<PAGE>

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

                                     Form 10-QSB

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

               For the quarterly period ended  May 31, 1998

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

                           For the transition period from
                               __________to __________

                             Commission File No. 1-4766


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


          Delaware                                  44-0651207
-------------------------------         ------------------------------------
(State or other jurisdiction of         (IRS Employer Identification Number)
 incorporation or organization)

                           10842 Old Mill Road, Suite #5
                                Omaha, NE     68154
                      ----------------------------------------
                      (Address of principal executive offices)

               Issuer's telephone number (402) 330-8268

               Check whether the issuer (1) has filed all reports required to 
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months 
(or for such shorter period that the registrant was required to file such 
reports), and (2) has been subject to such filing requirements for the past 
90 days. Yes_____X_____ No _______

                        APPLICABLE ONLY TO CORPORATE ISSUERS

               As of June 30, 1998 the Issuer had 14,449,500 shares of its 
common stock outstanding.

               Transitional Small Business Disclosure Format:  Yes____ No___X___

<PAGE>

                                    FORM 10-QSB

                                      PART  I


ITEM  1.       FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                              Page
<S>                                                                           <C>
               Unaudited Consolidated Balance Sheet
               as of May 31, 1998.                                             8

               Unaudited Consolidated Statements of Operations for
               the three months ended May 31, 1998, and May 31, 1997.          9

               Unaudited Consolidated Statements of Cash Flows for
               the three months ended May 31, 1998, and May 31, 1997.         10

               Notes to Consolidated Financial Statements                     11
</TABLE>

ITEM  2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS.

               The following management's discussion and analysis contains 
trend analysis and other forward-looking statements within the meaning of 
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the 
Securities Exchange Act of 1934, as amended.  Actual results could differ 
materially from those projected in the forward-looking statements throughout 
this document as a result of the risk factors set forth below in the section 
entitled "Factors Affecting Future Results" and elsewhere in this document.

RESULTS OF OPERATIONS

     The following table sets forth information for the three months ended May
31, 1998 and 1997:
<TABLE>
<CAPTION>
                                            1998           1997
                                        ----------     ----------
<S>                                     <C>            <C>
    Operating Revenues                  $1,558,500     $2,995,800
    Operating Margin                       190,500        597,400
    Depreciation and Amortization          177,800        227,800
    General and Administrative             535,100        319,900
    Other Income (Expense)                 (33,200)        13,700
    Net Earnings (Loss)                   (556,600)        60,400
</TABLE>

     Comparisons between the first quarter of fiscal 1999 and the first 
quarter of fiscal 1998 are significantly affected by two major transactions.  
First, in September 1997, the Company reached agreement with Shoreham 
Pipeline Company ("Shoreham") to dissolve all of the joint ventures between 
the parties.  The Company transferred its interests, ranging from 60% to 80%, 
in six joint ventures to Shoreham.  The Company acquired Shoreham's 
interests, ranging from 5% to 20%, in nine joint ventures.  The Company also 
acquired Shoreham's

                                      2

<PAGE>

20% minority interest in Gateway Offshore Pipeline Company and transferred an 
offshore system to Shoreham.

     Second, in September 1997, the Company sold its limited partnership 
interest in Castex LP and its other oil and gas producing properties.  As of 
May 31, 1998, the proceeds received from the above transactions have not yet 
been reinvested in revenue producing assets.

     Natural gas prices remained steady in the first quarter of fiscal 1999. 
Index prices at Henry Hub in southern Louisiana averaged $2.26 in the current 
quarter compared to $1.93 in the prior year.  Natural gas prices have 
remained firm in spite of the downward pressure on oil prices.  Natural gas 
producers continue to exploit new drilling opportunities.

