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 June 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 July 29, 2007, the Issuer had 17,336,687 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 June 30, 2007                                          3

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

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

            Notes to Unaudited Consolidated Financial Statements             6

                                       2

<PAGE>


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



 ASSETS
Current Assets
   Cash and cash equivalents ...................................   $  4,141,271
   Restricted cash .............................................         19,681
   Accounts receivable trade ...................................      1,674,280
   Prepaid expenses and other assets ...........................        361,084
                                                                   ------------
        Total current assets ...................................      6,196,316
                                                                   ------------

Property and Equipment, at cost
   Gas gathering, processing and transportation ................      7,159,401
   Office furniture and other equipment ........................        219,504
                                                                   ------------
                                                                      7,378,905
   Less accumulated depreciation and amortization ..............     (3,120,545)
                                                                   ------------
                                                                      4,258,360
                                                                   ------------

Other assets ...................................................        124,967
                                                                   ------------
        Total assets ...........................................   $ 10,579,643
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable ............................................   $    985,482
   Accrued expenses and other liabilities ......................         72,230
   Current maturities of long-term debt ........................        223,794
   Current maturities of capital lease .........................         16,094
                                                                   ------------
        Total current liabilities ..............................      1,297,600
                                                                   ------------

Future asset retirement obligations ............................        381,448
Long-term capital lease, less current maturities ...............         38,746
Minority interest ..............................................        827,587

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;
      17,336,687 shares issued and outstanding .................      4,334,170
   Additional paid-in capital ..................................     16,205,932
   Accumulated deficit .........................................    (12,505,840)
                                                                   ------------
        Total stockholders' equity .............................      8,034,262
                                                                   ------------
        Total liabilities and stockholders' equity .............   $ 10,579,643
                                                                   ============


   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 June 30,       Six Months Ended June 30,
                                                                   ----------------------------    ----------------------------
                                                                       2007            2006            2007            2006
                                                                   ------------    ------------    ------------    ------------
<S>                                                                <C>             <C>             <C>             <C>
Operating revenues
    Sales of natural gas .......................................   $  2,458,289    $  1,672,101    $  4,139,399    $  3,412,092
    Transportation of natural gas and liquids ..................        441,641         458,210         914,432         882,730
    Treating and other .........................................         40,995          49,878          84,981          89,578
                                                                   ------------    ------------    ------------    ------------
                                                                      2,940,925       2,180,189       5,138,812       4,384,400
                                                                   ------------    ------------    ------------    ------------
Operating costs and expenses
    Cost of natural gas purchased ..............................      2,256,542       1,427,346       3,747,039       2,994,048
    Operation and maintenance ..................................        113,483         149,561         235,096         275,991
    Depreciation and amortization ..............................         92,537         100,007         188,224         203,922
    Accretion expense ..........................................          6,598           6,156          13,193          12,311
    General and administrative .................................        249,990         204,160         773,788         456,278
                                                                   ------------    ------------    ------------    ------------
                                                                      2,719,150       1,887,230       4,957,340       3,942,550
                                                                   ------------    ------------    ------------    ------------
Operating income ...............................................        221,775         292,959         181,472         441,850

Other income (expense)
    Interest income ............................................         26,828           6,298          40,390          12,758
    Interest expense ...........................................         (5,759)         (2,713)        (11,746)         (5,544)
    Gain on sale of intangible asset ...........................           --              --           286,579            --
    Other income (expense), net ................................         30,201          (3,858)         25,125          (7,455)
    Minority interest ..........................................        (26,352)        (25,609)        (47,307)        (39,456)
                                                                   ------------    ------------    ------------    ------------
                                                                         24,918         (25,882)        293,041         (39,697)
Income from continuing operations before income
    taxes and discontinued operations ..........................        246,693         267,077         474,513         402,153
Income tax expense .............................................           --              --              --              --
                                                                   ------------    ------------    ------------    ------------
Income from continuing operations ..............................        246,693         267,077         474,513         402,153

Discontinued operations, net of taxes
    Net income (loss) from discontinued operations,
       net of taxes.............................................       (280,130)       (217,017)        102,080        (325,008)

    Gain on disposal of discontinued operations, net
       of taxes ................................................      1,256,934            --         1,256,934            --
                                                                   ------------    ------------    ------------    ------------
Net income .....................................................   $  1,223,497    $     50,060    $  1,833,527    $     77,145
                                                                   ============    ============    ============    ============

