| Delaware                                                            |   | 44-0651207                              |
|---------------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification Number) |

| 1415 Louisiana Street, Suite 4100Houston, TX  77002 |   |  77002 |
|---------------------------------------------------------------|--------|-------------|
| (Address of principal executive offices)                      |   | (Zip Code)  |

| Large accelerated filer    [  ]                 | Accelerated filer                   [  ] |
|--------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|  Non-accelerated filer      [  ] |  Smaller reporting company [X]                                                                                                          |

----

| Part       | I – Financial Information |                                                                                                                                                     |
|------------|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                            |                                                                                                                                                     |   |
| Item       | 1.                              | Financial Statements                                                                                                                                     | 3 |
|       |                            | Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and     December 31, 2009                                           | 3 |
|       |                            | Consolidated Statements of Operations (Unaudited) for the three     and six month periods ended June 30, 2010 and June 30, 2009 | 4 |
|       |                            | Consolidated Statements of Cash Flows (Unaudited) for the six     month periods ended June 30, 2010 and June 30, 2009           | 5 |
|       |                            | Notes to Consolidated Financial Statements (Unaudited)                                                                                                   | 6 |
| Item       | 2.                              | Management’s Discussion and Analysis of Financial Condition     and Results of Operations                                 |  14 |
| Item       | 3.                              | Quantitative and Qualitative Disclosures About Market Risk                                                                                               | 19 |
| Item       | 4.                              | Controls and Procedures                                                                                                                                  | 19 |
|       |                            |                                                                                                                                                     |
| Part       | II – Other Information    | 19                                                                                                                                                       |
|       |                            |                                                                                                                                                     |   |
| Item       | 1.                              | Legal Proceedings                                                                                                                                        | 19 |
| Item       | 1A.                             | Risk Factors                                                                                                                                             | 19 |
| Item       | 2.                              | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                              | 19 |
| Item       | 3.                              | Defaults Upon Senior Securities                                                                                                                          | 19 |
| Item       | 4.                              | (Removed and Reserved)                                                                                                                                   | 19 |
| Item       | 5.                              | Other Information                                                                                                                                        | 20 |
| Item       | 6.                              | Exhibits                                                                                                                                                 | 20 |
|       |                            |                                                                                                                                                     |   |
| Signatures |                            | 21                                                                                                                                                       |
|       |                            |                                                                                                                                                     |   |

----

| PART I – FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| Item 1.                      Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |
| GATEWAY ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | June 30, 2010 |   |   | December 31, 2009 |
|  ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Unaudited) |   |   |   |
|  Current Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                               |   | $ | 520,340 |   |   | $ | 2,086,787 |   |
| Restricted cash                                                                                                                                                         |   |   | 250,000 |   |   |   | 900,000 |   |
| Accounts receivable trade, net                                                                                                                                          |   |   | 759,042 |   |   |   | 1,101,100 |   |
| Notes receivable                                                                                                                                                        |   |   | 150,000 |   |   |   | 148,088 |   |
| Prepaid expenses and other assets                                                                                                                                       |   |   | 245,310 |   |   |   | 41,941 |   |
|            Total current assets                                                                                                                |   |   | 1,924,692 |   |   |   | 4,277,916 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  Property and Equipment, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |
| Gas gathering, processing and transportation                                                                                                                            |   |   | 11,359,163 |   |   |   | 8,855,967 |   |
| Net profits production interest                                                                                                                                         |   |   | 701,482 |   |   |   | 701,482 |   |
| Office furniture and other equipment                                                                                                                                    |   |   | 150,500 |   |   |   | 150,500 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 12,211,145 |   |   |   | 9,707,949 |   |
| Less accumulated depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | (3,049,168 | ) |   |   | (2,785,241 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 9,161,977 |   |   |   | 6,922,708 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  Other Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| Deferred tax assets, net                                                                                                                                                |   |   | 1,840,671 |   |   |   | 1,295,455 |   |
| Intangible assets, net of accumulated amortization of $447,928 and    $345,567 as of June 30, 2010 and December 31, 2009, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 1,695,181 |   |   |   | 563,032 |   |
| Other                                                                                                                                                                   |   |   | 51,265 |   |   |   | 36,803 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 3,587,117 |   |   |   | 1,895,290 |   |
|            Total assets                                                                                                                        |   | $ | 14,673,786 |   |   | $ | 13,095,914 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
|  Current Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                        |   | $ | 854,457 |   |   | $ | 660,504 |   |
| Accrued expenses and other liabilities                                                                                                                                  |   |   | 258,096 |   |   |   | 305,549 |   |
| Insurance notes payable                                                                                                                                                 |   |   | 162,650 |   |   |   | - |   |
| Current maturities of capital lease                                                                                                                                     |   |   | - |   |   |   | 9,188 |   |
| Total current liabilities                                                                                                                                                                             |   |   | 1,275,203 |   |   |   | 975,241 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
| Long-term debt, less current maturities                                                                                                                  |   |   | 2,500,000 |   |   |   | - |   |
| Total liabilities                                                                                                                                                                                     |   |   | 3,775,203 |   |   |   | 975,241 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  Commitments and contingencies                                                                                                                 |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|  Stockholders' Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
| Preferred stock – $1.00 par value; 10,000 shares authorized;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
| no shares issued and outstanding                                                                                                                                                            |   |   | - |   |   |   | - |   |
| Common stock – $0.25 par value; 35,000,000 shares authorized;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |
| 19,402,853 and 19,397,125 shares issued and outstanding  at June 30, 2010 and December 31, 2009, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 4,850,713 |   |   |   | 4,849,281 |   |
| Additional paid-in capital                                                                                                                                              |   |   | 17,363,708 |   |   |   | 17,395,828 |   |
| Accumulated deficit                                                                                                                                                     |   |   | (11,315,838 | ) |   |   | (10,124,436 | ) |
|            Total stockholders’ equity                                                                                                    |   |   | 10,898,583 |   |   |   | 12,120,673 |   |
|            Total liabilities and stockholders’ equity                                                                                    |   | $ | 14,673,786 |   |   | $ | 13,095,914 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| The accompanying notes are an integral part of these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