     Operating revenues declined $1,437,300 from the prior quarter.  Sales 
attributable to the Company's interests in properties sold to Shoreham were 
$1,539,000 and oil and gas production revenues were $43,000 in fiscal 1998. 
These decreases were offset by increased revenues from offshore operations 
and higher volumes at Fort Cobb.  Also, revenues on those joint venture 
interests acquired from Shoreham increased 34% in the first quarter of fiscal 
1999 reflecting the Company's efforts to connect additional volumes and 
improve the profitability of these systems.

     Operating margins, that is, revenues less cost of gas purchased and 
operating expenses, decreased $406,900 in fiscal 1999 from the prior quarter. 
Operating margins from the joint ventures sold to Shoreham and the oil and 
gas properties were $420,000 in fiscal 1998.  Operating margins on the 
properties retained by the Company increased slightly in fiscal 1999 
reflecting management's attention to improving the margins on all of its gas 
gathering and transportation assets.

     General and administrative expenses increased $215,200 in the first 
quarter of fiscal 1999.  During 1997, the Company changed its management 
philosophy and opted to terminate all of its joint venture arrangements and 
operate and manage its properties with company employees.  In connection 
therewith, the Company hired operating management and support staff who 
manage the Company's operations from the office in Houston.  This change in 
Company strategy added significant general and administrative costs.  The 
cost of six additional personnel and the costs associated with opening a new 
office added $187,000 to general and administrative expenses.  Legal fees and 
insurance also increased reflecting the costs associated with operation of 
properties.

     General and administrative expenses are expected to continue at the 
current level.  However, the Company expects to continue to improve the 
profitability of its properties and is actively seeking to acquire or invest 
in new properties.

     The net loss for the quarter of $556,600 reflects the i) effect of the 
settlement with Shoreham and related sale of joint venture interests, ii) 
sale of the Castex LP partnership interest, and iii) higher general and 
administrative expenses to manage and operate properties and seek out 
additional investment opportunities.  These negative effects were slightly 
offset

                                      3

<PAGE>

by decreased depreciation expense, higher interest income and increased 
margins on properties retained by the Company.

LIQUIDITY AND CAPITAL RESOURCES

     The Company substantially improved its financial condition with the 
completion of the Recapitalization in the first quarter of fiscal 1998.  
Monthly cash requirements of approximately $175,000 for preferred dividends 
were eliminated and total debt service reduced to $22,000 per month.  The 
Company's debt to total capitalization is approximately 15% at May 31, 1998 
which should provide opportunity for the Company to utilize conventional 
long-term financing to fund acquisitions or construction opportunities.

     The Company has in place an operating line of credit with a bank with 
maximum borrowings of up to $500,000.  As of May 31, 1998 the amount 
available under this operating line was $490,000.

     The Company has cash and cash equivalents and a certificate of deposit
totaling $2.3 million as of May 31, 1998.  The Company also receives
approximately $100,000 per month on the note receivable resulting from the
Shoreham transaction.  The Company experienced a deficit in cash flow from
operations of $246,600 in the first quarter of fiscal 1999.  However, the
Company believes that the cash received on the note receivable will be
sufficient to offset any deficits from cash generated from operations for the
remainder of this fiscal year.  The Company intends to use approximately $2.0
million of its cash to invest in acquisitions or capital expansion.

     The Company has retained the services of an investment banker with
experience in helping growth-oriented companies in the oil and gas industry.
The investment advisor is expected to assist the Company in obtaining reasonably
priced long-term debt or equity capital to finance its acquisition strategies.

FACTORS AFFECTING FUTURE RESULTS

     One of the principal objectives of the Recapitalization was to facilitate
access to reasonably priced capital to enable the Company to build enhanced
stockholder value through the execution of certain strategies. These strategies
include, among other things, i) focusing on gathering, processing, transporting
and marketing of natural gas, ii) expanding the Company's asset base in core
geographic areas, iii) developing a niche that will create demand for our
services, and iv) acquiring or constructing properties in one or more new core
areas.

