U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                   FORM 10-QSB


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2005

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

             For the transition period from           to
                                            ----------  -----------

                           Commission File No. 0-6404


                           GATEWAY ENERGY CORPORATION
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


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


                          500 Dallas Street, Suite 2615
                                Houston, TX 77002
                     --------------------------------------
                    (Address of principal executive offices)

                                 (713) 336-0844
                            -------------------------
                           (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
                                 Yes     No  X
                                    -----  -----
As of July 31, 2005, the Issuer had 16,913,303 shares of its common stock
outstanding.

Transitional Small Business Disclosure Format:  Yes     No  X
                                                   -----  -----

<PAGE>


                                   FORM 10-QSB

                                     Part I
                                     ------
Item  1. Financial Statements
         --------------------
                                                                            Page

         Unaudited Consolidated Balance Sheet
             as of March 31, 2005                                             3

         Unaudited Consolidated Statements of Operations
             for the three months ended March 31, 2005
             and March 31,2004                                                4

         Unaudited Consolidated Statements of Cash Flows
             for the three months ended March 31, 2005
             and March 31,2004                                                5

         Notes to Unaudited Consolidated Financial Statements                 6


                                       2

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2005
(Unaudited)



ASSETS
Current Assets
   Cash and cash equivalents ...................................   $    163,400
   Trade accounts receivable ...................................        967,573
   Inventories, at average cost ................................         48,543
   Prepaid expenses and other assets ...........................        105,218
                                                                   ------------
        Total current assets ...................................      1,284,734
                                                                   ------------

Property and Equipment, at cost
   Gas gathering, processing and transportation ................     10,386,062
   Office furniture and other equipment ........................        818,364
                                                                   ------------
                                                                     11,204,426
   Less accumulated depreciation and amortization ..............     (4,424,820)
                                                                   ------------
                                                                      6,779,606
                                                                   ------------
Other Assets
   Investment in AET license, net of accumulated
        amortization of $157,074 ...............................        263,976
   Other .......................................................         95,612
                                                                   ------------
                                                                        359,588
                                                                   ------------
        Total assets ...........................................   $  8,423,928
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable ............................................   $  1,039,560
   Accrued expenses and other liabilities ......................        298,629
   Notes payable ...............................................        247,514
   Current maturities of long-term debt ........................      1,218,972
   Current maturities of capital lease .........................         11,416
                                                                   ------------
        Total current liabilities ..............................      2,816,091
                                                                   ------------

Noncurrent Liabilities
   Future asset retirement obligations .........................        326,401
   Accounts payable-related party ..............................         99,399
                                                                   ------------
                                                                        425,800
                                                                   ------------
Long-term debt, less current maturities ........................      1,226,832
Long-term capital lease, less current maturities ...............         71,794

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;
      16,713,303 shares issued and outstanding .................      4,178,324
   Additional paid-in capital ..................................     16,083,839
   Accumulated deficit .........................................    (16,378,752)
                                                                   ------------
        Total stockholders' equity .............................      3,883,411
                                                                   ------------
        Total liabilities and shareholders' equity .............   $  8,423,928
                                                                   ============


                     The accompanying notes are an integral
                       part of these financial statements.

                                       3

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)



                                                                   Three Months Ended March 31,
                                                                   ----------------------------
                                                                       2005            2004
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Operating revenues
    Sales of natural gas .......................................   $  5,897,208    $  5,045,810
    Transportation of natural gas and liquids ..................        213,191          90,972
    Treating and other .........................................         37,366          36,438
                                                                   ------------    ------------
                                                                      6,147,765       5,173,220
                                                                   ------------    ------------
Operating costs and expenses
    Cost of natural gas purchased ..............................      5,341,187       4,438,539
    Operation and maintenance ..................................        207,156         227,664
    Depreciation and amortization ..............................        155,384         158,984
    Accretion expense ..........................................          5,744           5,360
    General and administrative .................................        326,005         385,082
                                                                   ------------    ------------
                                                                      6,035,476       5,215,629
                                                                   ------------    ------------
Operating income (loss) ........................................        112,289         (42,409)

Other income (expense)
    Interest expense ...........................................       (102,070)       (117,456)
    Other income, net ..........................................         10,971          80,116
                                                                   ------------    ------------
                                                                        (91,099)        (37,340)
                                                                   ------------    ------------
Income (loss) from continuing operations before income
    taxes and discontinued operations ..........................         21,190         (79,749)
Income tax expense .............................................           --              --
                                                                   ------------    ------------
Income (loss) from continuing operations .......................         21,190         (79,749)

Discontinued operations
    Gain on disposal of properties .............................           --            43,704
                                                                   ------------    ------------


Net income (loss) ..............................................   $     21,190    $    (36,045)
                                                                   ============    ============

Basic and diluted income (loss) per share
    Continuing operations ......................................   $       --      $       --
    Discontinued operations ....................................           --              --
                                                                   ------------    ------------
    Net income (loss) ..........................................   $       --      $       --
                                                                   ============    ============

Weighted average number of common shares outstanding:
    Basic ......................................................     16,432,232      15,686,040
    Diluted ....................................................     16,457,846      15,686,040


                             The accompanying notes are an integral
                               part of these financial statements.

                                               4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)



                                                                  Three Months Ended March 31,
                                                                        2005         2004
                                                                     ---------    ---------
<S>                                                                  <C>          <C>
Cash flows from operating activities
   Net income (loss) .............................................   $  21,190    $ (36,045)
   Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
      Depreciation and amortization ..............................     155,384      158,984
      Discontinued operations - gain on sale of properties .......        --        (43,704)
      Accretion expense ..........................................       5,744        5,360
      Amortization of debt discount and debt issue costs .........       9,137       11,505
      Noncash for accounts payable-related party .................      34,255       33,750
      Change in operating assets and liabilities:
         Trade accounts receivable ...............................     (14,557)     998,281
         Inventories, at average cost ............................      (2,345)      (3,129)
         Prepaid expenses and other assets .......................      26,813      (42,013)
         Accounts payable ........................................      78,475     (848,030)
         Accrued expenses and other liabilities ..................      18,424      (24,387)
                                                                     ---------    ---------
              Net cash provided by operating activities ..........     332,520      210,572
                                                                     ---------    ---------

Cash flows from investing activities
      Capital expenditures .......................................     (14,762)     (27,072)
      Proceeds from contingent payment ...........................        --          4,003
      Decrease in certificates of deposit ........................        --        125,000
      Other assets ...............................................         864          664
                                                                     ---------    ---------
              Net cash provided (used) by investing activities ...     (13,898)     102,595
                                                                     ---------    ---------

Cash flows from financing activities
      Proceeds from borrowings ...................................        --        128,000
      Payments on borrowings .....................................    (304,716)    (302,244)
      Payments on accounts payable-related party .................     (39,556)     (31,566)
      Proceeds from exercise of stock options ....................      13,683         --
      Issuance of common stock ...................................        --           --
      Debt issue costs ...........................................        (925)         (59)
                                                                     ---------    ---------
              Net cash used by financing activities ..............    (331,514)    (205,869)
                                                                     ---------    ---------

Net increase (decrease) in cash and cash equivalents .............     (12,892)     107,298
Cash and cash equivalents at beginning of period .................     176,292      202,373
                                                                     ---------    ---------

Cash and cash equivalents at end of period .......................   $ 163,400    $ 309,671
                                                                     =========    =========

Supplemental Disclosures of Cash Flow Information:
      Cash paid for interest .....................................   $  64,806    $  68,697
                                                                     =========    =========


                           The accompanying notes are an integral
                             part of these financial statements.

                                             5
</TABLE>

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(1)  Nature of Business

     Gateway Energy Corporation (the "Company," or "Gateway"), a Delaware
corporation, was incorporated in 1960 and entered its current business in 1992.
The Company's common stock is traded in the over-the-counter market on the
bulletin board section under the symbol GNRG. Gateway conducts all of its
business through its wholly owned subsidiary companies, Gateway Pipeline
Company, Gateway Offshore Pipeline Company, Gateway Energy Marketing Company,
Fort Cobb Fuel Authority, L.L.C. and Gateway Processing Company.

     In the following discussion, "Mcf" refers to thousand cubic feet of natural
gas; "Tcf" refers to trillion cubic feet of natural gas; "Bbl" refers to barrel
of liquid hydrocarbons of approximately 42 U.S. gallons; "Btu" refers to British
thermal unit, a common measure of the energy content of natural gas; "MMBtu"
refers to one million British thermal units. "Mcfe" refers to thousand cubic
feet equivalent. Liquid hydrocarbons are converted to Mcf equivalents using the
ratio of 1.0 barrel of liquid hydrocarbons to 6.0 Mcf of natural gas.

