treasurer of Hill Energy Company, an oil and gas investment company,
and the Vice President of HPC Operating Company, an oil and gas
operating company, all based in Dallas, Texas, since 1985.

     Ms. Murphy was appointed Treasurer, Assistant Secretary and a
Director of the Company in  March 1999. Ms. Murphy has been the Vice
President and Assistant Secretary of Humphrey Oil Corporation since
1989.

     Mr. Gifford, was appointed a Director of the Company in March
1999. Mr. Gifford has been the President and a Director of Gifford
Operating Company, an oil and gas operating company based in Dallas,
Texas, since 1987. Mr. Gifford has also been active as an independent
geological consultant since 1980.

     Mr. Humphrey was appointed a Director of the Company in March
1999. Mr. Humphrey has been the President, Treasurer, and sole
director of Humphrey Oil Corporation, an oil and gas exploration
company based in Dallas, Texas, and the President and a Director of
Lindenshire, Inc., a real estate development company based in Dallas,
Texas, since 1984.  Mr. Humphrey also has been engaged in real estate
development and investment individually and through numerous other
partnerships, joint ventures and corporations since 1984.

                                 -43-

<PAGE>

     Mr. Oliver was appointed a Director of the Company in March 1999.
Mr. Oliver has been the President of Petroleum Ventures of Texas,
Inc., an oil and gas investment company based in Dallas, Texas, since
1975.  Mr. Oliver also has been engaged in geological and engineering
consulting since 1953.

EXECUTIVE OFFICERS

     The executive officers of the Company at March 31, 1999, were as
follows:
      Officers        Age       Current Office(s) Held in the Company
----------------    ---------   -------------------------------------
Johnathan M. Hill      49       President
Sheila Irons           57       Vice President and Secretary
Katherine R. Murphy    42       Treasurer and Assistant Secretary

     For information regarding the business experience of Messr. Hill
and Madame Murphy, see the biographies above.

      Ms.  Irons  was  appointed  the  Company's  Vice  President  and
Secretary  of  the  Company in March 1999. Ms.  Irons  has  been  Vice
President of Humphrey Oil Corporation since 1989.

      The  term of each director and executive officer expires at  the
annual meeting of shareholders and directors, respectively, or at such
times as their respective successors are duly elected and qualified.


                                 -44-

<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

      The  table  below includes compensation paid by the Company  for
services  rendered in fiscal 1998, 1997 and 1996 to Edward B.  Brooks,
Jr.,  the former President and Chief Executive Officer of the Company.
None  of the other executive officers of the Company had total  salary
and  bonus  in  excess  of  $100,000  during  the  fiscal  year  ended
December 31, 1998.


<TABLE>
<CAPTION>
                                                                      Long-Term
                                                                     Compensation
                         Annual Compensation                              Awards
                    ------------------------------------------------  -------------------------
                                                       Other Annual   Securities      All Other
Name and Principal                                     Compensation   Underlying    Compensation
position              Year    Salary($)   Bonus($)        ($)         Options(#)       ($)
-------------------  ------   ---------- ----------  -------------    ----------   ------------
<S>                  <C>      <C>        <C>         <C>              <C>          <C>
Edward B. Brooks, Jr. 1998       0         ---            (1)            ---          ---
President and CEO     1997       0         ---            (1)            ---          ---
                      1996       0         ---            (1)            ---          ---
__________________
(1)  The  Company  provided Mr. Brooks a vehicle for  Company  business.  The
     Company's  depreciation   expense for 1996, 1997 and 1998 for the vehicle  was
     $3,060.00,  $4,900.00  and  $2,664.00,      respectively.  The  Company   also
     reimbursed   Mr.   Brooks  $1,768.90  and  $1,159.29  in  1997   and     1998,
     respectively,  for  costs  incurred  by Mr.  Brooks  in  connection  with  the
     operation of   such vehicle.

</TABLE>


OPTION/SAR GRANTS IN LAST FISCAL YEAR

     No stock options or stock appreciation rights were granted to the
President by the Company during fiscal 1998.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR
End Option/SAR Values

     No stock options or stock appreciation rights were exercised by
the President in fiscal 1998, and no stock options or stock
appreciation rights were outstanding at the end of fiscal 1998.

