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


                                   FORM 10-QSB


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

                For the quarterly period ended September 30, 2007

[ ]  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 Identification
 incorporation or organization)                              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  X   No
   -----   -----

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes      No  X
                                   -----   -----

As of November 2, 2007, the Issuer had 19,016,665 shares of its common stock
outstanding.

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

<PAGE>


                                   FORM 10-QSB

                         Part I - Financial Information
                         ------------------------------


Item  1. Financial Statements
         --------------------
                                                                            Page
                                                                            ----

         Unaudited Consolidated Balance Sheet
             as of September 30, 2007                                        3

         Unaudited Consolidated Statements of Operations
             for the three and nine month periods ended September 30, 2007
             and September 30, 2006                                          4

         Unaudited Consolidated Statements of Cash Flows for the nine
             month period ended September 30, 2007
             and September 30, 2006                                          5

         Notes to Unaudited Consolidated Financial Statements                6


                                       2

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2007
(Unaudited)

 ASSETS
Current Assets
   Cash and cash equivalents ...................................   $  1,722,730
   Restricted cash .............................................          4,000
   Accounts receivable trade ...................................      2,022,705
   Prepaid expenses and other assets ...........................        189,628
                                                                   ------------
        Total current assets ...................................      3,939,063
                                                                   ------------

Property and Equipment, at cost
   Gas gathering, processing and transportation ................     11,975,648
   Office furniture and other equipment ........................        229,298
                                                                   ------------
                                                                     12,204,946
   Less accumulated depreciation and amortization ..............     (3,256,022)
                                                                   ------------
                                                                      8,948,924
                                                                   ------------

Other assets ...................................................        242,930
                                                                   ------------
        Total assets ...........................................   $ 13,130,917
                                                                   ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable ............................................   $    844,444
   Accrued expenses and other liabilities ......................        350,001
   Note payable ................................................      1,150,000
   Trade notes payable .........................................         67,372
   Current maturities of capital lease .........................         16,720
                                                                   ------------
        Total current liabilities ..............................      2,428,537
                                                                   ------------

Future asset retirement obligations ............................        388,045
Long-term capital lease, less current maturities ...............         34,050
Minority interest ..............................................        821,685

Commitments and contingencies ..................................           --

Stockholders' Equity
   Preferred stock - $1.00 par value; 10,000 shares authorized;
      no shares issued and outstanding .........................           --
   Common stock - $0.25 par value; 35,000,000 shares authorized;
      19,016,665 shares issued and outstanding .................      4,754,164
   Additional paid-in capital ..................................     17,072,500
   Accumulated deficit .........................................    (12,368,064)
                                                                   ------------
        Total stockholders' equity .............................      9,458,600
                                                                   ------------
        Total liabilities and stockholders' equity .............   $ 13,130,917
                                                                   ============


   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               Nine Months Ended
                                                                September 30,                    September 30,
                                                        -----------------------------    ----------------------------
                                                            2007             2006            2007            2006
                                                        ------------     ------------    ------------    ------------
Operating revenues
    <S>                                                 <C>              <C>             <C>             <C>
    Sales of natural gas ............................   $  2,182,227     $  1,447,515    $  6,321,626    $  4,859,607
    Transportation of natural gas and liquids .......        621,425          476,582       1,535,857       1,359,312
    Treating and other ..............................        148,319           42,899         233,300         132,477
                                                        ------------     ------------    ------------    ------------
                                                           2,951,971        1,966,996       8,090,783       6,351,396
                                                        ------------     ------------    ------------    ------------
Operating costs and expenses
    Cost of natural gas purchased ...................      1,923,568        1,280,784       5,670,607       4,274,832
    Operation and maintenance .......................        189,219          139,043         424,315         415,034
    Depreciation and amortization ...................        135,473          101,458         323,697         305,377
    Accretion expense ...............................          6,597            6,155          19,790          18,466
    General and administrative ......................        548,675          281,773       1,322,463         738,051
                                                        ------------     ------------    ------------    ------------
                                                           2,803,532        1,809,213       7,760,872       5,751,760
                                                        ------------     ------------    ------------    ------------
Operating income ....................................        148,439          157,783         329,911         599,636

Other income (expense)
    Interest income .................................         51,044            6,766          91,434          19,522
    Interest expense ................................        (22,129)          (2,593)        (33,875)         (8,135)
    Gain on sale of intangible asset ................           --               --           286,579            --
    Other income (expense), net .....................           (266)            --            24,859          (7,459)
    Minority interest ...............................        (24,100)         (26,418)        (71,407)        (65,874)
                                                        ------------     ------------    ------------    ------------
                                                               4,549          (22,245)        297,590         (61,946)
                                                        ------------     ------------    ------------    ------------
Income from continuing operations before income taxes
    and discontinued operations .....................        152,988          135,538         627,501         537,690
Income tax expense ..................................           --               --              --              --
                                                        ------------     ------------    ------------    ------------
Income from continuing operations ...................        152,988          135,538         627,501         537,690

Discontinued operations, net of taxes
    Income (loss) from discontinued operations, net
       of  taxes ....................................           --           (152,397)        102,080        (477,404)

    Gain (loss) on disposal of discontinued
       operations, net of taxes .....................        (15,212)            --         1,241,722            --
                                                        ------------     ------------    ------------    ------------
Net income (loss) ...................................   $    137,776     $    (16,859)   $  1,971,303    $     60,286
                                                        ============     ============    ============    ============

Basic and diluted income (loss) per common share
    Continuing operations ...........................   $       0.01     $       0.01    $       0.04    $       0.03
    Discontinued operations .........................           --              (0.01)           0.07           (0.03)
                                                        ------------     ------------    ------------    ------------
    Net income ......................................   $       0.01     $       --      $       0.11    $       --
                                                        ------------     ------------    ------------    ------------