Basic and diluted income (loss) per common share
    Continuing operations ......................................   $       0.01    $       0.01    $       0.03    $       0.02
    Discontinued operations ....................................           0.06           (0.01)           0.08           (0.02)
                                                                   ------------    ------------    ------------    ------------
    Net income .................................................   $       0.07    $       --      $       0.11    $       --
                                                                   ============    ============    ============    ============

Weighted average number of common shares outstanding
    Basic ......................................................     17,162,682      17,130,937      17,151,869      17,130,937
    Diluted ....................................................     17,690,704      17,163,992      17,616,297      17,154,959



                             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)


                                                                                 Six Months Ended June 30,
                                                                                --------------------------
                                                                                   2007           2006
                                                                                -----------    -----------
<S>                                                                             <C>            <C>
Cash flows from operating activities - continuing operations
Continuing operations:
   Income from continuing operations ........................................   $   474,513    $   402,153
   Adjustments to reconcile net income from continuing operations to net cash
   provided by operating activities:
      Depreciation and amortization .........................................       188,224        203,922
      Minority interest .....................................................        47,307         25,609
      Stock based compensation expense ......................................        19,817          4,434
      Accretion expense .....................................................        13,193         12,311
      Amortization of debt issue costs ......................................        15,100          8,545
      Gain on sale of intangible asset ......................................      (286,579)          --
      Change in operating assets and liabilities:
         Trade accounts receivable ..........................................      (135,197)       102,778
         Prepaid expenses and other assets ..................................       306,887       (103,896)
         Minority interest payable ..........................................        (1,361)          --
         Accounts payable ...................................................       256,902       (524,076)
         Accrued expenses and other liabilities .............................         6,827        (21,863)
                                                                                -----------    -----------
              Net cash provided by operating activities .....................       905,633        109,917
                                                                                -----------    -----------

Cash flows from investing activities - continuing operations
      Capital expenditures ..................................................       (39,798)       (35,274)
      Proceeds from collection of note receivable ...........................       300,000           --
      Other assets ..........................................................          --           (6,739)
                                                                                -----------    -----------
              Net cash provided (used) in investing activities ..............       260,202        (42,013)
                                                                                -----------    -----------

Cash flows from financing activities - continuing operations
      Payments on borrowings ................................................      (176,466)       (20,070)
      Proceeds from exercise of stock options ...............................        76,501           --
      Restricted cash for letter of credit, net .............................        23,464         (1,261)
      Deferred financing costs ..............................................       (28,500)       (51,087)
      Distributions to minority partner .....................................       (56,722)       (11,588)
                                                                                -----------    -----------
              Net cash used in financing activities .........................      (161,723)       (84,006)
                                                                                -----------    -----------

Net increase in cash and cash equivalents from continuing operations ........     1,004,112        (16,102)

Discontinued operations:
   Net cash provided (used) by operating activities .........................       (97,827)       125,939
   Net cash provided (used) in investing activities .........................     2,721,501        (30,231)
   Net cash provided (used) in financing activities .........................      (547,338)       114,627
                                                                                -----------    -----------

Net increase in cash and cash equivalents from discontinued operations ......     2,076,336        210,335

Cash and cash equivalents at beginning of period ............................     1,060,823        865,805
                                                                                -----------    -----------
Cash and cash equivalents at end of period ..................................   $ 4,141,271    $ 1,060,038
                                                                                ===========    ===========

Supplemental Disclosures of Cash Flow Information:
      Cash paid for interest ................................................   $    23,737    $    21,850
                                                                                ===========    ===========


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

                                                     5
</TABLE>

<PAGE>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 6).

         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 six months ended June 30, 2007, property and
equipment included $86,389 of equipment financed under a capital lease, net of
$13,611 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
June 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 six months ended June 30, 2007 and 2006, depreciation
expense was $92,537 and $100,007 and $188,224 and $203,922, 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 six months ended June 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 six
months ended June 30, 2007 and 2006:

                                         Six Months Ended June 30,
                                       -----------------------------
                                         2007                2006
                                       ---------           ---------

              Beginning balance        $ 368,255           $ 343,633
              Accretion                   13,193              12,311
              Ending balance           $ 381,448           $ 355,944


Cash Equivalents

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

Restricted Cash

         Restricted cash is related to the collateral for the Letter of Credit
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 six months
ended June 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 access at what point the valuation allowance will be recognized.