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR

     The   Company  did  not  have  any  long-term  incentive  plans  in  effect
during fiscal 1998.

EMPLOYMENT    CONTRACTS   AND   TERMINATION   OF   EMPLOYMENT   AND   CHANGE-IN-
CONTROL ARRANGEMENTS

       The  Company  does  not  have  any  employment  agreements  with  any  of
its officers.


                                 -45-

<PAGE>

  ITEM 12.  SECURITY  OWNERSHIP  OF CERTAIN BENEFICIAL  OWNERS  AND
            MANAGEMENT
  
Beneficial Ownership of Five Percent or Greater Shareholders

     The  following table sets forth beneficial owners of five percent
or  more of the Company's outstanding shares of Common Stock known  to
the  Company  as  of March 31, 1999.  All shares shown  in  the  table
reflect sole voting and investment power unless otherwise indicated.


<TABLE>
<CAPTION>
                                                  Number of
                                                   Shares                  Percent
Name  and  address                               Beneficially              of Total
of beneficial owner                                Owned(1)                   Shares(1)
---------------------------------                 ----------               --------
<S>                                               <C>                      <C>
Charles B. Humphrey                                1,080,819                 25.47%
  3500 Oak Lawn, Suite 590, LB 49,
  Dallas, TX  75219
Johnathan M. Hill                                  1,080,819                 25.47
  3500 Oak Lawn, Suite 590, LB 49,
  Dallas, TX  75219
Sheila Irons, Individually and as Trustee of
   Humphrey Children's Trust                        302,630(2)                7.13
  3500 Oak Lawn, Suite 590, LB 49,
  Dallas, TX  75219
Fred Oliver                                         259,397                   6.11
  4625 Greenville Ave., Suite 205,
  Dallas, TX  75206
David Tyrrell, individually and as Trustee of
   the Katherine Desporte Tyrrell Trust             216,164(3)                5.09
  4625 Greenville Ave., Suite 203,
  Dallas, TX  75206
________________
 (1) Based upon the joint Schedule 13D filed January 29, 1999 by Mr. Charles  B.
     Humphrey, Mr. Johnathan M. Hill, Mr. Fred Oliver, Mr. David Tyrrell, Mr. H.
     Wayne Gifford, Ms. Katherine Murphy and Ms. Sheila Irons (the "Group") as a
     group and certain of the members of the Group individually. Each member  of
     the Group disclaims beneficial ownership of the shares of Common Stock held
     by the Group or any other member of the Group.
(2)  Includes  216,164  Shares  held by Humphrey  Children's  Trust.  Ms.  Irons
     disclaims  beneficial ownership of the shares of Common Stock held  by  the
     Humphrey Children's Trust.
(3)  Includes  108,082  shares  held by Katherine Desporte  Tyrrell  Trust.  Mr.
     Tyrrell  disclaims beneficial ownership of the shares of Common Stock  held
     by the Katherine Desporte Tyrrell Trust.

</TABLE>

BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

     The   following   table  sets  forth  the  number  of  shares   of   Common
Stock   beneficially   owned   by   each   director   of   the   Company,   each
executive   officer   of   the   Company  and  all   directors   and   executive
officers  as  a  group  as  of  March  31,  1999.   All  shares  shown  in   the
table    reflect   sole   voting   and   investment   power   unless   otherwise
indicated.