Weighted average number of common shares outstanding
    Basic ...........................................     17,780,599       17,130,937      17,363,749      17,130,937
    Diluted .........................................     18,041,261       17,130,937      17,867,360      17,168,282



                       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)



                                                                          Nine Months Ended September 30,
                                                                          -------------------------------
                                                                                2007           2006
                                                                            -----------    -----------
Cash flows from operating activities - continuing operations
   <S>                                                                      <C>            <C>
   Income from continuing operations ....................................   $   627,501    $   537,690
   Adjustments to reconcile income from continuing operations to net cash
      provided by operating activities:
      Depreciation and amortization .....................................       323,697        305,377
      Minority interest .................................................        71,407         65,874
      Stock based compensation expense ..................................        35,123         13,172
      Accretion expense .................................................        19,790         18,466
      Amortization of debt issue costs ..................................        22,741         17,295
      Gain on sale of intangible asset ..................................      (286,579)          --
      Change in operating assets and liabilities:
         Accounts receivable trade ......................................      (483,621)       (31,577)
         Prepaid expenses and other assets ..............................       443,937       (202,138)
         Accounts payable ...............................................       116,168       (496,508)
         Accrued expenses and other liabilities .........................       284,597         (8,240)
                                                                            -----------    -----------
              Net cash provided by operating activities .................     1,174,761        219,411
                                                                            -----------    -----------

Cash flows from investing activities - continuing operations
      Capital expenditures ..............................................       (56,993)       (92,622)
      Acquisition of pipeline assets ....................................    (3,534,746)          --
      Proceeds from collection of note receivable .......................       300,000           --
                                                                            -----------    -----------
              Net cash used in investing activities .....................    (3,291,739)       (92,622)
                                                                            -----------    -----------

Cash flows from financing activities - continuing operations
      Payments on borrowings ............................................      (461,521)       (36,000)
      Proceeds from borrowings ..........................................     1,150,000           --
      Proceeds from exercise of stock options ...........................        73,657           --
      Restricted cash for letter of credit, net .........................        39,145         (2,101)
      Deferred financing costs ..........................................      (168,747)       (52,410)
      Distributions to minority partner .................................       (88,387)       (82,978)
                                                                            -----------    -----------
              Net cash provided (used) in financing activities ..........       544,147       (173,489)
                                                                            -----------    -----------

Net decrease in cash and cash equivalents from continuing operations ....    (1,572,831)       (46,700)

Discontinued operations:
   Net cash used (provided) by operating activities .....................       (97,827)         2,736
   Net cash provided (used) in investing activities .....................     2,706,289        (30,770)
   Net cash used in financing activities ................................      (373,730)       (71,016)
                                                                            -----------    -----------

Net increase (decrease) in cash and cash equivalents from discontinued
      operations ........................................................     2,234,738        (99,050)

Cash and cash equivalents at beginning of period ........................     1,060,823        865,805
                                                                            -----------    -----------
Cash and cash equivalents at end of period ..............................   $ 1,722,730    $   720,055
                                                                            ===========    ===========

Supplemental Disclosures of Cash Flow Information:
      Cash paid for interest ............................................   $    45,520    $    21,850
                                                                            ===========    ===========

Supplemental Schedule of Noncash Investing and Financing Activities:
      Stock issued for acquisition ......................................     1,162,500           --
      Stock issued to investment bank for credit facility ...............       111,600           --
      Exercise of stock options .........................................        81,788           --


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

                                                    5
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<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
(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 and
Gateway Processing Company. Gateway-ADAC Pipeline, L.L.C. which is
majority-owned (67%) by Gateway Pipeline Company, was formed in September 2005.
Access to the Company's annual report on Form 10-KSB, quarterly reports on Form
10-QSB, the Company's Code of Ethics, and current reports on Form 8-K are
available at the Company's website, www.gatewayenergy.com.

(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 Company consolidates the financial statements of its majority-owned
and wholly-owned subsidiaries which includes the accounts of Gateway Energy
Corporation and its wholly owned subsidiary companies, Gateway Pipeline Company,
Gateway Offshore Pipeline Company, Gateway Energy Marketing Company, Gateway
Processing Company, and Gateway-ADAC Pipeline, L.L.C., of which the Company has
a 67% ownership. The portion not owned by the Company is recorded as minority
interest. All significant intercompany transactions have been eliminated in
consolidation.

         Effective May 31, 2007, the Company disposed of 100% of its ownership
interests in Fort Cobb Fuel Authority, LLC. The financial statements reflect the
historical results of its operations as discontinued operations (see Note 7).

         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, 2006.

Revenue Recognition Policy

         Revenues from the sales of natural gas are generated under purchase and
sales contracts that are priced at the beginning of the month based upon
established gas indices. The Company purchases and sells the gas using the same
index to minimize commodity price risk. 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.

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 nine months ended September 30, 2007, property and
equipment included $85,833 of equipment financed under a capital lease, net of
$14,167 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

                                       6

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


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.

         For the three and nine months ended September 30, 2007 and 2006,
depreciation expense was $135,473 and $101,458 and $323,697 and $305,377,
respectively.

         Property, plant and equipment and identifiable intangible assets are
reviewed for impairment, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. If the sum of the expected
discounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value
and carrying value of the asset or group of assets. There have been no
impairments of long-lived assets required during the nine months ended September
30, 2007.

         The Company provides for future asset retirement obligations under the
provisions of SFAS No. 143 "Accounting for 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 nine
months ended September 30, 2007 and 2006:

                                       Nine Months Ended September 30,
                                         -------------------------
                                            2007           2006
                                         ----------     ----------


                 Beginning balance       $  368,255     $  343,633
                 Accretion                   19,790         18,466
                 Ending balance          $  388,045     $  362,099


Cash Equivalents

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

Restricted Cash

         Restricted cash is related to the money market account to secure the
note payable due Michael Fadden, the former Chief Executive Officer of the
Company.