     The Company must provide services to its customers, primarily producers, at
a competitive price. Therefore, in order to be successful the Company must
contain its costs in line with industry competitors. The Company's access to
reasonably priced long-term capital will have a significant effect on its
ability to acquire additional properties to increase operating margins
sufficiently to cover its fixed overhead costs. The Company believes that the
Recapitalization, the retention of an investment advisor with experience in
growing middle market oil and gas companies and experienced operating management
will allow the Company

                                      4

<PAGE>

to access capital and find properties which can provide attractive returns. 
However, there can be no assurance that the Company will be successful in 
this endeavor.

     The Company's ability to generate long-term value for the common
stockholder is dependent upon the enhancement of its core assets and the
successful acquisition of additional midstream assets. There are many companies
participating in the midstream segment of the natural gas industry, many with
resources greater than the Company. Greater competition for profitable
operations can increase prices and make it more difficult to acquire assets at
reasonable multiples of cash flow.

     The Company believes that it will be able to compete in this environment
and will be able to find attractive investments which compliment its existing
properties; however, it is not possible to predict competition or the effect
this will have on the Company's operations.

     The Company's operations are also significantly affected by factors which
are outside the control of the Company. Gas gathering and processing is
dependent on throughput volume. Throughput on the Company's systems is dependent
on natural gas production which is significantly affected by natural gas prices
as prices affect the willingness of producers to invest the required capital to
obtain geological and geophysical information, drill development or exploratory
wells, and to rework or maximize production on existing wells. Natural gas
prices have recently stabilized at levels which should provide adequate
incentive to producers; however, there is no assurance that such prices will
remain at current levels, and that producers will continue to react positively
to the current prices.

     The Company's revenues, particularly in its retail operations, are also
affected by weather. Much of the retail demand is for crop irrigation and
drying. Favorable precipitation in the growing season and hot, dry weather in
the fall can significantly reduce demand for natural gas.









                                      5

<PAGE>

                                      PART II
<TABLE>
<CAPTION>
<S>       <C> <C>
ITEM 1.   LEGAL PROCEEDINGS

          None

ITEM 2.   CHANGES IN SECURITIES

          None

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None

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

          None


ITEM 5.   OTHER INFORMATION

          None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.


          a)  Exhibits:

          11   Statement re Computation of Per Share Earnings. *

          21   Subsidiaries*

          27   Financial Data Schedule.*
</TABLE>
_____________________________
*    Included in SEC 10-QSB filing only





                                      6

<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/ Neil A. Fortkamp__________
                         Chief Financial Officer


____July 14, 1998____
(Date)








                                      7

<PAGE>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
<S>                                                                 <C>
ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                         $    925,700
  Certificate of deposit                                               1,370,100
  Trade accounts receivable                                              902,700
  Note receivable, current portion                                     1,070,900
  Inventories                                                            119,300
  Prepaid expenses and other assets                                      233,700
                                                                    ------------
      Total current assets                                             4,622,400
                                                                    ------------

PROPERTY AND EQUIPMENT, AT COST
  Gas gathering, processing and transportation                        10,021,300
  Equipment and office furniture                                         626,700
                                                                    ------------
                                                                      10,648,000
  Less accumulated depreciation and amortization                       2,085,600
                                                                    ------------
                                                                       8,562,400
                                                                    ------------
OTHER ASSETS
  Note receivable, less current portion                                  609,800
  Other                                                                  167,600
                                                                    ------------
                                                                         777,400
                                                                    ------------
                                                                     $13,962,200
                                                                    ------------
                                                                    ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable                                                      $    23,900
  Current maturities of long-term debt                                   673,200
  Accounts payable                                                     1,110,200
  Accrued expenses and other liabilities                                 241,100
                                                                    ------------
     Total current liabilities                                         2,048,400
                                                                    ------------

LONG-TERM DEBT, LESS CURRENT MATURITIES                                1,164,400
                                                                    ------------

STOCKHOLDERS' EQUITY
  Common stock-  authorized, 17,500,000 shares
    of $.25 par value; issued and outstanding, 14,449,500 shares       3,612,400
  Additional paid-in capital                                          15,896,500
  Accumulated deficit                                                 (8,759,500)
                                                                    ------------
      Total stockholders' equity                                      10,749,400
                                                                    ------------
                                                                     $13,962,200
                                                                    ------------
                                                                    ------------
</TABLE>

      The accompanying notes are an integral part of this statement.