(2)  Summary of Significant Accounting Policies

     A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
Certain reclassifications have been made to the prior period statements to be
consistent with the current presentation.

Principles of Consolidation

     The consolidated financial statements include the accounts of Gateway
Energy Corporation and its wholly owned subsidiary companies, Gateway Pipeline
Company, Gateway Offshore Pipeline Company, Gateway Energy Marketing Company,
Fort Cobb Fuel Authority, L.L.C. and Gateway Processing Company. All significant
intercompany transactions have been eliminated in consolidation.

     The accompanying consolidated financial statements have been prepared by
the Company, without audit. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
financial position and results of operations in accordance with U.S. generally
accepted accounting principles. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been omitted pursuant to rules and
regulations of the Securities and Exchange Commission. The financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2004.

Revenue Recognition Policy

     Revenues from the sales of natural gas are generated under back-to-back
purchase and sales contracts. Revenues from the sales of natural gas are
recognized at the redelivery point, which is the point at which title to the
natural gas transfers to the purchaser. Transportation revenues are generated
under contracts which have a stated fee per unit of production (Mcf, MMBtu, or
Bbl) gathered or transported. Transportation revenues onshore are recognized at
the redelivery point, which is the point at which another party takes physical
custody of the natural gas or liquid hydrocarbons. Transportation revenues
offshore are recognized at the Company's receipt point.

     Under the contracts in place with the producer and Hanover, we purchase the
gas at the producer's wellhead and retain title to the gas throughout the
treating process until the pipeline quality gas is delivered to the sales outlet
at the end of the Company's 10-inch pipeline. From the proceeds from the sale of
the pipeline quality gas, we deduct a fixed treating fee and an additional
amount when the sales price per unit of the pipeline quality gas exceeds a
threshold price per unit. The remaining balance, after minor adjustments, is
paid to the producer for the wellhead production.

Property and Equipment

     Property and equipment is stated at cost, plus capitalized interest costs
on major projects during their construction period. Additions and improvements
that add to the productive capacity or extend the useful life of an asset are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. For the year ended March 31, 2005, property and equipment included
$93,889 of equipment financed under a capital lease, net of $6,111 of
accumulated amortization. Depreciation and amortization is provided using the
straight-line method over estimated useful lives ranging from 6 to 30 years for
pipeline systems, gas plant and processing equipment, and from 2 to 10 years for

                                       6

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


office furniture and other equipment. Upon disposition or retirement of pipeline
components or gas plant components, any gain or loss is charged or credited to
accumulated depreciation. When entire pipeline systems, gas plants or other
property and equipment are retired or sold, any resulting gain or loss is
credited to or charged against operations.

     For the three months ended March 31, 2005 and 2004, depreciation expense
was $148,207 and $151,807, respectively.

     Impairment losses are recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows are
not sufficient to recover the assets' carrying value. The amount of impairment
is measured by comparing the fair value of the asset to its carrying amount, and
any impairment so determined is recorded in the current period. There have been
no impairments of long-lived assets required during the three months ended March
31, 2005.

     The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 143 "Accounting for Asset Retirement Obligations"(discussed below) during
the year ended December 31, 2003, and accordingly provides for the future asset
retirement obligations related to the Shipwreck offshore production platform
because, eventually, law or regulation will require its abandonment. The present
value of the estimated future asset retirement obligation, as of the date of
acquisition, was capitalized to gas gathering, processing and transportation
equipment. The present value of the estimated future asset retirement
obligation, as of the balance sheet date, is presented as a noncurrent
liability. Until the platform is ultimately sold or retired, the Company will
recognize (i) depreciation expense on the additional capitalized costs; (ii)
accretion expense as the present value of the future asset retirement obligation
increases with the passage of time, and; (iii) the impact, if any, of changes in
estimates of the liability. The following table sets forth a reconciliation of
the beginning and ending aggregate carrying amount of asset retirement
obligations for the three months ended March 31, 2005 and 2004:

                                    Three Months Ended March 31,
                                    ---------------------------
                                       2005            2004
                                    -----------     -----------
          Beginning balance         $   320,657     $   299,218
          Accretion                       5,744           5,360
                                    -----------     -----------
          Ending balance            $   326,401     $   304,578
                                    -----------     -----------

Prepaid Expenses and Other Assets

     Effective November 15, 2004, the Company entered into a License Agreement
with Advanced Energy, Inc. ("AER"), Allen Drilling Acquisition Company, a wholly
- owned subsidiary of AER ("ADAC") and Elgin Holdings, LLC, a Texas limited
liability company controlled by AER, collectively referred herein as the AER
Group. The Agreement provides for, among other things, the granting of a license
for a Mehra Gas Treating Unit ("NRU") with capacity in excess of 5,000Mcf/d to
the AER Group to process a minimum of 5,000Mcf/d of natural gas owned by the AER
Group in the Madisonville Project area of mutual interest. In accordance with
the provisions of the Agreement, the AER Group advanced to the Company a total
of $91,250 for the advance payment of license fees for the first year. The
Agreement also provides that of the $91,250 advance, $30,415 of such advance
(33.33%) shall represent AER's portion of the prepaid license fee which the
Company has recorded as revenue, and the balance of $60,835 shall be applicable
to the Company's share of the License Fee under a joint particpation arrangement
with respect to the NRU. The $60,835 advance will be repaid to the AER Group
from cash flows from the processing of the gas through the NRU and is reflected
in accrued expenses and other liabilities on the balance sheet.

     In late December 2004, the Company tendered to AET $91,250 as a pre-payment
for 2005 License Fees pursuant to Section 2.3 of the License Agreement with AET.
The $91,250 is reflected in prepaid expenses and other assets on the balance
sheet. AET returned the check to the Company, and alleged that such pre-payment
did not meet the requirements for installed Target Capacity for retention of the
exclusivity provisions of the License Agreement after December 31, 2004. In

                                       7

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


January 2005, AET notified the Company that a dispute as defined in the License
Agreement exists, and therefore the matter would be moved to arbitration. The
arbitration hearing has been scheduled for October 26, 2005.

Other Assets

     The Company's primary other asset, its license for a patented process to
remove nitrogen from natural gas production, is being amortized to expense over
the average 17-year life of the underlying patents. The latest of these patents
expires in 2022. The net investment in the license was $263,976 at March 31,
2005, net of accumulated amortization of $157,074.

Cash Equivalents

     For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with original maturities
of three months or less to be cash equivalents.

Income Taxes

     The Company has no current tax provision for the three months ended March
31, 2005 because the Company used net operating loss carry-forwards to offset
pretax financial income. The Company has no current tax provision for the three
months ended March 31, 2004 because the Company concluded that the tax benefits
may not be realized in future periods and are therefore fully reserved in the
accompanying financial statements. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of events that have been
included in the financial statements or income tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates expected to apply when these differences
reverse. Deferred tax assets are reduced by a valuation allowance when it is
more likely than not that they will not be realized. The deferred tax provision
is the result of changes in deferred tax assets and liabilities.

Stock-Based Compensation

     The Company accounts for that plan under the recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock issued to Employees," and related Interpretations. No stock-based
employee compensation is reflected in net gain (loss), as all options granted
under the plan had an exercise price equal to the market value of the underlying
common stock at the date of grant.

     At March 31, 2005, the fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based awards have characteristics significantly different from those of
traded options, and because changes in the subjective input can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-based
awards, including the repriced options, was estimated assuming no expected
dividends and the following weighted average assumptions for the three months
ended March 31, 2005 and 2004:

                                                                March 31,
                                                          --------------------
                                                            2005        2004
                                                          --------    --------
          Expected life in years......................       -          4.8
          Expected stock price volatility.............       -           86%
          Risk-free interest rate.....................       -         2.97%
          Average fair value per option...............       -        $0.19

     For pro forma purposes, the estimated value of the Company's stock-based
awards to employees is amortized over the options' vesting period. The following
table illustrates the effect on net income and net loss per share if the Company
had applied the fair value recognition provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," to its stock-based employee compensation for the
three months ended March 31, 2005 and 2004:

                                       8

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


                                                                 March 31,
                                                           --------------------
                                                             2005        2004
                                                           --------    --------
      Net income (loss) - as reported..................    $ 21,190    $(36,045)

      Add (deduct) stock option compensation expense
        (income) recognized on repriced options........        --          --
      Deduct total stock-based employee compensation
        expense determined under fair value based
        method for all awards, net of related tax
        effects........................................      (1,700)     (5,522)
                                                           --------    --------
      Net income (loss) - pro forma....................    $ 19,490    $(41,567)
                                                           ========    ========

      Basic and diluted net income (loss) per share - as
      reported.........................................    $   --      $   --
                                                           ========    ========
      Basic and diluted net income (loss) per share - pro
      forma............................................    $   --      $   --
                                                           ========    ========

Earnings Per Share

     Basic earnings per share is computed by dividing net earnings or loss by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net earnings or loss by the
weighted average number of shares outstanding, after giving effect to
potentially dilutive common share equivalents outstanding during the period.
Potentially dilutive common share equivalents are not included in the
computation of diluted earnings per share if they are anti-dilutive. For the
three months ended March 31, 2004, the diluted loss per common share is the same
as basic loss per share since the effect of 34,526 potentially dilutive common
shares arising from outstanding stock options and warrants was anti-dilutive.