Income Taxes

         The Company has no current tax provision for the three and nine months
ended September 30, 2007 and 2006 because the Company used net operating loss
carry-forwards to offset pretax financial income, if any, and has concluded that
the tax benefits related to remaining net operating loss carryforwards 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. The Company
continues to assess at what point the valuation allowance will be recognized.

                                       7

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


Earnings Per Share

         Basic earnings per share is computed by dividing net income or loss by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income 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.
Accordingly, 50,000 and 125,000 shares of common stock for the three months
ended Septebmer 30, 2007 and 2006, respectively, and 410,000 and 330,750 shares
of common stock for the nine months ended September 30, 2007 and 2006,
respectively, were excluded from the calculation of diluted earnings per share
because of their anti-dilutive effect. Earnings per common share were computed
as follows:

                                                      Three Months Ended               Nine Months Ended
                                                         September 30,                   September 30,
                                                     2007            2006            2007            2006
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
Weighted average number of common shares
    outstanding ..............................     17,780,599      17,130,937      17,363,749      17,130,937
Effect of dilutive securities ................        260,662          99,123         503,611          37,345
                                                 ------------    ------------    ------------    ------------
Weighted average dilutive common shares
    outstanding ..............................     18,041,261      17,230,060      17,867,360      17,168,282
                                                 ============    ============    ============    ============

Income from continuing operations ............   $    152,988    $    135,538    $    627,501    $    537,690
Income (loss) from discontinued operations,
    net of taxes .............................        (15,212)       (152,397)      1,343,802        (477,404)
                                                 ------------    ------------    ------------    ------------
Net income (loss) ............................   $    137,776    $    (16,859)   $  1,971,303    $     60,286
                                                 ------------    ------------    ------------    ------------

Basic and diluted earnings per common share:..
     Continuing operations ...................   $       0.01    $       0.01    $       0.04    $       0.03
     Discontinued operations .................           --             (0.01)           0.07           (0.03)
                                                 ------------    ------------    ------------    ------------
     Net income ..............................   $       0.01    $       --      $       0.11    $       --
                                                 ------------    ------------    ------------    ------------

Accounting Pronouncements and Recent Regulatory Developments

         In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and enhances disclosures about fair value measures required
under other accounting pronouncements, but does not change existing guidance as
to whether or not an instrument is carried at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. The Company is
continuing to assess the impact of SFAS No. 157.

         On January 1, 2007, the Company adopted FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes a measurement process for
recording in the financial statements uncertain tax positions taken or expected
to be taken in a tax return. Additionally, FIN 48 provides guidance regarding
uncertain tax positions relating to derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. At
September 30, 2007, the Company had no material uncertain tax positions.

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

                                       8
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<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


long-lived assets, amortization of deferred loan costs, valuation of the
Shipwreck asset retirement obligation, deferred tax valuation allowance,
valuation of assumed liabilties, and valuation of stock based transactions.
Actual results could differ from those estimates.

(3)      Acquisition of Gulfshore Midstream Assets

         On September 6, 2007, the Company through its wholly-owned subsidiary
Gateway Offshore Pipeline Company entered into an Asset Purchase Agreement with
Gulfshore Midstream Pipelines, Ltd. ("Gulfshore"), Gulfshore Midstream, LLC,
Trailblazer Partners, Ltd. and Bayou Trail Enterprises, Ltd. The effective date
of the transaction was August 1, 2007.

         Pursuant to the Asset Purchase Agreement, the Company acquired pipeline
assets from Gulfshore which extend from the western and central Gulf of Mexico
in water depths ranging from 50 to 650 feet. These pipeline assets range from 6"
to 16" in diameter. The Company acquired the assets for consideration consisting
of $3,130,000 in cash, 1,550,000 shares of Gateway common stock and the
assumption of certain liabilities related to the pipeline assets acquired.

         The acquisition extended the Company's presence in the offshore Gulf of
Mexico from Galveston Island to New Orleans, Louisiana. The acquisition also
increased the Company's throughput volumes by approximately 65,000 MMBtu per
day.

         The acquisition of Gulfshore was accounted for using the purchase
method of accounting in accordance with Statement of Financial Accounting
Standards No. 141 ("SFAS 141") "Business Combinations." Assets acquired and
liabilities assumed were recorded at their estimated fair values as of August 1,
2007, and Gulfshore's results of operations have been included in the Company's
consolidated operations from that date. Of the purchase price 100% has been
allocated to pipeline assets subject to any purchase price adjustments.
Management is currently finalizing the allocation of the purchase price and
therefore adjustments, if any, will result in reclassification of the assets and
liabilities assumed.

         The total purchase price of the acquisition is as follows:

         Cash consideration - Gulfshore acquisition         $   3,130,000
         Fair value of Gateway common stock                     1,162,500
         Estimated assumed liabilities                            300,000
         Direct transaction costs                                 216,347
                                                            -------------
         Total purchase price                               $   4,808,847
                                                            -------------


     Direct transaction costs of $216,347 include investment banking, legal
fees, and other external costs directly related to the acquisition which have
been capitalized as part of the purchase price allocation.

(4)      Stock-Based Compensation Plans

         Our 2007 Equity Incentive Plan provides for stock-based compensation
for officers, employees and non-employee directors.

         Effective January 1, 2006, the Company adopted the provisions of SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R") utilizing the
modified prospective approach. The options generally vest ratably over three
years and expire between five and ten years.