                                      8

<PAGE>

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

<TABLE>
<CAPTION>
                                                       Three Months ended May 31
                                                       -------------------------
                                                          1998           1997
                                                       ----------     ----------
<S>                                                    <C>            <C>
OPERATING REVENUES:
  Natural gas sales                                    $1,364,300     $2,625,800
  Transportation and processing                           167,200        333,600
  Other                                                    27,000         36,400
                                                       ----------     ----------
                                                        1,558,500      2,995,800
                                                       ----------     ----------

OPERATING COSTS AND EXPENSES:
  Cost of natural gas purchased                         1,093,900      1,826,600
  Operation and maintenance                               274,100        571,800
  Depreciation and amortization                           177,800        227,800
  General and administrative                              535,100        319,900
                                                       ----------     ----------
                                                        2,080,900      2,946,100
                                                       ----------     ----------
OPERATING PROFIT (LOSS)                                  (522,400)        49,700
                                                       ----------     ----------

OTHER INCOME (EXPENSE)
  Equity in earnings of partnership                          -            90,000
  Interest and other income                                79,600          6,400
  Interest expense                                       (112,800)       (82,700)
                                                       ----------     ----------
                                                          (33,200)        13,700
                                                       ----------     ----------
EARNINGS (LOSS) BEFORE INCOME TAXES                      (555,600)        63,400

  Income taxes                                              1,000          3,000
                                                       ----------     ----------
NET EARNINGS (LOSS)                                    $ (556,600)    $   60,400
                                                       ----------     ----------
                                                       ----------     ----------

BASIC AND DILUTED EARNINGS (LOSS)
   PER COMMON SHARE                                    $    (0.04)    $    0.004
                                                       ----------     ----------
                                                       ----------     ----------
</TABLE>

      The accompanying notes are an integral part of these statements.

                                      9

<PAGE>

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended May 31
                                                                     --------------------------
                                                                         1998           1997
                                                                     -----------      ---------
<S>                                                                  <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                                                $  (556,600)     $  60,400
  Adjustments to reconcile net earnings (loss)
     to net cash provided by (used in) operating activities-
  Equity in undistributed earnings of partnership                              -        (90,000)
  Depreciation and amortization                                          177,800        227,800
  Non-cash interest expense                                               54,000         31,000
  Other                                                                   (9,100)       (34,500)
  Changes in operating assets and liabilities-
    Trade accounts receivable                                              4,100        777,400
    Inventories                                                            2,400          1,000
    Prepaid expenses and other current assets                             69,100        (25,400)
    Accounts payable                                                      52,900       (599,800)
    Accrued expenses and other liabilities                               (41,200)       (56,800)
                                                                     -----------      ---------
         Net cash provided by(used in) operating activities             (246,600)       291,100
                                                                     -----------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                  (305,000)      (125,200)
  Payments on notes receivable                                           558,800              -
  Decrease in certificate of deposit                                   1,379,900              -
  Other                                                                   15,300        (41,000)
                                                                     -----------      ---------
         Net cash provided by (used in) investing activities           1,649,000       (166,200)
                                                                     -----------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings                                               120,000        579,000
  Payments on borrowings                                              (1,036,500)      (779,200)
  Other                                                                     -            (2,000)
                                                                     -----------      ---------
         Net cash provided by (used in) financing activities            (916,500)      (202,200)
                                                                     -----------      ---------

Net change in cash and cash equivalents                                  485,900        (77,300)
Cash and cash equivalents at beginning of period                         439,800        329,500
                                                                     -----------      ---------

Cash and cash equivalents at end of period                           $   925,700      $ 252,200
                                                                     -----------      ---------
                                                                     -----------      ---------
</TABLE>

      The accompanying notes are an intregal part of these statements.