|                                                                         |   | Three Months Ended June 30, |       |   |          Six Months Ended June 30, |   |
|------------------------------------------------------------------------------|--------|-----------------------------|------------|--------|----------------------------------------------------------------------------|--------|
|                                                                         |   | 2010                        |       |   | 2009                                                                       |   |   | 2010 |   |   | 2009 |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |
| Operating revenues                                                           |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |
| Sales of natural gas                                                         |   | $                           | 1,189,028  |   |                                                                       | $      | 932,234 |   |   | $ | 2,596,517 |   |   | $ | 2,086,144 |   |
| Transportation of natural gas and liquids                                    |   |                        | 438,502    |   |                                                                       |   | 711,606 |   |   |   | 822,150 |   |   |   | 1,386,755 |   |
| Treating and other                                                           |   |                        | 168,433    |   |                                                                       |   | 96,903 |   |   |   | 335,796 |   |   |   | 237,300 |   |
|                                                                         |   |                        | 1,795,963  |   |                                                                       |   | 1,740,743 |   |   |   | 3,754,463 |   |   |   | 3,710,199 |   |
| Operating costs and expenses                                                 |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Cost of natural gas purchased                                                |   |                        | 1,036,816  |   |                                                                       |   | 761,678 |   |   |   | 2,301,191 |   |   |   | 1,786,696 |   |
| Operation and maintenance                                                    |   |                        | 205,125    |   |                                                                       |   | 186,850 |   |   |   | 412,305 |   |   |   | 374,405 |   |
| General and administrative                                                   |   |                        | 350,472    |   |                                                                       |   | 743,082 |   |   |   | 817,524 |   |   |   | 1,412,212 |   |
| Acquisition costs                                                            |   |                        | -          |   |                                                                       |   | - |   |   |   | 43,453 |   |   |   | - |   |
| Consent solicitation and severance costs                                     |   |                        | 1,444,092  |   |                                                                       |   | - |   |   |   | 1,542,962 |   |   |   | - |   |
| Depreciation, depletion and amortization                                     |   |                        | 168,958    |   |                                                                       |   | 141,600 |   |   |   | 366,289 |   |   |   | 302,652 |   |
|                                                                         |   |                        | 3,205,463  |   |                                                                       |   | 1,833,210 |   |   |   | 5,483,724 |   |   |   | 3,875,965 |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Operating loss                                                               |   |                        | (1,409,500 | )      |                                                                       |   | (92,467 | ) |   |   | (1,729,261 | ) |   |   | (165,766 | ) |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense)                                                       |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                              |   |                        | 2,589      |   |                                                                       |   | 6,622 |   |   |   | 10,492 |   |   |   | 11,520 |   |
| Interest expense                                                             |   |                        | (41,917    | )      |                                                                       |   | (43,407 | ) |   |   | (83,261 | ) |   |   | (83,831 | ) |
| Other income, net                                                            |   |                        | 55,883     |   |                                                                       |   | 32,401 |   |   |   | 41,314 |   |   |   | 41,744 |   |
|          Other income (expense) |   |                        | 16,555     |   |                                                                       |   | (4,384 | ) |   |   | (31,455 | ) |   |   | (30,567 | ) |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Loss from operations before income taxes and discontinued operations         |   |                        | (1,392,945 | )      |                                                                       |   | (96,851 | ) |   |   | (1,760,716 | ) |   |   | (196,333 | ) |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Income tax benefit                                                           |   |                        | 435,936    |   |                                                                       |   | 2,914 |   |   |   | 569,314 |   |   |   | 79,096 |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                                              |   |                        | (957,009   | )      |                                                                       |   | (93,937 | ) |   |   | (1,191,402 | ) |   |   | (117,237 | ) |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations, net of taxes                                        |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations, net of taxes                              |   |                        | -          |   |                                                                       |   | (39,255 | ) |   |   | - |   |   |   |  (151,393 | ) |
| Gain on disposal of assets, net of taxes                                     |   |                        | -          |   |                                                                       |   | 324,997 |   |   |   | - |   |   |   | 324,997 |   |
| Income from discontinued operations                                          |   |                        | -          |   |                                                                       |   | 285,742 |   |   |   | - |   |   |   | 173,604 |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                            |   | $                           | (957,009   | )      |                                                                       | $      | 191,805 |   |   | $ | (1,191,402 | ) |   | $ | 56,367 |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted income (loss) per share:                                   |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                                        |   | $                           | (0.05      | )      |                                                                       | $      | - |   |   | $ | (0.06 | ) |   | $ | (0.01 | ) |
| Discontinued operations                                                      |   |                        | -          |   |                                                                       |   | 0.01 |   |   |   | - |   |   |   | 0.01 |   |
| Net income (loss)                                                            |   | $                           | (0.05      | )      |                                                                       | $      | 0.01 |   |   | $ | (0.06 | ) |   | $ | - |   |
|                                                                         |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common shares outstanding:                        |   |                        |       |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |   |                        | 19,402,853 |   |                                                                       |   | 19,209,336 |   |   |   | 19,401,777 |   |   |   | 19,208,298 |   |
| Diluted                                                                      |   |                        | 19,402,853 |   |                                                                       |   | 19,219,611 |   |   |   | 19,401,777 |   |   |   | 19,223,033 |   |