                                       7

<PAGE>
<TABLE>
<CAPTION>


GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
June 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. Earnings
per common share were computed as follows:

                                                      Three Months Ended             Six Months Ended
                                                 ---------------------------    ---------------------------
                                                           June 30,                      June 30,
                                                     2007           2006            2007           2006
                                                 ------------   ------------    ------------   ------------
<S>                                              <C>            <C>             <C>            <C>
Weighted average number of common
   shares outstanding ........................     17,162,682     17,130,937      17,151,869     17,130,937
Effect of dilutive securities ................        528,022         33,055         464,428         24,022
                                                 ------------   ------------    ------------   ------------
Weighted average dilutive common shares
   outstanding ...............................     17,690,704     17,163,992      17,616,297     17,154,959
                                                 ============   ============    ============   ============

Income from continuing operations ............   $    246,693   $    267,077    $    474,513   $    402,153
Income (loss) from discontinued operations,
   net of taxes ..............................        976,804       (217,017)      1,359,014       (325,008)
                                                 ------------   ------------    ------------   ------------
Net income ...................................   $  1,223,497   $     50,060    $  1,833,527   $     77,145
                                                 ============   ============    ============   ============
Basic and diluted earnings per common share:..
     Continuing operations ...................   $       0.01   $       0.01    $       0.03   $       0.02
     Discontinued operations .................           0.06          (0.01)           0.08          (0.02)
                                                 ------------   ------------    ------------   ------------
     Net income
                                                 $       0.07   $       --      $       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 June 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
long-lived assets, amortization of deferred loan costs, valuation of the
Shipwreck asset retirement obligation, deferred tax valuation allowance, and
valuation of stock based transactions. Actual results could differ from those
estimates.

                                       8
</TABLE>

<PAGE>


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


(3)      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 six months ended June
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.

         As a result of SFAS No. 123R, compensation cost related to
non-qualified stock options recognized for the three months ended June 30, 2007
and 2006 was $13,527 and $4,436. For the six months ended June 30, 2007 and 2006
was $19,817 and $4,436, 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 six months ended June 30, 2007,
there were 195,750 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. At June 30, the
tax asset not recorded is $5,757,950.

         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 six months ended June 30, 2007
and 2006, using the Black-Sholes model.

                                       9

<PAGE>
<TABLE>
<CAPTION>


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


                                                       2007        2006
                                                       ----        ----
              Risk-free interest rate (%)..........    4.81        4.81
              Dividend yield (%)...................     --          --
              Expected volatility (%)..............      83          83
              Option life (years)..................    5.00        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 June 30, 2007, there was $123,848 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.

The following table represents stock option activity for the six months ended
June 30, 2007:

                                                                             Weighted        Intrinsic
                                                             Weighted        Average         Value of
                                                            Average        Contractual      Options as
                                                              Exercise        Terms         of June 30
                                              Shares           Price        (in years)       30, 2007
                                             --------        --------        --------        --------

<S>                                           <C>            <C>                 <C>         <C>
Options outstanding, beginning of period..    694,083        $   0.44            3.28
Options granted ..........................    410,000            0.45            4.71
Options canceled .........................   (100,000)           0.82             --
Options exercised ........................   (195,750)           0.39            1.16
                                             --------
Options outstanding, end of period .......    808,333        $   0.41            4.35        $357,708
                                             ========   ========
Options exercisable, end of period .......    315,000        $   0.38            4.13        $148,375
                                                                 ====   ========

         The market value of the Company's common stock on June 28, 2007 was
$0.85 per share.

         The weighted-average grant-date fair value of options granted during
2007 was $0.31 for the six months ended June 30, 2007.


(4)      Debt

Long-term Debt

         Long-term debt at June 30, 2007 consisted of the following:

              Trade note payable - Insurance.......    $  217,111
              Trade note payable - Fadden..........         6,683
                                                       ----------
                                                          223,794
              Less current maturities..............      (223,794)
                                                       ----------
                                                       $     --
                                                       ==========


Trade Notes Payable

         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 restricted cash in a money market account. Interest expense is being
recognized over the life of the note at an imputed rate of 10% and will be paid
in full on October 1, 2007.

                                       10
</TABLE>

<PAGE>


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


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



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 6), 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 6), 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 6), 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 6), 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 6), 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

         As of June 30, 2007, the Company had outstanding letters of credit
totaling $1,000,000.

(5)      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.