<TABLE>
<CAPTION>
                                                  Number of
                                                  Shares              Percent
Name and address of                               Beneficially        of Total
beneficial owner                                  Owned(1)            Shares
---------------------------------                 ----------          --------
<S>                                               <C>                 <C>
Directors and Executive Officers
   Charles B. Humphrey                            1,080,819           25.47%
  3500 Oak Lawn, Suite 590, LB 49,
   Dallas, TX  75219

                                      -46-

<PAGE>

   Johnathan M. Hill                              1,080,819           25.47
  3500 Oak Lawn, Suite 590, LB 49,
  Dallas, TX  75219
   Fred Oliver                                      259,397            6.11
  4625 Greenville Ave., Suite 205,
  Dallas, TX  75206
   H. Wayne Gifford                                 172,931            4.07
  4625 Greenville Ave., Suite 203,
   Dallas, TX  75206
   Katherine Murphy                                  86,466            2.04
  3500 Oak Lawn, Suite 590, LB 49,
   Dallas, TX  75219
   Sheila Irons, Individually and as
   Trustee of Humphrey Children's Trust
  3500 Oak Lawn, Suite 590, LB 49,
   Dallas, TX  75206                                302,630            7.13
   Directors and Executive Officers as a Group
    (6 individuals)                               2,983,062           70.29
______________
 (1) Based upon the joint Schedule 13D filed January 29, 1999 by Mr. Charles  B.
     Humphrey, Mr. Johnathan M. Hill, Mr. Fred Oliver, Mr. David Tyrrell, Mr. H.
     Wayne Gifford, Ms. Katherine Murphy and Ms. Sheila Irons (the "Group") as a
     group and certain of the members of the Group individually. Each member  of
     the Group disclaims beneficial ownership of the shares of Common Stock held
     by the Group or any other member of the Group.
</TABLE>



CHANGE OF CONTROL

     As described in the joint Schedule 13D filed January 29,
1999 by Mr. Wayne Gifford, Mr. Charles B. Humphrey, Mr. Johnathan
Hill, Mr. Fred Oliver, Ms. Sheila Irons (individually and as
trustee of the Humphrey Childrens Trust), Mr. Katherine Murphy,
Mr. David Tyrrell (individually and as trustee of the Katherine
Desporte Tyrrell Trust) and Mr. Clay Moore (collectively, the
"Purchasers") as a group and certain members of the group individually,
on January 19, 1999, the Purchasers purchased in
two simultaneous transactions (the "Purchases") an aggregate of
3,134,325 shares of Common Stock representing approximately
73.85% of the issued and outstanding shares of Common Stock. The
Purchases were made pursuant to the terms of (i) a Stock Purchase
Agreement dated January 19, 1999 among the Purchasers and Edward
B. Brooks, Jr., Charles V.W. Brooks, Carol Brady, Rebecca Feldt
and Debra Brooks Garrett (collectively, the "Brooks Sellers") and
(ii) a Stock Purchase Agreement dated January 19, 1999 among the
Purchasers and C. J. Cloarec, M.D. and Camrose Optical Co.
(collectively, the "Cloarec Sellers"). In connection with the
Brooks Purchase, the Brooks Sellers agreed to take or cause to be
taken all such action as was necessary to cause Mr. Hill,
Mr. Humphrey, Mr. Gifford, Mr. Oliver and Ms. Murphy (the
to be appointed as the sole members of the Board of Directors.
Additionally, the newly constituted Board of Directors appointed
Mr. Hill as President, Ms. Irons as Vice President and Secretary
and Ms. Murphy as Treasurer and Assistant Secretary in March 1999.



  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
     Pursuant to certain operating agreements by and between  the
Company  and  Edward  B. Brooks, Jr., Mr. Brooks  serves  as  the
operator  of  certain  of the Company's oil  and  gas  interests.
Pursuant  to  such  operating agreements, the  Company  paid  the
following  described amounts to Mr. Brooks in 1997 and  1998  and
Mr. Brooks paid the following described amounts to the Company in
1997 and 1998.
     
     Mr.   Brooks   paid   the  Company  $90,802   and   $72,602,
respectively,  in  1997 and 1998 as the Company's  share  of  gas
sales  from  properties in Schleicher County.  The  Company  paid
Mr. Brooks $68,881 and $52,306.19, respectively, in 1997 and 1998
for  the Company's share of operating costs on properties in Kent
County  and  Schleicher County. In 1998, the  Company  also  paid
Mr.  Brooks  $4,733.94  for  the  Company's  share  of  operating
expenses  on the Schleicher and Kent County properties that  were
paid by Mr. Brooks in 1997.
     