         Under the modified prospective approach, SFAS No. 123R applies to new
awards and to awards that were outstanding on January 1, 2006 as well as those
that are subsequently modified, repurchased or cancelled. Under the modified
prospective approach, compensation cost recognized for the three and nine months
ended September 30, 2007 includes compensation cost for all share-based awards
granted prior to, but not yet vested as of January 1, 2006, based on the
grant-date fair value estimated in accordance with the original provisions of
SFAS No. 123, and compensation cost for all share-based awards granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R.

                                       9

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


         As a result of SFAS No. 123R, compensation cost related to
non-qualified stock options recognized for the three months ended September 30,
2007 and 2006 was $15,306 and $8,736, respectively and for the nine months ended
September 30, 2007 and 2006 was $35,123 and $13,172, respectively. We view all
awards of stock-based compensation as a single award with an expected life equal
to the average expected life of component awards and amortize the award on a
straight-line basis over the life of the award.

         We receive a tax deduction for certain stock option exercises during
the period the options are exercised, generally for the excess of the value of
the stock on the date of exercise. During the nine months ended September 30,
2007, there were 230,750 options exercised. In addition, we receive an
additional tax deduction when restricted stock vests at a higher value than the
value used to recognize compensation expense at the date of grant. We record
this deduction as a tax asset with a corresponding amount recorded as additional
paid-in capital when we can receive a tax cash savings from these awards. Due to
the Company having significant unused net operating-loss carryforwards, the
recording of this tax benefit is deferred until such tax savings is obtained.

         The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model. Expected volatility is estimated
using the annualized historical stock prices to derive an expected term. The
risk-free rate for periods within the contractual life of the option is based on
the U.S. treasury yield curve in effect at the time of grant. The Company uses
the Black-Scholes option pricing model to compute the fair value of stock
options, which requires the Company to make the following assumptions:

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

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

     o    The market price volatility of the Company's common stock is based on
          daily, historical prices for the last three years.

     o    The term of the grants is based on the simplified method as described
          in Staff Accounting Bulletin No. 107.

         In addition, the Company estimates a forfeiture rate at the inception
of the option grant based on historical data and adjusts this prospectively as
new information regarding forfeitures becomes available.

         The following weighted-average assumptions were used in determining the
fair value of stock options granted during the nine months ended September 30,
2007 and 2006, using the Black-Sholes model.

                                                       2007       2006
                                                       ----       ----
             Risk-free interest rate (%)..........     4.69       4.81
             Dividend yield (%)...................      -          -
             Expected volatility (%)..............       81         83
             Option life (years)..................     5.24       5.00


         The expected term has been calculated using the Securities and Exchange
Commission Staff's simplified approach from Staff Accounting Bulletin No. 107.
We have analyzed historical volitility and based on an analysis of all relevant
factors use a three-year period to estimate expected volatility of our stock
option grants.

         At September 30, 2007, there was $144,995 of total unrecognized
compensation cost related to non-vested stock option awards which is expected to
be recognized over a weighted-average period of three years.

                                       10

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


The following table represents stock option activity for the nine months ended
September 30, 2007:

                                                                                     Weighted          Intrinsic
                                                                   Weighted          Average            Value of
                                                                   Average          Contractual       Options as of
                                                                   Exercise         Terms (in         September 30,
                                                  Shares            Price             years)              2007
                                                 ---------        ---------          ---------          ---------
<S>                                                <C>               <C>                <C>             <C>
Options outstanding, beginning of period..         694,083           $0.44              3.28
Options granted...........................         460,000            0.50              4.72

Options canceled..........................        (123,333)           0.66               --
Options exercised.........................        (230,750)           0.57              1.10
                                                 ---------
Options outstanding, end of period........         800,000           $0.43              4.47            $ 322,300
                                                 =========                                              =========
Options exercisable, end of period........         256,667           $0.35              4.45            $ 122,833
                                                 =========                                              =========

         The market value of the Company's common stock on September 30, 2007
was $0.83 per share.

         The weighted-average grant-date fair value of options granted during
2007 was $0.35 for the nine months ended September 30, 2007.


(5)      Debt

Trade Notes Payable

         Trade notes payable at September 30, 2007 consisted of the following:

                  Trade note payable - Insurance..............     $    63,372
                  Trade note payable - Fadden.................           4,000
                                                                   -----------
                                                                   $    67,372
                                                                   ===========


         During October 2005, in connection with the settlement of a dispute
with Michael Fadden, the Company executed a trade note for $96,000, bearing no
interest, payable in twenty-four monthly installments of $4,000. The note is
secured by a letter of credit. Interest expense is being recognized over the
life of the note at an imputed rate of 10% and was paid in full on October 1,
2007.

         During 2007, the Company executed premium finance agreements for its
insurance premiums. The total of the notes were $438,878 and the interest rate
is 7.19%. The notes require monthly principal and interest payments. The amount
of the monthly payment varies depending on any changes in coverage and policy
renewal period changes.

Notes Payable

         On August 23, 2007, the Company entered into a Credit Agreement (the
"Agreement") with Western National Bank, a national banking association (the
"Lender"), regarding a revolving credit facility provided by the Lender to the
Company. The original borrowing base under the Agreement has been established at
$2.5 million, which may be increased at the discretion of the Lender to an
amount not to exceed $20 million. The credit facility is secured by
substantially all of the Company's assets and has a term of two years, maturing
in August 2009. Interest on outstanding balances will accrue at Lender's prime
rate, plus one percent and is payable on a monthly basis.

         In connection with the acquisition of the Gulfshore Midstream assets,
the Company borrowed $1,150,000 on the credit facility. As of September 30,
2007, the interest rate was 8.75% and the available borrowings were $1,350,000.