----

| GATEWAY ENERGY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                      |       |   |        |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|--------|-------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Six Months Ended June 30, |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |    2010         |       |   |   2009 |   |
| Cash flows from operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |
| Loss from continuing operations                                                                                                                            |   | $                         | (1,191,402 | )      |        | $      | (117,237 | ) |
| Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                      |       |   |        |   |   |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                      | 366,289    |   |        |   | 302,652 |   |
| Deferred tax benefit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      | (581,811   | )      |        |   | (90,000 | ) |
| Stock based compensation expense (forfeiture adjustment)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                      | (30,000    | )      |        |   | 108,253 |   |
| Amortization of deferred loan costs                                                                                                                                            |   |                      | 12,149     |   |        |   | 67,813 |   |
| Change in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                      |       |   |        |   |   |   |
| Accounts receivable trade                                                                                                                                                                          |   |                      | 342,058    |   |        |   | 16,706 |   |
| Prepaid expenses and other assets                                                                                                                                                                  |   |                      | 99,483     |   |        |   | 201,527 |   |
| Accounts payable                                                                                                                                                                                   |   |                      | 193,265    |   |        |   | (351,912 | ) |
| Accrued expenses and other liabilities                                                                                                                                                             |   |                      | (56,269    | )      |        |   | (52,037 | ) |
| Net cash provided by (used in) operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                      | (846,238   | )      |        |   | 85,765 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Cash flows from investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Capital expenditures                                                                                                                                                           |   |                      | -          |   |        |   | (25,817 | ) |
| Acquisitions                                                                                                                                                                   |   |                      | (3,737,705 | )      |        |   | - |   |
| Net cash used in investing activities                                                                                                                                                                                       |   |                      | (3,737,705 | )      |        |   | (25,817 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Cash flows from financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Payments on borrowings                                                                                                                                                         |   |                      | (105,893   | )      |        |   | (231,684 | ) |
| Proceeds from borrowings                                                                                                                                                       |   |                      | 2,500,000  |   |        |   | - |   |
| Change in restricted cash                                                                                                                                                      |   |                      | 650,000    |   |        |   | (1,750,000 | ) |
| Deferred finance charges                                                                                                                                                       |   |                      | (26,611    | )      |        |   | (18,139 | ) |
| Net cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                      | 3,017,496  |   |        |   | (1,999,823 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Net decrease in cash and cash equivalents from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      | (1,566,447 | )      |        |   | (1,939,875 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Discontinued operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |   |        |   |   |   |
| Net cash provided by discontinued operating activities                                                                                                     |   |                      | -          |   |        |   | 1,803,065 |   |
| Net cash used in discontinued investing activities                                                                                                         |   |                      | -          |   |        |   | (2,700 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Net increase in cash and cash equivalents from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                      | -          |   |        |   | 1,800,365 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Net decrease in cash and cash equivalents                                                                                                   |   |                      | (1,566,447 | )      |        |   | (139,510 | ) |
| Cash and cash equivalents at beginning of period                                                                                            |   |                      | 2,086,787  |   |        |   | 1,789,029 |   |
| Cash and cash equivalents at end of period                                                                                                  |   | $                         | 520,340    |   |        | $      | 1,649,519 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Supplemental disclosures of cash flow information:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                      |       |   |        |   |   |   |
| Income taxes paid                                                                                                                                                              |   | $                         | 32,467     |   |        | $      | 33,000 |   |
| Cash paid for interest                                                                                                                                                         |   | $                         | 61,243     |   |        | $      | 36,172 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
| Supplemental schedule of noncash investing and financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |       |   |        |   |   |   |
|          Trade note payable for insurance premiums                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                         | 259,356    |   |        | $      | 328,938 |   |
|          Exercise of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                         | 1,432      |   |        | $      | - |   |