Accounting Pronouncements and Recent Regulatory Developments

     On December 16, 2004, as amended on April 14, 2005, the FASB issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No.
123(R) will require companies to measure all employee stock-based compensation
awards using a fair value method and record such expense in its consolidated
financial statements. In addition, the adoption of SFAS No. 123(R) requires
additional accounting and disclosure related to the income tax and cash flow
effects resulting from share-based payment arrangements. SFAS No. 123(R) is
effective beginning as of the first interim reporting period for fiscal years
beginning after December 15, 2005. We are in the process of determining the
impact of the requirements of SFAS No. 123(R). We believe it is likely that the
financial statement impact from the implementation of the requirements of SFAS
No. 123(R) will significantly impact our future results of operations and we
continue to evaluate it to determine the degree of significance.

     In December 2004, SFAS No. 153, "Exchanges of Nonmonetary Assets -- an
amendment of Accounting Principles Board ("APB") Opinion No. 29" is effective
for fiscal years beginning after June 15, 2005. This Statement addresses the
measurement of exchange of nonmonetary assets and eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions"
and replaces it with an exception for exchanges that do not have commercial
substance. The adoption of SFAS No. 153 is expected to have no impact on our
consolidated financial statements.

     In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections--a
replacement of APB Opinion No. 20 and FASB Statement No. 3" is effective for
fiscal years beginning after December 15, 2005. This Statement changes the
requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition

                                       9

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. The adoption of SFAS No. 154 is expected to have
no impact on our consolidated financial statements.


Use of Estimates

     The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management's significant estimates include depreciation of
long-lived assets, amortization of deferred loan costs, valuation of the ARO
liability, and valuation of stock based transactions. Actual results could
differ from those estimates.

(3)  Debt

Notes Payable

     Fort Cobb's revolving credit agreement provides for maximum available
borrowings of up to $250,000 through May 22, 2005, which has been extended to
August 20, 2005. Principal outstanding under the agreement accrues interest at a
variable rate, based on the bank's prime rate index plus 1.25%, with a minimum
rate of 8%. The interest rate at March 31, 2005 was 8%. The balance under the
agreement is due upon demand, or if no demand is made, at maturity, and is
renewable annually. Costs of obtaining this debt was capitalized as deferred
loan costs and is being charged to interest expense ratably over the maturity
period of the note. Fort Cobb uses the proceeds from time to time for general
working capital purposes. The agreement, along with the Fort Cobb Term Note
discussed below, is collateralized with the assets of Fort Cobb and guaranteed
by the Company. The Company had no available borrowings under the agreement as
of March 31, 2005.

Long-term Debt

     Long-term debt at March 31, 2005 consisted of the following:

          Subordinated notes                       $     234,327
          Term note - Fort Cobb                          432,142
          Term note - Madisonville                       826,879
          Balloon note - Madisonville                    900,000
          Term note - Fort Cobb vehicles                  30,923
          Trade note payable                              21,533
                                                   -------------
                                                       2,445,804
          Less current maturities                     (1,218,972)
                                                   -------------
                                                   $   1,226,832
                                                   =============

Subordinated Notes

     In connection with the Recapitalization that was effective March 1, 1997,
the Company issued subordinated promissory notes with a face amount of
$1,171,700. The stated interest rate is 10% payable quarterly with equal annual
principal payments beginning on March 1, 2000 and continuing through March 1,
2004. The Company calculated the fair market value of the notes to be $978,000
at March 1, 1997 and recorded the difference between fair value and the face
amount as discount on subordinated notes. The discount was being amortized to
interest expense using the interest method over the term of the subordinated
notes. Such charge to interest expense was none and $4,612 for the three months
ended March 31, 2005 and 2004, respectively. As a result, the effective interest
rate of the subordinated notes is 15%.

     At March 31, 2005, the final principal payment totaling $234,327, which was
due under these notes on March 1, 2004, remained unpaid and by their terms are
in default. Due to the subordinated rights of the note holders, the Company was
able to obtain a limited waiver from the bank for the violation of a
Madisonville term loan agreement covenant not to allow such a default. The
subordinated note holders have been separately notified that they will continue
to receive interest at an annual rate of 10% on the final principal installment
outstanding until such time as it is paid.

                                       10

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


Term Note - Fort Cobb

     Effective June 1, 2001, Fort Cobb borrowed $750,000 from a bank. Principal
outstanding under the note accrues interest at a variable rate, based on the
bank's prime rate index plus 1.25%, with a minimum rate of 8%. The interest rate
at March 31, 2005 was 8%. The note requires monthly payments of approximately
$13,000, with the balance under the note due June 1, 2008. Costs of obtaining
this debt are being charged to interest expense ratably over the term of the
note. Fort Cobb used the proceeds to refinance its previous borrowings from the
Company, and the Company used the proceeds for general corporate purposes.

Term Note - Madisonville

     Effective February 21, 2002, Gateway Pipeline Company and Gateway
Processing Company, (the "Borrowers"), entered into a $1.5 million term note
agreement with a bank with an interest rate of 7.25%. Effective November 15,
2003, the term note agreement was amended to modify provisions governing
intercompany debt payments from the Borrowers to Gateway Energy Corporation.
Effective March 31, 2004, the term note agreement was amended to provide an
interest-only period for the months of April through July 2004. Thereafter the
note requires 16 monthly payments of principal and interest of $70,000, with a
final payment of approximately $204,000, representing unpaid principal and
accrued, but unpaid, interest due at the December 31, 2005 maturity date. Costs
of securing this debt are being charged to interest expense ratably over the
maturity period of the note. The proceeds were used to finance the construction
of the Madisonville pipeline facilities. The term note is collateralized with
the Company's economic interest in the Madisonville project and the Waxahachie
pipeline system, and the Company has guaranteed the loan and pledged the common
stock of the Borrowers. The term note agreement contains cross collateral and
cross default provisions linking it to the Balloon Note, described below. All
other terms and conditions of the term note, including the maturity date,
remained the same.

     At March 31, 2005, the March 2005 monthly payment totaling $70,000 was
unpaid. The Company subsequently made this payment in April 2005.

Balloon Note - Madisonville

     Effective March 31, 2003, the Company entered into a balloon credit
agreement (the "Balloon Note"). Under the Balloon Note agreement, the Borrowers
borrowed $900,000 in multiple advances. Principal outstanding under the Balloon
Note accrues interest at a fixed rate of 7.25% and the note will mature April
30, 2006. The monthly note payments represent interest only on the total balance
outstanding. Costs of securing this debt are being charged to interest expense
ratably over the term of the note. The Borrowers used the proceeds to finance
the remaining construction costs of the Pipeline Facilities, and to fund the
principal and interest payments which were due under the Company's subordinated
note agreements on March 1, 2003.

     The Balloon Note is collateralized with letters of credit obtained through
ADAC. Charles A. Holtgraves, a director of the Company, is Chairman of the
Board, President and a director of ADAC, and Larry J. Horbach, a former director
of the Company, is Secretary of ADAC. Mr. Holtgraves owns directly no shares of
ADAC common stock, and owns 14.65% of an entity that owns 55.56% of the ADAC
Senior Series A Preferred Stock. Such preferred stock has a stated dividend rate
equal to 66.67% of any Madisonville payments received by ADAC pursuant to the
Agreement discussed below. Mr. Horbach does not own, directly or indirectly, any
ADAC Senior Series A Preferred Stock or common stock.