                                       11
</TABLE>

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


Note Payable - Fort Cobb

         Fort Cobb's revolving credit agreement provided for maximum available
borrowings of up to $250,000 through September 16, 2007. Principal outstanding
under the agreement accrued 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 May
31, 2007, the disposition date (see Note 7), was 9.50%. The balance under the
agreement was due upon demand, or if no demand is made, at maturity, and is
renewable annually. Costs of obtaining this debt were capitalized as deferred
loan costs and was being charged to interest expense ratably over the maturity
period of the note.

         On May 31, 2007, in conjunction with the sale of the Fort Cobb
subsidiary (see Note 7), the buyer, Navitas Assets, LLC, paid in full the
remaining balance of the credit facility. All liens attributable to this note
have been released.

Term Note - Fort Cobb

         Effective June 1, 2001, Fort Cobb borrowed $750,000 from a bank.
Principal outstanding under the note accrued 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 May 31, 2007, the disposition date (see Note 7), was 9.50%. The
note required monthly payments of approximately $13,000, with the balance under
the note due June 1, 2008. Costs of obtaining this debt were capitalized as
deferred loan costs and was 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.

         On May 31, 2007, in conjunction with the sale of the Fort Cobb
subsidiary (see Note 7), the buyer, Navitas Assets, LLC, paid in full the
remaining balance of the note. All liens attributable to this note have been
released.


Term Note - Fort Cobb Vehicles

         During March 2003, Fort Cobb borrowed $57,900 from a bank to buy three
replacement service vehicles. The note required monthly principal and interest
payments of $1,387, bearing interest at a rate of 6.99%, and originally matured
on March 25, 2007. On June 21, 2006, Fort Cobb purchased and financed a new
vehicle. In doing this, Fort Cobb rolled the remaining balance of the March 2003
loan, which was $13,622, into a new note. This note required monthly principal
and interest payments of $1,331, bears interest at a rate of 7.49%, and matures
on May 25, 2009.

         On May 31, 2007, in conjunction with the sale of the Fort Cobb
subsidiary (see Note 7), the buyer, Navitas Assets, LLC, paid in full the
remaining balance of the note. All liens attributable to this note have been
released.


Letters of Credit

         At September 30, 2007, the Company had outstanding letters of credit
for gas purchases totaling $1,000,000.

(6)      Commitments and Contingencies

         From time to time the Company is involved in litigation concerning its
properties and operations. There is no known or pending litigation expected to
have a material effect on the Company's financial statements.

(7)      Discontinued Operations

         On April 13, 2007, the Company entered into a Member Interest Purchase
Agreement with Navitas Assets, LLC, regarding the sale of all of the Company's
interest in Fort Cobb Fuel Authority, LLC, subject to due diligence and approval
by the Oklahoma Corporation Commission. The sale was completed on May 31, 2007.
The total purchase price for the sale consisted of cash of $2,585,000, plus the
cash paid for the net working capital of Fort Cobb in the amount of $121,289,
and other customary adjustments. In addition, Gateway was released from its
guarantee of bank debt owed by Fort Cobb. Accordingly, prior period financial
statement amounts have been adjusted to give effect to this disposition as a
discontinued operation.

                                       12

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


     Following are the results of operations of the Fort Cobb subsidiary for all
periods presented:

                                  Three Months Ended September 30,     Nine Months Ended September 30,
                                   ----------------------------          ---------------------------
                                       2007            2006                  2007           2006
                                   ------------    ------------          ------------   ------------
     <S>                           <C>             <C>                   <C>            <C>
     Operating revenues (1) ....   $       --      $    360,785          $  1,117,541   $  1,143,416

     Operating costs and
       expenses(2) .............           --           415,014               692,097      1,250,087
     General and administrative
       expenses (3) ............           --           135,388               295,037        396,114
     Other expenses (income)
       (4) .....................           --           (37,220)               28,327        (25,381)
     Income (loss) from
       discontinued operations,
       net of taxes ............           --          (152,397)              102,080       (477,404)
     Gain (loss) on disposal of
       discontinued operations,
       net of taxes ............        (15,212)           --               1,241,722           --

     Basic and diluted income
      (loss) per share from
      discontinued operations ..   $       --      $      (0.01)         $       0.01   $      (0.03)
    Basic and diluted income per
     share from gain on disposal
     of discontinued operations            --              --                    0.07           --
                                   ------------    ------------          ------------   ------------
Total ..........................   $       --      $      (0.01)         $       0.08   $      (0.03)
                                   ============    ============          ============   ============

Weighted average number
of common shares
outstanding:
Basic ..........................     17,780,599      17,130,937            17,363,749     17,130,937
Diluted ........................     18,041,261      17,130,937            17,867,360     17,168,282


(1)  This revenue stream contains gas sales to customers of Fort Cobb.

(2)  This cost is comprised of the gas purchased for sale to customers of Fort
     Cobb, depreciation expense, and other operating expenses.

(3)  This cost is comprised of direct general and administrative expenses of
     Fort Cobb as well as allocated expenses from the parent.

(4)  This cost is comprised of interest expense, miscellaneous non-operating
     income, income taxes, and interest income.

(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 separately the operations of three main segments--Onshore Operations,

                                       13
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


Offshore Operations, and Corporate 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 in 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. Corporate
Operations include general and administrative costs as well as any
non-subsidiary specific items.

         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 $302,000 were eliminated during
consolidation for the three months ended September 30, 2006. Inter-segment sales
of $461,000 and $765,000 were eliminated during consolidation for the nine
months ended September 30, 2007 and 2006.

         Summarized financial information of the Company's reportable segments
from continuing operations and a reconciliation of operating margin to
consolidated net income, is presented below.