----

| (2)   | Summary of Significant Accounting Policies |
|-----------------|--------------------------------------------|

----

----

|                                                                                    |   | Three Months Ended          June 30,       2010                2009 |       |   | Six Months Ended         June 30,       2010                2009 |   |
|-----------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Weighted average number of common       shares outstanding     |   |                                                                                                                                                                                                                      | 19,402,853 |   |                                                                                                                                                                                                              |   | 19,209,336 |   |   |   | 19,401,777 |   |   |   | 19,208,298 |   |
| Effect of dilutive securities                                                           |   |                                                                                                                                                                                                                      | -          |   |                                                                                                                                                                                                              |   | 10,275 |   |   |   | - |   |   |   | 14,735 |   |
| Weighted average dilutive common shares       outstanding |   |                                                                                                                                                                                                                      | 19,402,853 |   |                                                                                                                                                                                                              |   | 19,219,611 |   |   |   | 19,401,777 |   |   |   | 19,223,033 |   |
|                                                                                    |   |                                                                                                                                                                                                                      |       |   |                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| Net loss from continuing operations                                                     |   | $                                                                                                                                                                                                                         | (957,009   | )      |                                                                                                                                                                                                              | $      | (93,937 | ) |   | $ | (1,191,402 | ) |   | $ | (117,237 | ) |
| Net income from discontinued operations                                                 |   |                                                                                                                                                                                                                      | -          |   |                                                                                                                                                                                                              |   | 285,742 |   |   |   | - |   |   |   | 173,604 |   |
| Net income (loss)                                                                       |   | $                                                                                                                                                                                                                         | (957,009   | )      |                                                                                                                                                                                                              | $      | 191,805 |   |   | $ | (1,191,402 | ) |   | $ | 56,367 |   |
|  Basic and diluted  income (loss) per common share:                      |   |                                                                                                                                                                                                                      |       |   |                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| Continuing operations                                                                   |   | $                                                                                                                                                                                                                         | (0.05      | )      |                                                                                                                                                                                                              | $      | - |   |   | $ | (0.06 | ) |   | $ | (0.01 | ) |
| Discontinued operations                                                                 |   |                                                                                                                                                                                                                      | -          |   |                                                                                                                                                                                                              |   | 0.01 |   |   |   | - |   |   |   | 0.01 |   |
|  Net income (loss)                                                                 |   | $                                                                                                                                                                                                                         | (0.05      | )      |                                                                                                                                                                                                              | $      | 0.01 |   |   | $ | (0.06 | ) |   | $ | - |   |

----

| (3)   | Business Combinations |
|-----------------|-----------------------|

|                                                                                                                                                                                                              Three months ended June 30, 2009 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | GATEWAY |   |   | HICKORY CREEK |   |   | TOTAL |   |
| Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $ | 1,740,743 |   |   | $ | 36,861 |   |   | $ | 1,777,604 |   |
| Operating costs and other expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 1,837,594 |   |   |   | 30,305 |   |   |   | 1,867,899 |   |
| Income (loss) from continuing operations before taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | (96,851 | ) |   |   | 6,556 |   |   |   | (90,295 | ) |
| Income tax benefit (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 2,914 |   |   |   | (2,229 | ) |   |   | 685 |   |
| Income from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 285,742 |   |   |   | - |   |   |   | 285,742 |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $ | 191,805 |   |   | $ | 4,327 |   |   | $ | 196,132 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $ | 0.01 |   |   | $ |  - |   |   | $ | 0.01 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

----

|                                                                                                                                                                                                                                                 Six months ended June 30, 2009 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | GATEWAY |   |   | HICKORY CREEK |   |   | TOTAL |   |
| Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $ | 3,710,199 |   |   | $ | 87,868 |   |   | $ | 3,798,067 |   |
| Operating costs and other expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 3,906,532 |   |   |   | 60,610 |   |   |   | 3,967,142 |   |
| Income (loss) from continuing operations before taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | (196,333 | ) |   |   | 27,258 |   |   |   | (169,075 | ) |
| Income tax benefit (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 79,096 |   |   |   | (9,268 | ) |   |   | 69,828 |   |
| Income from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 173,604 |   |   |   | - |   |   |   | 173,604 |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $ | 56,367 |   |   | $ | 17,990 |   |   | $ | 74,357 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $ | - |   |   | $ |  - |   |   | $ | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |

| (4)   | Stock-Based Compensation Plans |
|-----------------|--------------------------------|

| ·   | The risk-free interest rate is based on the five-year Treasury bond at date of grant. |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | The dividend yield on the Company’s common stock is assumed to be zero since the Company does not pay   dividends and has no current plans to do so in the future. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The market price volatility of the Company’s common stock is based on daily, historical prices for the last three years. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------|