     Under the terms of the agreement with ADAC, dated March 6, 2003 (the
"Agreement"), ADAC agreed to provide security acceptable to the Company's
primary bank to allow the Company to borrow the proceeds of the Balloon Note. In
exchange, ADAC will receive, during the term of the Balloon Note, one-half (50%)
of the price upside portion only, if any, of the monthly fee to be received by
the Company pursuant to the Madisonville project agreements. Under the
Agreement, ADAC will have the option to either: (i) receive at the end of the

                                       11

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


term of the Balloon Note a lump-sum payment, which when added to the payments
received, if any, for the price upside portion, will result in a 15% pre-tax
internal rate of return on the $900,000, or (ii) pay off the Balloon Note on or
before the end of the Balloon Note term in exchange for a 33.33% ownership
interest in the Madisonville pipeline facilities from that date forward. The
Company is obligated to pay the periodic interest payments to the bank during
the 37 month term of the Balloon Note. Further, the Company granted liens,
subordinate to the Company's bank liens, on the Company's economic interest in
the Madisonville project, its Waxahachie pipeline system, and its Fort Cobb
subsidiary. The agreement contains cross collateral and cross default provisions
linking it to the Madisonville Term Note, described above.

Term Note - Fort Cobb Vehicles

     Effective March 2003, Fort Cobb borrowed $57,900 from a bank to buy three
replacement service vehicles. The note requires monthly principal and interest
payments of $1,387, reflecting interest at 6.99%, and matures on March 25, 2007.

Trade Note Payable

     Effective October 2003, in connection with the mediation settlement of a
dispute with a vendor, the Company executed a trade note for $100,000, bearing
no interest, payable in eighteen monthly installments of $5,200 and one final
installment of $6,400. The note is secured by a lien on the Company's Crystal
Beach terminal facility. Interest expense is being recognized over the life of
the note at an imputed rate of 10%; accordingly, the obligation was initially
recorded at its present value of $91,290 in the accompanying balance sheet.

Convertible Promissory Note

     In November 2004, the Company sold 316,665 shares of common stock to three
directors at a price of $0.30 per share resulting in total proceeds of $95,000
in conjunction with the placement of a $115,000 convertible promissory note (the
"Bridge Loan") to a private investor. The Bridge Loan accrues interest at a
fixed rate of 8%, is unsecured and matures March 31, 2005, unless extended by
the parties to September 30, 2005. The Bridge Loan also contained a warrant to
purchase 100,000 shares of the Company's common stock at an exercise price of
$0.30 per share. The value of the warrant was determined using the Black-Schoels
option pricing model and was $8,789, which was recorded as a debt discount. Due
to the fair market value of the stock being $0.27 on the effective date of the
note, a beneficial conversion feature also existed totaling $17,988. The
beneficial conversion feature was also recorded as a debt discount. The debt
discount is being amortized to interest expense over the life of the note using
the effective interest method. The Bridge Loan is convertible at any time until
maturity into common stock of the Company at a conversion price of the greater
of 85% of the average closing price of the Company's common stock for the 90
days prior to conversion, or $0.25 per share, the par value of the common stock.
The promissory note and accrued interest was converted into 464,954 shares of
common shares at $0.25 per share during December 2004. However, the shares were
not issued until February 2005. At the time of the conversion, the remaining
unamortized debt discount was charged to interest expense which totaled $26,777,
inclusive of $5,400 previously amortized. The total amount converted of $116,239
was recorded as additional pad-in capital at December 31, 2004. The promissory
noteholder also exercised a warrant issued in connection with the Bridge Loan
for 100,000 shares at $0.30 per share in November 2004. However, the shares were
not issued until February 2005. The total proceeds received of $30,000 was
recorded in additional paid-in capital at December 31.

Letters of Credit

     As of March 31, 2005, the Company had outstanding letters of credit
totaling $1,000,000.

(4)  Stockholders' Equity

     During February 2005, the Company issued 464,954 shares to a private party
which pertained to the December 2004 conversion of the Bridge Loan and accrued
interest. The Company also issued 100,000 shares to the same party which
pertained to the November 2004 exercise of the warrant which was granted along
with the Bridge Loan.

                                       12

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


     During February 2005, a former employee of the Company exercised a stock
option for 53,333 shares of common stock at $0.2565 per share for total proceeds
of $13,680.

(5)  Commitments and Contingencies

     In connection with securing the Balloon Note described in Note 4 that was
used to finance part of the construction costs of the Madisonville pipeline
facilities, the Company is obligated at ADAC's option to either: (i) pay at the
end of the term of the Balloon Note a lump-sum, which when added to the payments
made, if any, for the price upside portion, will result in ADAC receiving a 15%
pre-tax internal rate of return on the $900,000, or (ii) convey to ADAC a
one-third ownership interest in the pipeline facilities in exchange for ADAC
paying off the Balloon Note on or before the end of the balloon note term. The
Company is obligated to pay the periodic interest payments to the bank during
the three-year term of the Balloon Note.

     The Company believes that it is likely that ADAC will elect to pay off the
Balloon Note in exchange for an ownership interest in the pipeline facilities;
however, the decision is beyond the Company's control. Therefore, the minimum
return guaranteed to ADAC by the Company is being accrued ratably over the
three-year term of the balloon note, and reduced by periodic price upside
payments, if any, paid to ADAC. For each of the three months ended March 31,
2005 and 2004, interest expense was charged $33,750 reflecting the Company's
obligation under the guarantee. In the accompanying consolidated balance sheet
as of March 31, 2005, the noncurrent payable to ADAC includes an accrual of
$78,809 for such amounts not yet paid. If ADAC elects to pay off the balloon
note at maturity or before, the reserve portion of the ADAC payable will be
credited to income.

     In connection with the July 27, 2005 sale of certain Madisonville assets
(see note 7), the Company, Gateway Pipeline, Gateway Processing and ADAC entered
into an amendment to the ADAC Agreement whereby, in lieu of ADAC's exercise of
its equity participation option, Gateway Pipeline's 10 inch transmission
pipeline asset would be contributed into a limited liability company that would
be owned 66.67% by Gateway Pipeline and 33.33% by ADAC.

     The Company and its subsidiaries are parties to litigation and claims
arising in the ordinary course of business. Management, after consultation with
legal counsel, believes that the liabilities, if any, arising from such
litigation and claims, may be material to the consolidated financial statements.

(6)  Related Party Transactions

     Effective March 31, 2004, the Company agreed to pay to ADAC $24,000, in
exchange for its consent to modify the terms of the Madisonville term loan,
ratably over a twelve-month period beginning the earlier of the month following
maturity of the Balloon Note or the month following ADAC's exercise of their
option to prepay the Balloon Note as discussed in Note 4. The present value of
this obligation at inception was $18,641, using an imputed interest rate of 10%,
and is included in the amount payable to ADAC, with a corresponding amount
capitalized to deferred loan costs on the accompanying balance sheet.

     Under the terms of the ADAC agreement, ADAC will receive, during the term
of the Balloon Note, one-half of the price upside portion only, if any, of the
monthly fee to be received by the Company pursuant to the Madisonville project
agreements. Price upside payments made to ADAC during the three months ended
March 31, 2005 and 2004 totaled $39,566, and $31,566, respectively.

     Effective November 15, 2004, the Company and certain of its subsidiaries
entered into a License Agreement with AER, ADAC, a Nebraska corporation and a
wholly owned subsidiary of AER, and Elgin Holdings, LLC, a Texas limited
liability company and a majority owned subsidiary of ADAC, for the joint
participation and development of future high nitrogen natural gas projects in
the Madisonville, Texas area. Charles A. Holtgraves, a director of the Company,
is Chairman of the Board, President and a director of AER, and Chairman of the
Board, President and a director of ADAC, and a manager of Elgin Holdings.
Approximately 60% of the stock of AER is owned indirectly by Mr. Holtgraves and
his family members. Mr. Holtgraves owns directly no shares of ADAC common stock,
and owns 14.65% of an entity that owns 55.56% of the ADAC Senior Series A
Preferred Stock. Such preferred stock has a stated dividend rate equal to 66.67%
of any Madisonville payments received by ADAC pursuant to the ADAC Agreement
discussed above.

                                       13

<PAGE>
<TABLE>
<CAPTION>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

     Accrued expenses and other liabilities at March 31, 2005 include unpaid
directors' fees of $54,833.

(7)  Subsequent Events

     On May 26, 2005, the Board of Directors of the Company announced that
Robert Panico had been elected as the Company's President and Chief Executive
Officer. Mr. Panico replaces John A. Raasch, a member of the Board, who had been
acting as interim President and Chief Executive Officer of the Company since the
resignation of the Company's prior President and Chief Executive Officer,
Michael Fadden, in October 2004.

     During June 2005, the Company sold 100,000 shares to a private party at
$0.30 per share for total proceeds of $30,000.

     During June 2005, the Company sold 100,000 shares to a director at $0.30
per share for total proceeds of $30,000.