                                                      Three Months Ended              Nine Months Ended
                                                         September 30,                  September 30,
                                                 ----------------------------    ---------------------------
                                                     2007            2006            2007           2006
                                                 ------------    ------------    ------------   ------------
                  Onshore Operations
         <S>                                     <C>             <C>             <C>            <C>
         Revenues ............................   $  2,350,430    $  1,594,296    $  6,757,196   $  5,276,502
         Operating margin ....................        379,191         243,216         932,122        823,754
         Depreciation and amortization .......         48,897          62,053         158,617        185,069
         Interest expense ....................          1,777           2,593           6,303          8,135
         Capital expenditures ................          7,400          50,175          31,055         61,599
         Total assets ........................      5,284,436       4,827,287       5,284,436      4,827,287

                  Offshore Operations
         Revenues ............................   $    601,541    $    372,702    $  1,333,587   $  1,074,894
         Operating margin ....................        459,993         303,953       1,063,739        837,776
         Depreciation and amortization .......         85,252          38,014         161,915        113,652
         Capital expenditures ................           --            28,950           3,630         28,950
         Total assets ........................      6,324,730       1,387,139       6,324,730      1,387,139

                 Corporate Operations
         Depreciation and amortization .......   $      1,324    $      1,391    $      3,165   $      6,656
         Interest expense ....................         20,352            --            27,572           --
         Capital expenditures ................          9,794             346          22,307          2,073
         Total assets ........................      1,521,751         583,957       1,521,751        583,957


                       Total
         Revenues ............................   $  2,951,971    $  1,966,996    $  8,090,783   $  6,351,396
         Operating margin ....................        839,184         547,169       1,995,861      1,661,530
         Depreciation and amortization .......        135,473         101,458         323,697        305,377
         Interest expense ....................         22,129           2,593          33,875          8,135
         Capital expenditures ................         17,194          79,471          56,993         92,622
         Total assets ........................     13,130,917       6,798,383      13,130,917      6,798,383

                                                      14
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
September 30, 2007
(Unaudited)


               Reconciliation to net income
        <S>                                         <C>             <C>             <C>            <C>
         Operating margin ........................   $   839,184    $   547,169    $ 1,995,861   $ 1,661,530
         Less:
               Depreciation and amortization .....       135,473        101,458        323,697       305,377
               Accretion expense .................         6,597          6,155         19,790        18,466
               General and administrative ........       548,675        281,773      1,322,463       738,051
               Interest expense ..................        22,129          2,593         33,875         8,135
               Minority interest .................        24,100         26,418         71,407        65,874
         Plus:
               Interest income ...................        51,044          6,766         91,434        19,522
               Gain on sale of intangible asset ..          --             --          286,579          --
               Other income (expense), net .......          (266)          --           24,859        (7,459)
               Discontinued operations, net of tax          --         (152,397)       102,080      (477,404)
               Gain (loss) on disposal of
                discontinued operations - net of
                taxes ...........................        (15,212)          --        1,241,722          --
                                                     -----------    -----------    -----------   -----------
         Net income (loss) ......................    $   137,776    $   (16,859)   $ 1,971,303   $    60,286
                                                     ===========    ===========    ===========   ===========



Item 2. Management's Discussion and Analysis of Financial Condition or Plan 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 in our Annual Report
on Form 10-KSB for the year ended December 31, 2006, and our quarterly reports
on Form 10-QSB. We cannot guarantee future results, levels of activities,
performance, or achievements. We undertake 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.

Revenue Recognition Policy

         Revenues from the sales of natural gas are generated under purchase and
sales contracts that are priced at the beginning of the month based upon
established gas indices. The Company purchases and sells the gas using the same
index to minimize commodity price risk. 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.

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

                                       15
</TABLE>

<PAGE>

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 September 30, 2007.

Asset Retirement Obligation

         The Company provides for the future asset retirement obligations
related to the Shipwreck offshore 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 asset
retirement obligation, valuation of deferred tax assets, valuation of assumed
liabilities, and valuation of stock based transactions. Actual results could
differ from those estimates.


Results of Operations

General

         The Henry Hub closing index price for natural gas during the three
months ended September 30, 2007 averaged $6.11 per MMBtu, compared to $6.14 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 purchase and sales contracts that are priced at the
beginning of the month based upon established gas indices 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 two
main segments--Onshore operations and Offshore operations.

Three Months Ended September 30, 2007 Compared to Three Months Ended September
30, 2006

Total Operations
                                              Three Months Ended September 30,
                                                ---------------------------
                                                   2007             2006
                                                ----------       ----------
       Revenues............................     $2,951,971       $1,966,996
       Operating margin....................        839,184          547,169
       Depreciation and amortization.......        135,473          101,458

         Operating margins for the three months ended September 30, 2007
increased $292,000 compared to the same period of the prior year. Offshore
operating margin increased $156,000 and onshore operating margin increased by
$136,000. These segments are discussed individually below in greater detail.

                                       16

<PAGE>


Onshore Operations
                                              Three Months Ended September 30,
                                                ----------------------------
                                                   2007              2006
                                                ----------        ----------
         Revenues............................   $2,350,430        $1,594,296
         Operating margin....................      379,191           243,216
         Depreciation and amortization.......       48,897            62,053

         Operating margins for onshore operations increased in the third quarter
by $136,000 from the same period of the prior year. The increase was mainly due
to increased throughput volumes at the Company's Waxahachie distribution
facility, where two new sales customers were added in 2007, as well as increased
transportation volumes on the Madisonville pipeline system.

Offshore Operations
                                              Three Months Ended September 30,
                                                ----------------------------
                                                   2007              2006
                                                ----------        ----------
         Revenues............................   $  601,541        $  372,702
         Operating margin....................      459,993           303,953
         Depreciation and amortization.......       85,252            38,014

         Operating margins for offshore operations increased in the third
quarter by $156,000 from the same period of the prior year. The increase was due
to a contribution of $237,000 by the Gulfshore assets, which were acquired
effective August 1, 2007. This throughput was offset by a decrease in throughput
volumes on the Company's Pirate's Beach pipeline system. The Company continues
to see additional drilling activities near its offshore pipeline facilities.