| ·   | The term of the grants is based on the simplified method as described in ASC Topic 718.                                                                                                                                               10  |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | Shares |      |   | Weighted Average Exercise Price |   |   | Weighted Average Contractual Terms (in years) |   |   | Intrinsic Value of Options as of June 30, 2010 |   |
|------------------------------------------|--------|--------|-----------|--------|---------------------------------|--------|--------|-----------------------------------------------|--------|--------|------------------------------------------------|--------|
| Options outstanding, beginning of period |   |   | 1,278,947 |   |                            | $      | 0.45   |                                          |   |   | 2.92                                           |   |   |   |   |
| Options granted                          |   |   | -         |   |                            |   | -      |                                          |   |   | -                                              |   |   |   |   |
| Options canceled                         |   |   | (475,965  | )      |                            |   | 0.47   |                                          |   |   | -                                              |   |   |   |   |
| Options exercised                        |   |   | (25,000   | )      |                            |   | 0.25   |                                          |   |   | -                                              |   |   |   |   |
| Options outstanding, end of period       |   |   | 777,982   |   |                            | $      | 0.45   |                                          |   |   | 1.79                                           |   |   | $ | 1,750 |   |
| Options exercisable, end of period       |   |   | 751,316   |   |                            | $      | 0.45   |                                          |   |   | 1.72                                           |   |   | $ | 1,750 |   |

| (5)   | Debt |
|-----------------|------|

|   |   |   | Trade note payable – Insurance |   | $      | 162,650   |   |
|--------|--------|--------|--------------------------------------|--------|--------|-----------|--------|
|   |   |   | Revolving credit facility            |   |   | 2,500,000 |   |
|   |   |   |                                 |   |   | 2,662,650 |   |
|   |   |   | Less current maturities              |   |   | (162,650  | )      |
|   |   |   |                                 |   | $      | 2,500,000 |   |

| (6)   | Commitments and Contingencies |
|-----------------|-------------------------------|

----

| (7)   | Financial Instruments |
|-----------------|-----------------------|

| (8)   | Segments, Major Customers and Concentrations |
|-----------------|----------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                       |   | Three Months Ended |      |   | Six Months Ended     |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                       |   | June 30,           |      |   |   June 30, |   |
|                                                                                                                                                                                                                                                                                                                                                       |   | 2010               |      |   | 2009                 |   |   | 2010 |   |   | 2009 |   |
| Onshore Operations                                                                                                                                                                                                                                                                                                                                         |   |               |      |   |                 |   |   |   |   |   |   |   |
| Revenues                                                                                    |   | $                  | 1,423,474 |   |                 | $      | 993,002 |   |   | $ | 3,096,630 |   |   | $ | 2,210,042 |   |
| Cost of natural gas purchased                                                               |   |               | 1,036,816 |   |                 |   | 761,678 |   |   |   | 2,301,191 |   |   |   | 1,786,696 |   |
| Operation and maintenance expense                                                                                                                                                                                                                                                                                                                          |   |               | 58,923    |   |                 |   | 54,006 |   |   |   | 116,837 |   |   |   | 111,221 |   |
|     Operating margin                                                    |   |               | 327,735   |   |                 |   | 177,318 |   |   |   | 678,602 |   |   |   | 312,125 |   |
| General and administrative expense                                                                                                                                                                                                                                                                                                                         |   |               | 598       |   |                 |   | - |   |   |   | 598 |   |   |   | - |   |
| Depreciation and amortization expense                                                                                                                                                                                                                                                                                                                      |   |               | 60,029    |   |                 |   | 24,197 |   |   |   | 147,497 |   |   |   | 72,000 |   |
|     Operating income                                                    |   |               | 267,108   |   |                 |   | 153,121 |   |   |   | 530,507 |   |   |   | 240,125 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                            |   |               | 41        |   |                 |   | 891 |   |   |   | 354 |   |   |   | 1,968 |   |
| Capital expenditures and aquisitions                                                                                                                                                                                                                                                                                                                       |   |               | -         |   |                 |   | 408 |   |   |   | 3,737,705 |   |   |   | 6,826 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                |   |               | 8,198,623 |   |                 |   | 4,027,882 |   |   |   | 8,198,623 |   |   |   | 4,027,882 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Offshore Operations                                                                                                                                                                                                                                                                                                                                        |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                    |   | $                  | 372,489   |   |                 | $      | 762,091 |   |   | $ | 657,833 |   |   | $ | 1,500,966 |   |
| Operation and maintenance expense                                                                                                                                                                                                                                                                                                                          |   |               | 146,202   |   |                 |   | 132,844 |   |   |   | 295,468 |   |   |   | 263,184 |   |
|     Operating margin                                                    |   |               | 226,287   |   |                 |   | 629,247 |   |   |   | 362,365 |   |   |   | 1,237,782 |   |
| Depreciation and amortization expense                                                                                                                                                                                                                                                                                                                      |   |               | 102,015   |   |                 |   | 105,648 |   |   |   | 204,029 |   |   |   | 211,295 |   |
|     Operating income                                                    |   |               | 124,272   |   |                 |   | 523,599 |   |   |   | 158,336 |   |   |   | 1,026,487 |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                            |   |               | -         |   |                 |   | - |   |   |   | - |   |   |   | - |   |
| Capital expenditures and aquisitions                                                                                                                                                                                                                                                                                                                       |   |               | -         |   |                 |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                |   |               | 4,251,979 |   |                 |   | 5,431,944 |   |   |   | 4,251,979 |   |   |   | 5,431,944 |   |