     On June 16, 2005, the Board of Directors of the Company announced that
Christopher M. Rasmussen had been elected as the Company's Chief Financial
Officer. The Chief Financial Officer position had been vacant since November
2004.

     Effective June 21, 2005, Steven W. Cattron was appointed by the Board of
Directors of the Company to fill the vacancy on the Board created by the
resignation of Scott Heflin on October 21, 2004. Mr. Cattron will also serve as
the Chair of the Audit Committee. Mr. Cattron is currently the owner of Cattron
Enterprises, Inc., a professional consulting practice focused on improving
profitability of small to medium sized companies. Prior to that, he was the
President and Chief Operating Officer of Missouri Gas Energy, a natural gas
distribution company serving western Missouri as well as Vice President of Sales
and Marketing and Regulatory Affairs for Kansas City Power and Light, an
electric company serving western Missouri and eastern Kansas.

     Effective July 25, 2005, Gateway Pipeline Company and Gateway Processing
Company, wholly owned subsidiaries of the Company, sold their 4" gathering line
and 3" injection line as well as the Processing Agreement in the First Amended
and Restated Master Agreement dated February 5, 2003, all of which was part of
the Company's Madisonville Pipeline Facility to a buyer for approximately $2.7
million. The Company will retain the 10" sales line and will become a
transporter of gas from the Madisonville Plant to the sales point.

     The Company received $135,000 on July 25, 2005; however, the remainder of
the funds will be paid by the buyer on or before August 31, 2005. If funding is
not made by August 31, 2005, the Company may either seek collection of the
purchased price or declare the transaction null and void. Just prior to final
funding, ADAC will elect to exercise its right to its 33.33% ownership in the
Madisonville pipeline facilities. Accordingly, its share of the sales proceeds,
approximately $900,000, will be paid to them which at that time such funds will
be used by ADAC to repay the $900,000 Balloon Note (see Note 3 above). Upon
ADAC's exercise of its option to the Madisonville pipeline facilities, the
Company will own a remaining 66.66% interest in the 10" sales line which the
Company will operate under a new transportation agreement to be entered into
with the buyer of the Madisonville pipeline facilities. The Company will receive
the remaining net proceeds from the sale of approximately $1.8 million. A
portion of the proceeds from the sale will be used to pay off the remaining
balance of the $1.5 million Term Note as well as the outstanding subordinated
promissory notes.

     Following are the pro forma results of operations of the Company assuming
the sales transaction has occurred as of January 1, 2004.

                                          Three Months Ended                 Year Ended
                                      ---------------------------    ----------------------------
                                            March 31, 2005               December 31, 2004
                                      ---------------------------    ----------------------------
                                      As Reported     Pro Forma      As Reported      Pro Forma
                                      ------------   ------------    ------------    ------------
<S>                                   <C>            <C>             <C>             <C>
Operating revenues ................   $  6,147,765   $  2,184,781    $ 22,969,271    $  7,630,709
Operating costs and expenses ......      6,035,476      2,208,380      23,370,291       8,619,969
Net income (loss) .................         21,190       (114,698)       (800,131)     (1,388,372)


Basic  and  diluted  income  (loss)   $       --     $      (0.01)   $      (0.05)   $      (0.09)
per share

Weighted average number of
common shares outstanding:
Basic .............................     16,432,232     16,432,232      15,822,715      15,822,715
Diluted ...........................     16,457,846     16,432,232      15,822,715      15,822,715

                                       14
</TABLE>

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


     Effective August 8, 2005, J. Darby Sere was appointed by the Board of
Directors of Gateway Energy Corporation (the "Company") to fill a vacancy on the
Board. Mr. Sere is currently the Chief Executive Officer and President of
GeoMet, Inc., a coalbed methane exploration and development company. Prior to
that, he was the President and Chief Executive Officer of Bellwether Exploration
Company, a publicly traded natural gas and oil production company. Mr. Sere has
also served as President and Chief Executive Officer of Bayou Resources, Inc. as
well as Executive Vice President and Chief Operating Officer of Howell Petroleum
Corporation.

(8)  Segment Disclosures

     All of the Company's operations are in the domestic U.S., including the
Gulf of Mexico in Texas and federal waters. The Company's management reviews and
evaluates the operations separately of three main segments--Onshore Operations,
Offshore Operations and Fort Cobb Operations. Each segment is an aggregation of
operations subject to similar economic and regulatory conditions such that they
are likely to have similar long-term prospects for financial performance.
Onshore Operations include natural gas gathering, transportation and
distribution activities in Texas and Oklahoma. Offshore Operations include
natural gas and liquid hydrocarbon gathering and transportation activities in
the Gulf of Mexico in Texas and federal waters. The principal markets for the
Onshore segment are affiliates of large intrastate and interstate pipeline
companies and industrial customers, and for the Offshore segment they are
affiliates of large intrastate and interstate pipeline companies. Fort Cobb
Operations are comprised of a local natural gas distribution company in
Oklahoma. This segment supplies natural gas to approximately 2,350 customers,
principally for irrigation and crop drying fuel for farming cooperatives and
residential fuel.

     The accounting policies of the reportable segments are the same as those
described in Note 2 to the Consolidated Financial Statements. The Company
evaluates the segments based on operating margin, defined as revenues less cost
of purchased gas and operating and maintenance expenses. Such amounts are before
general and administrative expense, depreciation, interest income or expense or
income taxes. Inter-segment sales of $449,000 and $422,000 were eliminated
during consolidation for the three months ended March 31, 2005 and 2004.

     Summarized financial information of the Company's reportable segments, and
a reconciliation of operating margin to consolidated net loss, is presented
below:

                                                            Three Months
                                                           Ended March 31,
                                                      -------------------------
                                                         2005           2004
                                                      ----------     ----------
                  Onshore Operations
     Revenues..................................       $5,313,056     $4,458,619
     Operating margin..........................          332,520        331,872
     Depreciation and amortization.............           69,843         71,669
     Interest expense..........................           87,759         99,053
     Capital expenditures......................            6,747         17,778
     Total assets..............................        5,088,584      5,657,656

                  Offshore Operations
     Revenues..................................          236,953        114,145
     Operating margin..........................          175,052         50,310
     Depreciation and amortization.............           37,694         37,692
     Total assets..............................        1,401,767      1,443,919

                                       15

<PAGE>



                 Fort Cobb Operations
     Revenues..................................          597,756        600,456
     Operating margin..........................           91,850        124,835
     Depreciation and amortization.............           47,847         49,623
     Interest expense..........................           14,311         18,403
     Capital expenditures......................            8,015          9,294
     Total assets..............................        1,942,577      2,162,802


                         Total
     Revenues..................................        6,147,765      5,173,220
     Operating margin..........................          599,422        507,017
     Depreciation and amortization.............          155,384        158,984
     Interest expense..........................          102,070        117,456
     Capital expenditures......................           14,762         27,072
     Total assets..............................        8,423,928      9,264,377


          Reconciliation to net income (loss)
     Operating margin..........................     $    599,422        507,017
     Less:
       Depreciation and amortization...........          155,384        158,984
       Accretion expense.......................            5,744          5,360
       General and administrative..............          326,005        385,082
       Interest expense........................          102,070        117,456
     Plus:
       Other income, net.......................           10,971         80,116
       Discounted operations ..................             --           43,704
                                                    ------------     ----------

     Net income (loss).........................     $     21,190        (36,045)
                                                    ============     ==========

Item  2. Management's Discussion and Analysis of Financial Condition and
         ---------------------------------------------------------------
         Results of Operations.
         ----------------------

     This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
relate to possible future events, our future performance, and our future
operations. In some cases, you can identify these forward-looking statements by
the use of words such as "may," "will," "should," "anticipates," "believes,"
"expects," "plans," "future," "intends," "could," "estimate," "predict,"
"potential," "continue," or the negative of these terms or other similar
expressions. These statements are only our predictions. Our actual results could
and likely will differ materially from these forward-looking statements for many
reasons, including the risks described herein. We cannot guarantee future
results, levels of activities, performance, or achievements. We are under no
duty to update any of the forward-looking statements after the date of this
document to conform them to actual results or to changes in our expectations.

Critical Accounting Policies

     A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
Certain reclassifications have been made to the prior period statements to be
consistent with the current presentation.

Revenue Recognition Policy

     Revenues from the sales of natural gas are generated under back-to-back
purchase and sales contracts. Revenues from the sales of natural gas are
recognized at the redelivery point, which is the point at which title to the

                                       16

<PAGE>


natural gas transfers to the purchaser. Transportation revenues are generated
under contracts which have a stated fee per unit of production (Mcf, MMBtu, or
Bbl) gathered or transported. Transportation revenues onshore are recognized at
the redelivery point, which is the point at which another party takes physical
custody of the natural gas or liquid hydrocarbons. Transportation revenues
offshore are recognized at the receipt point.