Discontinued Operations

         On April 13, 2007, the Company entered into a Member Interest Purchase
Agreement with Navitas Assets, LLC, regarding the sale of all of the Company's
interest in Fort Cobb Fuel Authority, LLC, subject to due diligence and approval
by the Oklahoma Corporation Commission. The sale was completed on May 31, 2007.
The total purchase price for the sale consisted of cash of $2,585,000, plus the
net working capital of Fort Cobb in the amount of $136,501. In addition, Gateway
was released from its guarantee of bank debt owed by Fort Cobb (see Note 5).
Accordingly, prior period financial statement amounts have been adjusted to give
effect to this disposition as a discontinued operation. A working capital
adjustment of $15,212 was made in the three months ended September 30, 2007
relating to the sale.

     Following are the results of operations of the Fort Cobb subsidiary for the
three months ended September 30, 2006:

              Operating revenues (1)..............   $    360,785
              Operating costs and expenses (2)....        415,014
              General and administrative
                expenses (3)......................        135,388
              Other income, net(4)................        (37,220)
              Loss from discontinued
                operations, net of taxes..........       (152,397)
              Gain on disposal of discontinued
                operations, net of taxes..........           --

              Basic and diluted loss per share
                from discontinued operations......   $      (0.01)

              Basic and diluted income per
                share from gain on disposal of
                discontinued operations...........           --
                                                     ------------
              Total...............................   $      (0.01)

              Weighted average number of
                common shares outstanding:
              Basic...............................     17,130,937
              Diluted.............................     17,130,937

                                       17

<PAGE>


(1)  This revenue stream contains gas sales to customers of Fort Cobb.

(2)  This cost is comprised of the gas purchased for sale to customers of Fort
     Cobb, depreciation expense, and other operating expenses.

(3)  This cost is comprised of direct general and administrative expenses of
     Fort Cobb as well as allocated expenses from the parent.

(4)  This cost is comprised of interest expense, miscellaneous non-operating
     income, income taxes, and interest income.

Operations Support and Other Income (Expense)

         General and administrative expenses for the quarter increased by
$267,000 compared to 2006, primarily due to the allocation of general and
administrative expenses to Fort Cobb for 2006, increased consulting fees for
Sarbanes-Oxley compliance, and increased investor relations expenses. The
allocation of general and administrative expenses to Fort Cobb for 2006 was due
to the sale of the subsidiary in 2007.

         Interest income fluctuates directly with the average amount of cash on
deposit.

         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.



Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30,
2006

Total Operations

                                               Nine Months Ended September 30,
                                                ----------------------------
                                                   2007              2006
                                                ----------        ----------
         Revenues............................   $8,090,783        $6,351,396
         Operating margin....................    1,995,861         1,661,530
         Depreciation and amortization.......      323,697           305,377

         Operating margins for the nine months ended September 30, 2007
increased $334,000 compared to the same period of the prior year. Offshore
operating margin increased $226,000 and onshore operating margin increased by
$108,000. These segments are discussed individually below in greater detail.




Onshore Operations

                                               Nine Months Ended September 30,
                                                ----------------------------
                                                   2007              2006
                                                ----------        ----------
         Revenues............................   $6,757,196        $5,276,502
         Operating margin....................      932,122           823,754
         Depreciation and amortization.......      158,617           185,069

         Operating margins for onshore operations increased by $108,000 for the
nine months ended September 30, 2007 compared to the same period of the prior
year. The increase was mainly due to increased throughput volumes at the
Company's Waxahachie distribution facility, where two new sales customers were
added in 2007, as well as increased transportation volumes on the Madisonville
pipeline system. In addition, the throughput and operating margin on
Madisonville will increase in the 4th quarter of 2007 due to the completion of
the expanded Madisonville plant facility.

                                       18

<PAGE>
<TABLE>
<CAPTION>


         Offshore Operations

                                               Nine Months Ended September 30,
                                                ----------------------------
                                                   2007              2006
                                                ----------        ----------
         Revenues............................   $1,333,587        $1,074,894
         Operating margin....................    1,063,739           837,776
         Depreciation and amortization.......      161,915           113,652

         Operating margins for offshore operations increased by $226,000 for the
nine months ended September 30, 2007 compared to the same period of the prior
year. The increase was due to a contribution of $237,000 by the Gulfshore
assets, which were acquired effective August 1, 2007. This throughput was offset
by a decrease in throughput volumes on the Company's Pirate's Beach pipeline
system. The Company continues to see additional drilling activities near its
offshore pipeline facilities.


         Discontinued Operations

         On April 13, 2007, the Company entered into a Member Interest Purchase
Agreement with Navitas Assets, LLC, regarding the sale of all of the Company's
interest in Fort Cobb Fuel Authority, LLC, subject to due diligence and approval
by the Oklahoma Corporation Commission. The sale was completed on May 31, 2007.
The total purchase price for the sale consisted of cash of $2,585,000, plus the
net working capital of Fort Cobb in the amount of $136,501. In addition, Gateway
was released from its guarantee of bank debt owed by Fort Cobb (see Note 5).
Accordingly, prior period financial statement amounts have been adjusted to give
effect to this disposition as a discontinued operation.