----

|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------|---------------------|--------|--------|--------|---------------|--------|--------|--------|---------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                       |   |   | Three Months Ended |   |   |   | Six Months Ended    |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   | June 30,           |   |   |   | June 30,            |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   | 2010               |   |   |   | 2009                |   |   |   | 2010          |   |   |   | 2009                |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Net Profits Interest                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Revenues (loss)                                                                                                                                                                                                                                                                                                                                            |   | $      | -                  |   |   | $      | (14,350             | )      |   | $      | -             |   |   | $      | (809                | )      |
|     Operating margin (loss)                                                                                                                                                                                                                                                                                                            |   |   | -                  |   |   |   | (14,350             | )      |   |   | -             |   |   |   | (809                | )      |
| General and administrative expense                                                                                                                                                                                                                                                                                                                         |   |   | 598                |   |   |   | -                   |   |   |   | 598           |   |   |   | -                   |   |
| Depletion expense                                                                                                                                                                                                                                                                                                                                          |   |   | 5,153              |   |   |   | 10,157              |   |   |   | 11,242        |   |   |   | 15,912              |   |
|      Operating loss                                                                                                                                                                                                                                                                                                               |   |   | 5,751              |   |   |   | 24,507              |   |   |   | 11,840        |   |   |   | 16,721              |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Interest expense                                                                                                                                                                                                                                                                                                                                           |   |   | -                  |   |   |   | -                   |   |   |   | -             |   |   |   | -                   |   |
| Capital expenditures and aquisitions                                                                                                                                                                                                                                                                                                                       |   |   | -                  |   |   |   | -                   |   |   |   | -             |   |   |   | 15,515              |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Total assets                                                                                |   |   | 654,995            |   |   |   | 766,920             |   |   |   | 654,995       |   |   |   | 766,920             |   |
|  Corporate Operations                                                                                                                                                                                                                                                                                                                                 |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| General and administrative expenses                                                                                                                                                                                                                                                                                                                        |   | $      | 349,276            |   |   | $      | 743,082             |   |   | $      | 816,328       |   |   | $      | 1,412,212           |   |
| Acquisition costs                                                                           |   |   | -                  |   |   |   | -                   |   |   |   | 43,453        |   |   |   | -                   |   |
| Consent soliciation and severance costs                                                                                                                                                                                                                                                                                                                    |   |   | 1,444,092          |   |   |   | -                   |   |   |   | 1,542,962     |   |   |   | -                   |   |
| Depreciation and amortization expense                                                                                                                                                                                                                                                                                                                      |   |   | 1,761              |   |   |   | 1,598               |   |   |   | 3,521         |   |   |   | 3,445               |   |
|     Operating loss                                                      |   |   | 1,795,129          |   |   |   | 744,680             |   |   |   | 2,406,264     |   |   |   | 1,415,657           |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Interest expense                                                                            |   |   | 41,876             |   |   |   | 42,516              |   |   |   | 82,907        |   |   |   | 81,863              |   |
| Capital expenditures and aquisitions                                                                                                                                                                                                                                                                                                                       |   |   | -                  |   |   |   | -                   |   |   |   | -             |   |   |   | 3,476               |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Total assets                                                                                |   |   | 1,568,189          |   |   |   | 4,026,707           |   |   |   | 1,568,189     |   |   |   | 4,026,707           |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Total                                                                                                                                                                                                                                                                                                                                                      |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Revenues                                                                                    |   | $      | 1,795,963          |   |   | $      | 1,740,743           |   |   | $      | 3,754,463     |   |   | $      | 3,710,199           |   |
| Cost of natural gas purchased                                                               |   |   | 1,036,816          |   |   |   | 761,678             |   |   |   | 2,301,191     |   |   |   | 1,786,696           |   |
| Operation and maintenance expense                                                                                                                                                                                                                                                                                                                          |   |   | 205,125            |   |   |   | 186,850             |   |   |   | 412,305       |   |   |   | 374,405             |   |