     Under the contracts in place with the producer and Hanover, we have
purchased the gas at the producer's wellhead and retained title to the gas
throughout the treating process until the pipeline quality gas is delivered to
the sales outlet at the end of the Company's 10-inch pipeline. From the proceeds
from the sale of the pipeline quality gas, we have deducted a fixed treating fee
and an additional amount when the sales price per unit of the pipeline quality
gas exceeds a threshold price per unit. The remaining balance, after minor
adjustments, has been paid to the producer for the wellhead production.

Property and Equipment

     Property and equipment is stated at cost, plus capitalized interest costs
on major pipeline projects during their construction period. Additions and
improvements that add to the productive capacity or extend the useful life of an
asset are capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is provided using the straight-line method
over estimated useful lives ranging from 6 to 30 years for pipeline systems, gas
plant and processing equipment, and from 2 to 10 years for office furniture and
other equipment. Upon disposition or retirement of pipeline components or gas
plant components, any gain or loss is charged or credited to accumulated
depreciation. When entire pipeline systems, gas plants or other property and
equipment are retired or sold, any resulting gain or loss is credited to or
charged against operations.

     Impairment losses are recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows are
not sufficient to recover the assets' carrying value. The amount of impairment
is measured by comparing the fair value of the asset to its carrying amount.
There was no impairment required as of March 31, 2005.

Asset Retirement Obligation

     The Company provides for the future asset retirement obligations related to
the Shipwreck offshore production platform because, eventually, law or
regulation will require its abandonment. The present value of the estimated
future asset retirement obligation, as of the date of acquisition, was
capitalized to gas gathering, processing and transportation equipment. The
present value of the estimated future asset retirement obligation, as of the
balance sheet date, is presented as a noncurrent liability. Until the platform
is ultimately sold or retired, the Company will recognize (i) depreciation
expense on the additional capitalized costs; (ii) accretion expense as the
present value of the future asset retirement obligation increases with the
passage of time, and; (iii) the impact, if any, of changes in estimates of the
liability.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management's significant estimates include depreciation of
long-lived assets, amortization of deferred loan costs, valuation of the ARO
liability, and valuation of stock based transactions. Actual results could
differ from those estimates.

Accounting Pronouncements and Recent Regulatory Developments

     On December 16, 2004, as amended on April 14, 2005, the FASB issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No.
123(R) will require companies to measure all employee stock-based compensation
awards using a fair value method and record such expense in its consolidated
financial statements. In addition, the adoption of SFAS No. 123(R) requires
additional accounting and disclosure related to the income tax and cash flow
effects resulting from share-based payment arrangements. SFAS No. 123(R) is
effective beginning as of the first interim reporting period for fiscal years
beginning after December 15, 2005. We are in the process of determining the
impact of the requirements of SFAS No. 123(R). We believe it is likely that the
financial statement impact from the implementation of the requirements of SFAS
No. 123(R) will significantly impact our future results of operations and we
continue to evaluate it to determine the degree of significance.

                                       17

<PAGE>


     In December 2004, SFAS No. 153, "Exchanges of Nonmonetary Assets -- an
amendment of Accounting Principles Board ("APB") Opinion No. 29" is effective
for fiscal years beginning after June 15, 2005. This Statement addresses the
measurement of exchange of nonmonetary assets and eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions"
and replaces it with an exception for exchanges that do not have commercial
substance. The adoption of SFAS No. 153 is expected to have no impact on our
consolidated financial statements.

     In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections--a
replacement of APB Opinion No. 20 and FASB Statement No. 3" is effective for
fiscal years beginning after December 15, 2005. This Statement changes the
requirements for the accounting for and reporting of a change in accounting
principle. This Statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. The adoption of SFAS No. 154 is expected to have
no impact on our consolidated financial statements.

Results of Operations

General

     The Henry Hub closing index price for natural gas during the three months
ended March 31, 2005 averaged $6.22 per MMBtu, compared to $6.07 for the same
period of the prior year. In the accompanying financial statements, the
Company's revenues from sales of natural gas, along with the cost of natural gas
purchased, increased proportionately from prior year levels. Because the Company
buys and sells gas under "back-to-back" purchase and sale contracts designed to
minimize commodity price risk, the Company's net operating margin is relatively
insensitive to fluctuations in the market price of gas. Accordingly, the Company
evaluates each of its activities based on the operating margin it produces. The
Company defines operating margin as revenues, less the cost of purchased gas and
operating and maintenance expenses. Management reviews and evaluates the
operations of three main segments--Onshore operations, Offshore operations and
Fort Cobb operations.

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

Total Operations
                                               Three Months Ended March 31,
                                                -------------------------
                                                   2005           2004
                                                ----------     ----------
     Revenues.............................      $6,147,765     $5,173,220
     Operating margin.....................         599,422        507,017
     Depreciation and amortization........         155,384        158,984

     Operating margins for the three months ended March 31, 2005 increased
$92,000 compared to the same period of the prior year. Offshore operating margin
increased $125,000, Onshore operating margins increased $1,000, and Fort Cobb
operating margins decreased by $33,000. These segments are discussed
individually below in greater detail.

Onshore Operations
                                               Three Months Ended March 31,
                                                -------------------------
                                                   2005           2004
                                                ----------     ----------
     Revenues............................       $5,313,056     $4,458,619
     Operating margin....................          332,520        331,872
     Depreciation and amortization.......           69,843         71,669

     Operating margins for onshore operations increased in the first quarter by
$1,000 from the same period of the prior year. The increase was mainly due
increased throughput volumes at the Company's Waxahachie pipeline facility.

                                       18

<PAGE>


Offshore Operations
                                               Three Months Ended March 31,
                                                -------------------------
                                                   2005           2004
                                                ----------     ----------
     Revenues.............................      $  236,953     $  114,145
     Operating margin.....................         175,052         50,310
     Depreciation and amortization........          37,694         37,692

     Operating margins for offshore operations increased in the first quarter by
$125,000 from the same period of the prior year. This increase is due to an
increase of 8,000 MMbtu per day on the Company's Pirates' Beach system.

Fort Cobb Operations
                                               Three Months Ended March 31,
                                                -------------------------
                                                   2005           2004
                                                ----------     ----------
     Revenues............................       $  597,756     $  600,456
     Operating margin....................           91,850        124,835
     Depreciation and amortization.......           47,847         49,623

     Operating margins for Fort Cobb operations decreased in the first quarter
by $33,000 from the same period of the prior year due to an increase in the
deferred fuel cost component of gas purchase costs.

     General and administrative expenses for the quarter decreased by $59,000
compared to 2004, or 15%, primarily due to reduced wages and salaries as well as
employee related benefits, partially offset by an increase in consulting and
legal fees. The reduction in salaries was due to the departure of the CEO and
CFO of the Company during the fourth quarter of 2004.

     Interest expense fluctuates directly with the amount of outstanding
long-term debt and the amount of borrowings under the Company's bank revolving
credit agreement. Interest expense for the three months ended March 31, 2005 and
2004 included $33,750 in each period recognized in connection with the reserve
for the ADAC guarantee.

Liquidity and Capital Resources

     Going forward, the Company's strategy is to maximize the potential of
currently owned properties, to construct new treating facilities and related
pipeline systems, and to acquire properties that meet its economic performance
hurdles. The Company's primary vehicle for growth, however, is its license for
the patented process to reject nitrogen from natural gas streams, the
exploitation of which will require significant additional capital. Until we are
able to successfully raise additional growth capital, we will execute our growth
strategy through strategic alliances in high nitrogen natural gas projects.
Also, any currently owned properties are subject to sale under the right
circumstances (valuation and timing) if the proceeds from any such sale could be
effectively redeployed into one or more high nitrogen natural gas projects.

     The Company is actively seeking additional outside capital to allow it to
accelerate the implementation of its growth strategy. Such new capital may take
any of several forms, including but not limited to: (i) the sale of common stock
or preferred stock, convertible into common stock on some basis; (ii) an
asset-backed revolving credit facility with attached common stock purchase
warrants, or; (iii) a direct private placement allowing the creation of a
financial joint venture company into which the Company would contribute assets
in exchange for a meaningful equity interest. If we are successful raising new
capital, then the resultant projects will yield greater results to the Company
in less time. Any of the above structures may result in issuance of additional
common stock, and may therefore have some short-term dilutive effect on current
shareholders. However, any dilutive effect is expected to be more than offset by
long-term increases in the enterprise value of the Company.