                                      10

<PAGE>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     (1)  Principles of Consolidation and Nature of Business

     The accompanying consolidated financial statements have been prepared by 
the Company, without audit.  In the opinion of management, such financial 
statements reflect all adjustments necessary for a fair presentation of the 
financial position and results of operations in accordance with generally 
accepted accounting principles. The financial statements should be read in 
conjunction with the financial statements and the Notes thereto included in 
the Company's Annual Report on Form 10-KSB for the year ended February 28, 
1998. Certain minor reclassifications to the May 31, 1997 statements have 
been made to conform with the May 31, 1998 presentation.

     The consolidated financial statements include the accounts of Gateway 
Energy Corporation ("GEC"), and all of its wholly-owned subsidiaries and 
joint venture investments.  The Company's investments in its joint ventures 
are accounted for using the proportional consolidation method.  All 
significant intercompany transactions have been eliminated in consolidation.

     The Company purchases, develops, owns, and operates natural gas 
gathering pipeline systems and processing plants and related facilities in 
the Gulf Coast and Southwestern states of Texas, Oklahoma and Louisiana, and 
in offshore Texas state waters.  The Company also operates a natural gas 
distribution company in Oklahoma.

     (2)  Earnings Per Common Share

     In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
No. 128, EARNINGS PER SHARE. Basic earnings per share is computed by dividing 
the 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 common shares 
outstanding after giving effect to all potentially dilutive common shares 
that were outstanding during the period.  Potential dilutive common shares 
are not included in the computation of diluted earnings per share if they are 
anti-dilutive.  For the three month periods ending May 31, 1998 and 1997, the 
diluted loss per common share is the same as basic since the effect of 
potentially dilutive common shares arising from convertible debt and 
outstanding stock options and warrants was anti-dilutive.

     The weighted average number of common shares outstanding used in the 
computation of basic and diluted earnings per share for the three month 
periods ended May 31, 1998 and 1997 were 14,454,700 and 14,059,400, 
respectively.

                                      11

<PAGE>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (3)  Recapitalization

     Effective March 1, 1997 the Company's preferred stockholders approved the
restructuring of all nine series of its preferred stock.  As part of the
restructuring the Company's common stockholders authorized a one for twenty-five
reverse split and a reduction of authorized common shares from 75,000,000 to
17,500,000 (collectively the "Recapitalization").

     The significant components of the Recapitalization, together with the
applicable accounting effects, are as follows:

     -    Pursuant to elections by the Series G preferred stockholders, the
          Company exchanged $7,769,800 stated value of the Series G mandatory
          redeemable preferred stock plus accrued dividends of $505,200 for
          $585,900 of 10% subordinated notes, 5,866,500 shares of common stock
          and 29,700 common stock purchase warrants and cancelled all Series G
          preferred stock.

     -    The Company exchanged the Series O preferred stock held by Pipeline
          Capital, Inc. ("PCI") for 214,000 shares of common stock and cancelled
          the promissory note of $298,700 due to the Company from PCI.

     -    Pursuant to elections by all other preferred stockholders, the Company
          exchanged $9,961,500 stated value of Series A (GPC), B, J, K, L, M, &
          N preferred stock plus accrued dividends of $403,400, for $585,800 of
          10% subordinated notes, 6,292,400 shares of common stock and 32,300
          common stock purchase warrants and cancelled all preferred stock of
          these series.

     The subordinated notes are dated March 1, 1997, with an interest rate of
10%, payable quarterly. Annual equal principal payments begin on March 1, 2000,
and continue through March 1, 2004. The aggregate subordinated notes have a
4.36% interest in the cash distributions and liquidation proceeds of Castex LP
after recovery of the Company's investment and the payment of any related income
taxes.