|     Operating margin                                                    |   |   | 554,022            |   |   |   | 792,215             |   |   |   | 1,040,967     |   |   |   | 1,549,098           |   |
| General and administrative expense                                                                                                                                                                                                                                                                                                                         |   |   | 350,472            |   |   |   | 743,082             |   |   |   | 817,524       |   |   |   | 1,412,212           |   |
| Acquisition costs                                                                                                                                                                                                                                                                                                                                          |   |   | -                  |   |   |   | -                   |   |   |   | 43,453        |   |   |   | -                   |   |
| Consent soliciation and severance costs                                                                                                                                                                                                                                                                                                                    |   |   | 1,444,092          |   |   |   | -                   |   |   |   | 1,542,962     |   |   |   | -                   |   |
| Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                   |   |   | 168,958            |   |   |   | 141,600             |   |   |   | 366,289       |   |   |   | 302,652             |   |
|     Operating loss                                                      |   |   | (1,409,500         | )      |   |   | (92,467             | )      |   |   | (1,729,261    | )      |   |   | (165,766            | )      |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Interest expense                                                                            |   |   | 41,917             |   |   |   | 43,407              |   |   |   | 83,261        |   |   |   | 83,831              |   |
| Capital expenditures and aquisitions                                                                                                                                                                                                                                                                                                                       |   |   | -                  |   |   |   | 408                 |   |   |   | 3,737,705     |   |   |   | 25,817              |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Total assets                                                                                |   |   | 14,673,786         |   |   |   | 14,253,453          |   |   |   | 14,673,786    |   |   |   | 14,253,453          |   |
|                                                                                                                                                                                                                                                                                                                                                       |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Reconciliation to net income                                                                                                                                                                                                                                                                                                                               |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
| Operating margin                                                                            |   | $      | 554,022            |   |   | $      | 792,215             |   |   | $      | 1,040,967     |   |   | $      | 1,549,098           |   |
| Less:                                                                                                                                                                                                                                                                                                                                                      |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
|   Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                       |   |   | 168,958            |   |   |   | 141,600             |   |   |   | 366,289       |   |   |   | 302,652             |   |
|   General and administrative                                                      |   |   | 350,472            |   |   |   | 743,082             |   |   |   | 817,524       |   |   |   | 1,412,212           |   |
|   Acquisition costs                                                               |   |   | -                  |   |   |   | -                   |   |   |   | 43,453        |   |   |   | -                   |   |
|   Consent soliciation and severance costs                                                                                                                                                                                                                                                                                                        |   |   | 1,444,092          |   |   |   | -                   |   |   |   | 1,542,962     |   |   |   | -                   |   |
|   Interest expense                                                                                                                                                                                                                                                                                                                               |   |   | 41,917             |   |   |   | 43,407              |   |   |   | 83,261        |   |   |   | 83,831              |   |
| Plus:                                                                                                                                                                                                                                                                                                                                                      |   |   |               |   |   |   |                |   |   |   |          |   |   |   |                |   |
|   Interest income                                                                                                                                                                                                                                                                                                                                |   |   | 2,589              |   |   |   | 6,622               |   |   |   | 10,492        |   |   |   | 11,520              |   |
|   Income tax benefit                                                                                                                                                                                                                                                                                                                             |   |   | 435,936            |   |   |   | 2,914               |   |   |   | 569,314       |   |   |   | 79,096              |   |
|   Discontinued operations, net of taxes                                                                                                                                                                                                                                                                                                          |   |   | -                  |   |   |   | (39,255             | )      |   |   | -             |   |   |   | (151,393            | )      |
|  Gain on disposal of discontinued operations – net of taxes                                                                                                                                                                                                                                                                                     |   |   |   -      |   |   |   |   324,997 |   |   |   |   - |   |   |   |   324,997 |   |
|   Other income, net                                                                                                                                                                                                                                                                                                                              |   |   | 55,883             |   |   |   | 32,401              |   |   |   | 41,314        |   |   |   | 41,744              |   |
| Net income (loss)                                                                           |   | $      | (957,009           | )      |   | $      | 191,805             |   |   | $      | (1,191,402    | )      |   | $      | 56,367              |   |