     There is no guarantee that we will be able to raise outside capital or be
able to sell assets on terms favorable to the Company. Without a significant
infusion of new capital, we believe we can finance the construction of new
nitrogen rejection facilities and generate new cash flows to the Company, but
progress will be relatively slower.

     The Company has available cash of $163,400 at March 31, 2005.

     Net cash provided by operating activities totaled $333,000 for the three
months ended March 31, 2005, compared to $211,000 during the same period of the
previous year.

                                       19

<PAGE>


     Absent significant acquisitions or development projects, the Company will
continue to fund its operations through internally generated funds and available
cash and bank borrowings as needed. The Company believes its cash flows from
such sources will be sufficient to fund its ongoing operations for the
foreseeable future.

     The Company sold 14 non-core natural gas gathering systems located in
Texas, Oklahoma and Louisiana, effective August 1, 2002. Cash of $839,000 was
received at closing, and a contingent payment of up to $260,000 was to be
received in the fourth quarter of 2003 based on subsequent performance of the
assets. The Company received $4,003 of the final contingent payment of $43,704
due and recorded $43,704 as gain on sale of the assets during the period ended
March 31, 2004.

     Fort Cobb's revolving credit agreement provides for maximum available
borrowings of up to $250,000 through May 22, 2005, which has been extended to
August 20, 2005. Principal outstanding under the agreement accrues interest at a
variable rate, based on the bank's prime rate index plus 1.25%, with a minimum
rate of 8%. The interest rate at March 31, 2005 was 8%. The balance under the
agreement is due upon demand, or if no demand is made, at maturity, and is
renewable annually. Costs of obtaining this debt was capitalized as deferred
loan costs and is being charged to interest expense ratably over the maturity
period of the note. Fort Cobb uses the proceeds from time to time for general
working capital purposes. The agreement, along with the Fort Cobb Term Note
discussed below, is collateralized with the assets of Fort Cobb and guaranteed
by the Company. The Company had no available borrowings under the agreement as
of March 31, 2005.

     Effective June 1, 2001, Fort Cobb borrowed $750,000 from a bank. Principal
outstanding under the note accrues interest at a variable rate, based on the
bank's prime rate index plus 1.25%, with a minimum rate of 8%. The interest rate
at March 31, 2005 was 8%. The note requires monthly payments of approximately
$13,000, with the balance under the note due June 1, 2008. Costs of obtaining
this debt was capitalized as deferred loan costs and is being charged to
interest expense ratably over the maturity period of the note. Fort Cobb used
the proceeds to refinance its previous borrowings from the Company, and then the
Company used the proceeds for general corporate purposes.

     Effective February 21, 2002, Gateway Pipeline Company and Gateway
Processing Company, (the "Borrowers"), entered into a $1.5 million term note
agreement with a bank with an interest rate of 7.25%. Effective November 15,
2003, the term note agreement was amended to modify provisions governing
intercompany debt payments from the Borrowers to Gateway Energy Corporation.
Effective March 31, 2004, the term note agreement was amended to provide an
interest-only period for the months of April through July 2004. Thereafter the
note requires 16 monthly payments of principal and interest of $70,000, with a
final payment of approximately $204,000, representing unpaid principal and
accrued, but unpaid, interest due at the December 31, 2005 maturity date. Costs
of securing this debt are being charged to interest expense ratably over the
maturity period of the note. The proceeds were used to finance the construction
of the Madisonville pipeline facilities. The term note is collateralized with
the Company's economic interest in the Madisonville project and the Waxahachie
pipeline system, and the Company has guaranteed the loan and pledged the common
stock of the Borrowers. The term note agreement contains cross collateral and
cross default provisions linking it to the Balloon Note, described below. All
other terms and conditions of the term note, including the maturity date,
remained the same.

     At March 31, 2005, the March 2005 monthly payment totaling $70,000 was
unpaid. The Company subsequently made this payment in April 2005.

     Effective March 31, 2003, the Company entered into a balloon credit
agreement (the "Balloon Note"). Under the Balloon Note agreement, the Borrowers
borrowed $900,000 in multiple advances. Principal outstanding under the Balloon
Note accrues interest at a fixed rate of 7.25% and the note will mature after
thirty-six months. The monthly note payments represent interest only on the
total balance outstanding. Costs of securing this debt are being charged to
interest expense ratably over the maturity period of the note. The Borrowers
used the proceeds to finance the remaining construction costs of the Pipeline
Facilities, and to fund the principal and interest payments which were due under
the Company's subordinated note agreements on March 1, 2003.

     The Balloon Note is collateralized with letters of credit obtained through
ADAC. Charles A. Holtgraves, a director of the Company, is Chairman of the
Board, President and a director of ADAC, and Larry J. Horbach, a former director
of the Company, is Secretary of ADAC. Mr. Holtgraves owns directly no shares of
ADAC common stock, and owns 14.65% of an entity that owns 55.56% of the ADAC
Senior Series A Preferred Stock. Such preferred stock has a stated dividend rate

                                       20

<PAGE>


equal to 66.67% of any Madisonville payments received by ADAC pursuant to the
Agreement discussed below. Mr. Horbach does not own, directly or indirectly, any
ADAC Senior Series A Preferred Stock or common stock.

     Under the terms of the agreement with ADAC, dated March 6, 2003 (the
"Agreement"), ADAC agreed to provide security acceptable to the Company's
primary bank to allow the Company to borrow the proceeds of the Balloon Note. In
exchange, ADAC will receive, during the term of the Balloon Note, one-half (50%)
of the price upside portion only, if any, of the monthly fee to be received by
the Company pursuant to the Madisonville project agreements. Under the
Agreement, ADAC will have the option to either: (i) receive at the end of the
term of the Balloon Note a lump-sum payment, which when added to the payments
received, if any, for the price upside portion, will result in a 15% pre-tax
internal rate of return on the $900,000, or (ii) pay off the Balloon Note on or
before the end of the Balloon Note term in exchange for a 33.33% ownership
interest in the Madisonville pipeline facilities from that date forward. The
Company is obligated to pay the periodic interest payments to the bank during
the three-year term of the Balloon Note. Further, the Company granted liens,
subordinate to the Company's bank liens, on the Company's economic interest in
the Madisonville project, its Waxahachie pipeline system, and its Fort Cobb
subsidiary. The agreement contains cross collateral and cross default provisions
linking it to the Madisonville Term Note, described above.

     In March 2004, the Company agreed to pay to ADAC $24,000, in exchange for
its consent to the modification of the $1.5 million bank loan, ratably over a
twelve-month period beginning the earlier of the month following maturity of the
Balloon Note or the month following ADAC's exercise of their option to prepay
the Balloon Note as discussed above. The present value of this obligation at
inception was $18,641, using an imputed interest rate of 10%, and is included in
the amount payable to ADAC, with a corresponding amount capitalized to deferred
loan costs on the accompanying balance sheet, to be recognized as interest
expense ratably over the term of the agreement.

     At March 31, 2005, the final principal payment totaling $234,327, which was
due under the Company's subordinated notes on March 1, 2004, remained unpaid and
by their terms are in default. Due to the subordinated rights of the note
holders, the Company was able to obtain a limited waiver from the bank for the
violation of a Madisonville term loan agreement covenant not to allow such a
default. The subordinated note holders have been separately notified that they
will continue to receive interest at an annual rate of 10% on the final
principal installment outstanding until such time as it is paid.

     Effective March 2003, Fort Cobb borrowed $57,900 from a bank to buy three
replacement service vehicles. The note requires monthly principal and interest
payments of $1,387, reflecting interest at 6.99%, and matures on March 25, 2007.

     Effective October 2003, in connection with the mediation settlement of a
dispute with a vendor, the Company executed a trade note for $100,000, bearing
no interest, payable in eighteen monthly installments of $5,200 and one final
installment of $6,400. The note is secured by a lien on the Company's Crystal
Beach terminal facility. Interest expense is being recognized over the life of
the note at an imputed rate of 10%; accordingly, the obligation was initially
recorded at its present value of $91,290.

     At March 31, 2005, the Company's long-term debt to total capitalization was
approximately 25%.

     At March 31, 2005, the Company had outstanding letters of credit totaling
$1,000,000.

     Natural gas prices as represented by the NYMEX Henry Hub index averaged
$6.22 and $6.07 for the three months ended March 31, 2005 and 2004. Apart from
the Madisonville Pipeline Facilities, the Company's operating margin is not
significantly affected by the price of natural gas since gas gathering and
transportation are generally based on fee arrangements and sales of natural gas
are made under back-to-back purchase and sales arrangements. However, natural
gas prices can affect exploration and development which can result in higher or
lower volumes available for gathering and transportation.