     Following are the results of operations of the Fort Cobb subsidiary for the
nine months ended September 30, 2007 and 2006:

                                                         2007             2006
                                                     ------------     ------------
              <S>                                    <C>              <C>
              Operating revenues (1)..............   $  1,117,541     $  1,143,416
              Operating costs and expenses (2)....        692,097        1,250,087
              General and administrative
                expenses (3)......................        295,037          396,114
              Other expenses (income), net (4)....         28,327          (25,381)
              Income (loss) from discontinued
                operations, net of taxes..........        102,080         (477,404)
              Gain on disposal of discontinued
                operations, net of taxes..........      1,241,722             --

              Basic and diluted income (loss)
                per share from discontinued
                operations........................   $       --       $      (0.03)

              Basic and diluted income per
                share from gain on disposal of
                discontinued operations...........           0.07             --
                                                     ------------     ------------
              Total...............................   $       0.07     $      (0.03)

              Weighted average number of
                common shares outstanding:
              Basic...............................     17,363,749       17,130,937
              Diluted.............................     17,867,360       17,168,282


(1)  This revenue stream contains gas sales to customers of Fort Cobb.

(2)  This cost is comprised of the gas purchased for sale to customers of Fort
     Cobb, depreciation expense, and other operating expenses.

                                       19
</TABLE>

<PAGE>


(3)  This cost is comprised of direct general and administrative expenses of
     Fort Cobb as well as allocated expenses from the parent.

(4)  This cost is comprised of interest expense, miscellaneous non-operating
     income, income taxes, and interest income.

Operations Support and Other Income (Expense)

         General and administrative expenses for the nine months ended September
30, 2007 increased by $584,000 compared to 2006, primarily due to increased
legal fees as well as increased investor relations and insurance expense. In
2006, legal fees were reduced by $144,000 due to a negotiated reduction of
accrued legal fees recorded as expense in prior periods.

         Interest income fluctuates directly with the average amount of cash on
deposit.

         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.

Liquidity and Capital Resources

         Going forward, the Company's strategy is to maximize the potential of
currently-owned properties, to construct new pipeline systems, and to acquire
properties that meet its economic performance hurdles. Until we are able to
successfully raise additional growth capital, we will execute our growth
strategy through strategic alliances. Also, any currently-owned properties are
subject to sale under the right circumstances (valuation and timing), if the
Company believes that the proceeds from any such sale could be effectively
redeployed.

         The Company is actively seeking additional outside capital to allow it
to accelerate the implementation of its growth strategy, such new capital may
take several forms. 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 facilities and generate new cash flows to the Company, but only at a pace
that can be supported by cash flows and our existing financing agreements.

         The Company had available cash of $1,722,730 at September 30, 2007.

         Net cash provided by continuing operating activities totaled $1,175,000
for the nine months ended September 30, 2007, compared to $219,000 during the
same period of the previous year.

         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.

         During October 2005, in connection with the settlement of a dispute
with Michael Fadden, the Company executed a trade note for $96,000, bearing no
interest, payable in twenty-four monthly installments of $4,000. The note is
secured by a letter of credit. Interest expense is being recognized over the
life of the note at an imputed rate of 10% and was paid in full on October 1,
2007.

         During 2007, the Company executed premium finance agreements for its
insurance premiums. The total of the notes were $438,878 and the interest rate
is 7.19%. The notes require monthly principal and interest payments. The amount
of the monthly payment varies depending any changes in coverage and policy
renewal period changes.

         On May 31, 2007, in conjunction with the sale of the Fort Cobb
subsidiary (see Note 7), the buyer, Navitas Assets, LLC, paid in full the
remaining balances of all debt associated with Fort Cobb. The amount of the debt
outstanding at that time was $174,333. All liens attributable to these notes
have been released.

         On August 23, 2007, the Company entered into a Credit Agreement (the
"Agreement") with Western National Bank, a national banking association (the
"Lender"), regarding a revolving credit facility provided by Lender to the
Company. The original borrowing base under the Agreement has been established at
$2.5 million, which may be increased at the discretion of the Lender to an
amount not to exceed $20 million. The credit facility is secured by
substantially all of the Company's assets and has a term of two years. Interest
on outstanding balances will accrue at Lender's prime rate, plus one percent.

                                       20

<PAGE>


         In connection with the acquisition of the Gulfshore Midstream assets,
the Company borrowed $1,150,000 on the credit facility. As of September 30,
2007, the interest rate was 8.75% and the available borrowings were $1,350,000.

         At September 30, 2007, the Company had outstanding letters of credit
for gas purchases totaling $1,000,000.

         Natural gas prices as represented by the NYMEX Henry Hub index averaged
$6.11 and $6.14 for the three months ended September 30, 2007 and 2006,
respectively. 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 September 30,
2007; however, see Note 6 to the consolidated financial statements regarding
Commitments and Contingencies.


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.

         An evaluation of the Company's disclosure controls and procedures (as
defined in Section 13(a)-15(e) and 15d-15(e)) of the Securities Exchange Act of
1934 was carried out under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer as of the end of
the period covered by this quarterly report. The Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures as currently in effect are effective in ensuring that
the information required to be disclosed by the Company in the reports it files
or submits under the Act is (1) accumulated and communicated to the Company's
management in a timely manner, and (2) recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.

         There were no changes in the Company's internal controls over financial
reporting that occurred during the quarter ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect, the internal
control over financial reporting.


                           Part II - OTHER INFORMATION

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

                  None

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

         On September 6, 2007, as a portion of the consideration paid by the
Company in connection with the acquisition of the assets of Gulfshore Midstream
Pipelines, Ltd., the Company issued 1,550,000 shares of common stock, par value
$0.25 per share, of the Company ("Common Stock"). These shares of Common Stock
were issued by the Company pursuant to the exemption from registration available
under Section 4(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.

                                       21

<PAGE>


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


                                       22

<PAGE>


                                   SIGNATURES


In accordance with to the requirements of the Securities Exchange Act of 1934,
the Registrant has 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

     November 14, 2007
--------------------------
          (Date)

                                       23