----

| (9)   | Subsequent Events |
|-----------------|-------------------|

----

|   |                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended June 30, |      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|   |                                                                                                                                                                                                                                                                                                                               |   | 2010                        |      |   | 2009 |   |
|   | Revenues                                                            |   | $                           | 1,795,963 |   |   | $ | 1,740,743 |   |
|   | Operating margin                                                    |   |                        | 554,022   |   |   |   | 792,215 |   |
|   | Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                           |   |                        | 168,958   |   |   |   | 141,600 |   |

|   |                                                                                                                                                                                                                                                                                                                                |   | Three Months Ended June 30, |      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|   |                                                                                                                                                                                                                                                                                                                                |   | 2010                        |      |   | 2009 |   |
|   | Revenues                                                                       |   | $                           | 1,423,474 |   |   | $ | 993,002 |   |
|   | Operating margin                                                               |   |                        | 327,735   |   |   |   | 177,318 |   |
|   | Depreciation and amortization                                                  |   |                        | 60,029    |   |   |   | 24,197 |   |

----

|   |                                                                                                                                                                                                                                                                                                                                            |   | Three Months Ended June 30, |    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|   |                                                                                                                                                                                                                                                                                                                                            |   | 2010                        |    |   | 2009 |   |
|   | Revenues                                                                         |   | $                           | 372,489 |   |   | $ | 762,091 |   |
|   | Operating margin                                                                 |   |                        | 226,287 |   |   |   | 629,247 |   |
|   | Depreciation and amortization                                                    |   |                        | 102,015 |   |   |   | 105,648 |   |

|   |                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended June 30, |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                               |   | 2010                        |   |   | 2009 |   |
|   | Revenues                                                            |   | $                           | -      |   |   | $ | (14,350 | ) |
|   | Operating margin                                                    |   |                        | -      |   |   |   | (14,350 | ) |
|   | Depletion                                                           |   |                        | 5,153  |   |   |   | 10,157 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Three Months Ended June 30, |    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2010                        |    |   | 2009 |   |
|   | Salaries and employee related costs                                                               |   | $                           | 80,837  |   |   | $ | 213,346 |   |
|   | Accounting, tax, and legal costs                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | 72,412  |   |   |   | 119,791 |   |
|   | Insurance costs                                                                                   |   |                        | 54,589  |   |   |   | 154,983 |   |
|   | Investor relation costs                                                                           |   |                        | 32,281  |   |   |   | 59,905 |   |
|   | Other general and administrative costs                                                                                                                                                                                                                                                                                                                                                                                  |   |                        | 110,353 |   |   |   | 195,057 |   |
|   | Total general and administrative costs                                                                                                                                                                                                                                                                                                                                                                                  |   | $                           | 350,472 |   |   | $ | 743,082 |   |

----

|   |                                                                                                                                                                                                                                                                                                                               |   | Six Months Ended June 30, |      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|
|   |                                                                                                                                                                                                                                                                                                                               |   | 2010                      |      |   | 2009 |   |
|   | Revenues                                                            |   | $                         | 3,754,463 |   |   | $ | 3,710,199 |   |
|   | Operating margin                                                    |   |                      | 1,040,967 |   |   |   | 1,549,098 |   |
|   | Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                           |   |                      | 366,289   |   |   |   | 302,652 |   |

|   |                                                                                                                                                                                                                                                                                                                                |   | Six Months Ended June 30, |      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|
|   |                                                                                                                                                                                                                                                                                                                                |   | 2010                      |      |   | 2009 |   |
|   | Revenues                                                                       |   | $                         | 3,096,630 |   |   | $ | 2,210,042 |   |
|   | Operating margin                                                               |   |                      | 678,602   |   |   |   | 312,125 |   |
|   | Depreciation and amortization                                                  |   |                      | 147,497   |   |   |   | 72,000 |   |

|   |                                                                                                                                                                                                                                                                                                                                            |   | Six Months Ended June 30, |    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|
|   |                                                                                                                                                                                                                                                                                                                                            |   | 2010                      |    |   | 2009 |   |
|   | Revenues                                                                         |   | $                         | 657,833 |   |   | $ | 1,500,966 |   |
|   | Operating margin                                                                 |   |                      | 362,365 |   |   |   | 1,237,782 |   |
|   | Depreciation and amortization                                                    |   |                      | 204,029 |   |   |   | 211,295 |   |

|   |                                                                                                                                                                                                                                                                                                                               |   | Six Months Ended June 30, |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                               |   | 2010                      |   |   | 2009 |   |
|   | Revenues                                                            |   | $                         | -      |   |   | $ | (809 | ) |
|   | Operating margin                                                    |   |                      | -      |   |   |   | (809 | ) |
|   | Depletion                                                           |   |                      | 11,242 |   |   |   | 15,912 |   |

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                    |   | Six Months Ended June 30, |    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                    |   |    2010         |    |   |    2009 |   |
|   | Salaries and employee related costs                                                               |   | $                         | 264,835 |   |   | $ | 430,869 |   |
|   | Accounting, tax, and legal costs                                                                                                                                                                                                                                                                                                                                                                                        |   |                      | 166,423 |   |   |   | 246,909 |   |
|   | Insurance costs                                                                                   |   |                      | 108,829 |   |   |   | 289,236 |   |
|   | Investor relation costs                                                                           |   |                      | 61,065  |   |   |   | 87,866 |   |
|   | Other general and administrative costs                                                                                                                                                                                                                                                                                                                                                                                  |   |                      | 216,372 |   |   |   | 357,332 |   |
|   | Total general and administrative costs                                                                                                                                                                                                                                                                                                                                                                                  |   | $                         | 817,524 |   |   | $ | 1,412,212 |   |

----

| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
|---------|-------------------------------------------------------------|

| Item 3. | Defaults Upon Senior Securities |
|---------|---------------------------------|

----

----

|   |                                                                 GATEWAY ENERGY CORPORATION |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| August 16, 2010 |   | /s/ Frederick M. Pevow                |
|-----------------|--------|---------------------------------------|
| (Date)          |   | President and Chief Executive Officer |
|            |   | (Principal Executive Officer)         |

| August 16, 2010 |   | /s/ Jill R. Marlatt                       |
|-----------------|--------|-------------------------------------------|
| (Date)          |   | Controller                                |
|            |   | (Principal Financial Officer)   |

----