     In  1997,  the  Company  paid Mr. Brooks  $228,472  for  the
Company's  share of the cost of a seismic study on properties  in
Stonewall  County  and the cost of drilling two  wells  in  other
counties  in  Texas,  which turned out to be  non-productive.  In
1998,  the  Company paid Mr. Brooks $18,915.16 for the  Company's
share of the seismic study on properties in Stonewall County  and
$37,591.05 for the Company's share of the cost of drilling a well
in  Stonewall County that was nonproductive. In 1998, the Company
paid  $24,334.51 to Mr. Brooks for the Company's share  of  lease
costs of properties in Stonewall County.
     
     In   1997  and  1998,  the  Company  reimbursed  Mr.  Brooks
$1,768.90  and $1,159.29, respectively, for expenses incurred  by
him in operating a Company owned vehicle that was provided to him
for Company business.
     
                              -47-
  
  
  
  <PAGE>
  
                              PART IV
  
  ITEM 14.  EXHIBITS,   FINANCIAL  STATEMENT  SCHEDULES,   AND
            REPORTS  ON FORM 8-K
  
  (a)  The following documents are filed as a part of this
  report:
  
       1.   Financial Statements
  
              See Index to Financial Statements on page 19 to
              this report.
  
       2.   Financial Statement Schedules
  
              All schedules are omitted because the
              information is not required under the related
              instructions or is inapplicable or because the
              information is included in the Financial Statements
              or related Notes.
  
       3.   Exhibits:
  
   



            10.1    Assignment and Bill of Sale made and
                    entered into January 19, 1999, but 
                    effective as of October 1, 1998, by and
                    between the Company as seller  and
                    EXCO Resources, Inc. as purchaser (filed
                    as an exhibit to the Company's Form 8-K,
                    dated January 19, 1999 and incorporated by
                    reference herein
  
             3.1    Restated Articles of Incorporation of the
                    Company,  as amended (filed herewith)
  
             4.1    Specimen Stock Certificate for the Company
                    Common  Stock (filed herewith)

            27.1    Financial Data Schedule (filed herewith)
  
  (b)    Reports on Form 8-K
  
         No Reports on Form 8K were filed during the last
         quarter of the period covered by this report.
  
                              -48-


<PAGE>

                       INDEX TO EXHIBITS

Exhibit
  No.                         Item
--------          ----------------------
10.1              Assignment and Bill of Sale made and entered  into
                  January 19, 1999, but effective as of October 1, 1998
                  by and between the Company as seller and EXCO Resources, Inc.
                  as purchaser (filed as an exhibit to the Company's Form 8-K
                  dated January 19, 1999 and incorporated herein by 
                  reference.

3.1               Restated Articles of Incorporation of the Company,
                  as amended  (filed herewith)

4.1               Specimen  Stock  Certificate  for  the  Company's
                  Common Stock (filed herewith)

27.1              Financial Data Schedule (filed herewith)

                              -50-

<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 in the City of Dallas, Texas on the 31st
of March, 1999.

                              GLADSTONE RESOURCES, INC.



                              By:       /s/ Johnathan M. Hill
                                   ------------------------------
                                   Johnathan M. Hill
                                   President


      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.

     March 31, 1999                  /s/ Johnathan M. Hill
                                   ------------------------------
                                   Johnathan M. Hill, President
                                   (Chief Executive Officer)  and
                                   a Director


    Marc 31, 1999                      /s/ Katherine R. Murphy
                                   ------------------------------
                                   Katherine R. Murphy, Director,
                                   Treasurer and Assistant
                                   Secretary


     March 31, 1999                  /s/ Sheila Irons
                                   ------------------------------
                                    Sheila  Irons, Vice President
                                    and Secretary


     March 31, 1999                  /s/ H. Wayne Gifford
                                   ------------------------------
                                    H. Wayne Gifford, Director


     March 31, 1999                  /s/ C.B. Humphrey
                                   ------------------------------
                                   Charles B. Humphrey, Director


     March 31, 1999                  /s/ Fred L. Oliver
                                   ------------------------------
                                   Fred L. Oliver, Director