Off-Balance Sheet Arrangements

     The Company has no off-balance sheet arrangements at March 31, 2005;
however, see Note 5 to the consolidated financial statements regarding
Commitment and Contingencies.

                                       21

<PAGE>
<TABLE>
<CAPTION>


Subsequent Events

     Effective July 25, 2005, Gateway Pipeline Company and Gateway Processing
Company, wholly owned subsidiaries of the Company, sold their 4" gathering line
and 3" injection line as well as the Processing Agreement in the First Amended
and Restated Master Agreement dated February 5, 2003, all of which was part of
the Company's Madisonville Pipeline Facility to a buyer for approximately $2.7
million. The Company will retain the 10" sales line and will become a
transporter of gas from the Madisonville Plant to the sales point.

     The Company received $135,000 on July 25, 2005; however, the remainder of
the funds will be paid by the buyer on or before August 31, 2005. If funding is
not made by August 31, 2005, the Company may either seek collection of the
purchased price or declare the transaction null and void. Just prior to final
funding, ADAC will elect to exercise its right to its 33.33% ownership in the
Madisonville pipeline facilities. Accordingly, its share of the sales proceeds,
approximately $900,000, will be paid to them which at that time such funds will
be used by ADAC to repay the $900,000 Balloon Note (see Note 3 above). Upon
ADAC's exercise of its option to the Madisonville pipeline facilities, the
Company will own a remaining 66.66% interest in the 10" sales line which the
Company will operate under a new transportation agreement to be entered into
with the buyer of the Madisonville pipeline facilities. The Company will receive
the remaining net proceeds from the sale of approximately $1.8 million. A
portion of the proceeds from the sale will be used to pay off the remaining
balance of the $1.5 million Term Note as well as the outstanding subordinated
promissory notes.

     Following are the pro forma results of operations of the Company assuming
the sales transaction has occurred as of January 1, 2004.

                                                Three Months Ended                  Year Ended
                                            ---------------------------    ----------------------------
                                                   March 31, 2005                December 31, 2004
                                            ---------------------------    ----------------------------
                                            As Reported     Pro Forma      As Reported      Pro Forma
                                            ------------   ------------    ------------    ------------
<S>                                         <C>            <C>             <C>             <C>
Operating revenues ......................   $  6,147,765   $  2,184,781    $ 22,969,271    $  7,630,709
Operating costs and expenses ............      6,035,476      2,208,380      23,370,291       8,619,969
Net income (loss) .......................         21,190       (114,698)       (800,131)     (1,388,372)


Basic  and  diluted  income  (loss) .....   $       --     $      (0.01)   $      (0.05)   $      (0.09)
per share

Weighted average number of
common shares outstanding:
Basic ...................................     16,432,232     16,432,232      15,822,715      15,822,715
Diluted .................................     16,457,846     16,432,232      15,822,715      15,822,715

     The Company estimates that the quarterly impact of the sale in 2005 is to
reduce gross profit by approximately $150,000, which will be offset by a
reduction in interest expense of approximately $80,000.

Item 3.  Controls and Procedures
         -----------------------

     Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company's
President and Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

     As of December 31, 2004, the Company had vacancies in the executive
positions of Chief Executive Officer and Chief Financial Officer but the board
of Directors were actively interviewing candidates to fill these positions.
During the interim, John Raasch, a member of our Board of Directors filled the
roll as Interim President and Chief Executive Officer until these positions were
filled in the second quarter of 2005.

                                       22
</TABLE>

<PAGE>


     As required by Rule 13a-14 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), within the 90 days prior to the filing date of
this report, the Company is required to carry out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Due to the change in executive management of the Company, it was
not possible to carry out this evaluation for the prescribed period subsequent
to October 2004 through June 2005. An interim President was put into place who
was a Board member of the Company. The void in these executive positions created
an internal control weakness with regard to monitoring and segregation of
responsibilities in the area of processing and recording of transactions and
reconciliation of financial statement accounts which were being maintained by
staff of the Company without adequate oversight. In addition the Company did not
have employed resources sufficient to complete the appropriate filings timely
and with a satisfactory level of quality to be acceptable to the Securities and
Exchange Commission ("SEC"). Accordingly, the Company was not able to complete
the financial statement audit in the time required to file the Form 10-KSB for
the year ended December 31, 2004 or to complete the review in time to file the
Form 10-QSB for the quarterly period ending March 31, 2005 in order to remain
compliant with SEC reporting requirements.

     Because of the items mentioned above, the Company has a material weakness
in its internal control over financial reporting and disclosures due to the lack
of these executives not being in place who are responsible for the daily
processing of transactions and account reconciliations and the reporting of our
financial statements within the appropriate filings in the time required. This
void in executive management increased the likelihood to more than remote that a
material misstatement of the Company's annual or interim financial statements
will not be prevented or detected in a timely manner.

     During the second quarter of 2005, the Company elected a new Chief
Executive Officer and has employed a new Chief Financial Officer, which
management believes will mitigate and cure the material weakness that existed as
of December 31, 2004. The CEO and CFO are in the process of completing a current
evaluation of the effectiveness of the design and operation of the Company's
internal control over financial reporting and disclosures. This assessment will
be completed in the near term but there can be no assurance that a material
weakness in the Company's internal control over financial reporting and
disclosures will not continue to exist which will require changes to the
existing design of internal controls for them to be effective.

                                     Part II
                                     -------

Item 1.   Legal Proceedings
          -----------------

     Michael Fadden, the Company's former Chief Executive Officer and President,
has filed a claim with the American Arbitration Association on December 29,
2004, pursuant to the Employment Agreement by and between him and the Company.
In this matter, Mr. Fadden is alleging breach of contract against the Company.
The Company intends to vigorously contest this claim.

     Scott Heflin, the Company's former Chief Financial Officer, has filed a
claim with the American Arbitration Association on December 29, 2004, pursuant
to the Employment Agreement by and between him and the Company. In this matter,
Mr. Heflin is alleging breach of contract against the Company. The Company
intends to vigorously contest this claim.

     Advance Extraction Technologies, Inc. ("AET") has filed a claim with the
American Arbitration Association on April 4, 2005 pursuant to the First Amended
and Restated Agreement to Develop Natural Gas Treatment Projects Using Mehra Gas
Treating Units (the "AET Agreement") whereby AET has granted to the Company a
license to employ a patented process to remove nitrogen from streams of natural
gas. Pursuant to the AET Agreement, if on December 31, 2004, the Company had not
met certain minimum requirements, AET had the right to convert the Company's
license from an exclusive license to a non-exclusive license. The Company has
entered into agreements with certain third parties which it believes will
preserve the exclusive license for an additional year. AET asserts that it
disputes the Company's position and that the license has become non-exclusive.
The Company may lose the exclusivity of the license if certain target capacities
are not achieved by December 31, 2005.

                                       23

<PAGE>


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

     Set forth is certain information concerning all issuances of securities by
us during the quarter ended March 31, 2005, that were not registered under the
Securities Act and that have not been previously properly reported. All sales of
the securities were made by our officers who received no commission or other
remuneration for the solicitation of any person in connection with the
respective sales of securities described.

     During February 2005, a former employee of the Company exercised a stock
option for 53,333 shares of common stock at $0.2565 per share for total proceeds
of $13,680.

     During February 2005, the Company issued 464,954 shares to a private party
which pertained to the December 2004 conversion of the Bridge Loan and accrued
interest. The Company also issued 100,000 shares to the same party which
pertained to the November 2004 exercise of the warrant which was granted along
with the Bridge Loan.

     Except as noted, the Company believes the above transactions were exempt
from registration pursuant to Section 4(2) of the Securities Act as the
recipients were all accredited investors, and since the transactions were
non-recurring and privately negotiated. There were no underwritten offerings
employed and no sales commissions were paid in connection with the sales and
issuances of the unregistered securities in any of the transactions set forth
above.



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

          None

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

          None

Item 5.   Other Information
          -----------------

          None

Item 6.   Exhibits
          --------

          31.1     Section 302 Certification of Chief Executive Officer
          31.2     Section 302 Certification of Chief Financial Officer
          32.1     Section 906 Certification of Chief Executive Officer
          32.2     Section 906 Certification of Chief Financial Officer

                                       24

<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                                            GATEWAY ENERGY CORPORATION

                                            /s/  Robert Panico
                                            -----------------------------------
                                                 Robert Panico
                                                 President and
                                                 Chief Executive Officer



                                            /s/  Christopher M. Rasmussen
                                            -----------------------------------
                                                 Christopher M. Rasmussen
                                                 Chief Financial Officer

          August 10, 2005
-----------------------------
(Date)