     (4)  Notes Payable

     Notes payable consist of the following at May 31, 1998:

<TABLE>
<CAPTION>
<S>                                     <C>
          Operating line of credit      $10,000
          Other                          13,900
                                        -------
                                        $23,900
                                        -------
                                        -------
</TABLE>


                                      12

<PAGE>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     The Company's current operating line of credit provides for maximum 
available borrowings of $500,000 through August 1998.  Interest is payable 
monthly at 6.7% per annum and principal is due on demand, or if no demand is 
made, at maturity.  The line is collateralized by the Company's certificate 
of deposit.

     The Company used proceeds from the Certificate of Deposit to reduce the
operating lines of credit and pay the note payable to bank which were
outstanding at February 28, 1998.

     (5)  Long-term Debt

     Long-term debt at May 31, 1998 consists of the following:

<TABLE>
<CAPTION>
<S>                                          <C>
               Promissory notes              $  595,500
               Subordinated notes             1,012,500
               Note payable to PCI              229,600
                                             ----------
                                              1,837,600
               Less current maturities          673,200
                                             ----------
                                             $1,164,400
                                             ----------
                                             ----------
</TABLE>

     The original conversion privileges of the promissory notes allowed 
noteholders to convert at any time into common stock of the Company at a 
pre-reverse stock split price of $.40 per share.  The promissory notes did 
not contain the customary anti-dilution language to  effect a change in the 
conversion price in the case of stock splits, stock dividends or other 
capitalization changes.  In 1997, certain noteholders tendered their 
promissory notes for conversion at $.40 per share.  In lieu of conversion, 
the Company and the noteholders agreed at that time to  i) a one year 
extension on the notes, and ii) a thirty day window for conversion in the 
event the Company called the promissory notes as consideration for the 
noteholders not converting their notes.

     In the opinion of Company's management and Board of Directors, the proper
conversion price for the Venture promissory notes is $10.00 per share, after
giving effect to the one for twenty-five reverse stock split.  Although the
intent of the parties was clear at the issuance of the notes, the promissory
noteholders have indicated to the Company they intend to submit their promissory
notes for conversion at the rate of $.40 per share.  The Company has informed
the noteholders that the notes will be converted at $10.00 per share.

     The Company is continuing to negotiate with certain noteholders to resolve
the conversion price disagreement. The final resolution of this dispute cannot
be presently determined, however, it is not expected to have a material impact
on the Company's results of operations or financial position.


                                      13

<PAGE>

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (6)  Supplemental Disclosures of Cash Flow Information

     Cash paid during the periods is as follows:

<TABLE>
<CAPTION>
                                           Three Months Ended May 31
                                           -------------------------
                                               1998           1997
                                             -------        -------
<S>                                          <C>            <C>
     Interest                                $48,400        $66,600
     Income Taxes                             12,400         25,700
</TABLE>

     (7)  Subsequent Event

     Effective  July 1, 1998, the Company acquired all of the outstanding 
stock of Abtech Resources, Inc. ("Abtech") for 285,000 shares of common stock 
and $44,000 in cash.  The majority of Abtech's outstanding stock is owned by 
the Company's president.  The principal asset of Abtech is a License 
Agreement between Abtech and a company which owns a patented process for the 
extraction of nitrogen from natural gas.  The License Agreement gives the 
Company the exclusive right to utilize this extraction process in the Permian 
Basin and for all coalbed methane or landfill gas in the continental United 
States.

     The Company intends to dedicate meaningful resources over the next 
several years to developing projects which involve high nitrogen natural gas. 
The Company is required to pay a license fee based upon throughput through 
each processing unit so long as there are any unexpired patents covering the 
extraction technology.  There are also certain minimum installed capacity 
requirements which must be met in order to maintain the exclusive nature of 
the license.


                                      14