                                       11

<PAGE>
<TABLE>
<CAPTION>


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


(6)      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 $136,501,
and other customary adjustments. In addition, Gateway was released from its
guarantee of bank debt owed by Fort Cobb (see Note 4). 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 all
periods presented:

                                                         Three Months Ended June 30,      Six Months Ended June 30,
                                                        ----------------------------    ----------------------------
                                                            2007            2006            2007            2006
                                                        ------------    ------------    ------------    ------------

<S>                                                    <C>             <C>             <C>             <C>
     Operating revenues (1) ..............................   $    196,382    $    242,472    $  1,117,541    $    782,631
     Operating costs and
       expenses (2) ......................................        189,334         319,489         692,097         835,070
     General and
       administrative
       expenses (3) ......................................        260,685         131,128         295,037         260,726
     Other expenses, net (4) .............................        (26,493)         (8,872)        (28,327)        (11,843)
     Income (loss) from
       discontinued
       operations, net of taxes ..........................       (280,130)       (217,017)        102,080        (325,008)
     Gain on disposal of
       discontinued
       operations, net of taxes ..........................      1,256,934            --         1,256,934            --

     Basic and diluted income
       (loss) per share from
       discontinued operations ...........................   $      (0.01)   $      (0.01)   $       0.01    $      (0.02)

     Basic and diluted income
       per share from gain on
       disposal of
       discontinued operations ...........................   $       0.07    $       --      $       0.07    $       --
                                                             ------------    ------------    ------------    ------------
     Total ...............................................   $       0.06    $      (0.01)   $       0.08    $      (0.02)
                                                             ============    ============    ============    ============

     Weighted average number of common shares outstanding:
     Basic ...............................................     17,162,682      17,130,937      17,151,869      17,130,937
     Diluted .............................................     17,690,704      17,163,992      17,616,297      17,154,959


     (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.

                                       12
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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


     (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.

(7) 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,
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 $91,000 and $132,000 were eliminated during
consolidation for the three months ended June 30, 2007 and 2006. Inter-segment
sales of $461,000 and $463,000 were eliminated during consolidation for the six
months ended June 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              Six Months Ended
                                                                         June 30,                        June 30,
                                                                   2007            2006            2007           2006
                                                               ------------    ------------    ------------   ------------
                  Onshore Operations
         <S>                                                   <C>             <C>             <C>            <C>
         Revenues ..........................................   $  2,595,205    $  1,824,555    $  4,406,768   $  3,682,210
         Operating margin ..................................        287,233         343,553         552,932        580,540
         Depreciation and amortization .....................         53,500          61,532         109,723        123,019
         Interest expense ..................................          2,195           2,713           4,528          5,544
         Capital expenditures ..............................         20,933            --            23,655          7,870
         Total assets ......................................      5,223,470       4,593,334       5,223,470      4,593,334

                 Offshore Operations
         Revenues ..........................................   $    345,720    $    355,634    $    732,044   $    702,190
         Operating margin ..................................        283,667         259,729         603,745        533,821
         Depreciation and amortization .....................         38,139          37,948          76,661         75,639
         Capital expenditures ..............................           --            25,331           3,630         25,331
         Total assets ......................................      1,303,499       1,462,611       1,303,499      1,462,611

                 Corporate Operations
         Depreciation and amortization .....................   $        898    $        527    $      1,840   $      5,264
         Interest expense ..................................          3,564            --             7,218           --
         Capital expenditures ..............................         12,513             346          12,513          2,073
         Total assets ......................................      4,052,674         828,021       4,052,674        828,021

                                                             13
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


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



                        Total
         <S>                                                   <C>             <C>             <C>            <C>
         Revenues ..........................................   $  2,940,925    $  2,180,189    $  5,138,812   $  4,384,400
         Operating margin ..................................        570,900         603,282       1,156,677      1,114,361
         Depreciation and amortization .....................         92,537         100,007         188,224        203,922
         Interest expense ..................................          5,759           2,713          11,746          5,544
         Capital expenditures ..............................         33,446          25,677          39,798         35,274
         Total assets ......................................     10,579,643       6,923,966      10,579,643      6,923,966

             Reconciliation to net income
         Operating margin ..................................   $    570,900    $    603,282    $  1,156,677   $  1,114,361
         Less:
          Depreciation and amortization ....................         92,537         100,007         188,224        203,922
          Accretion expense ................................          6,598           6,156          13,193         12,311
          General and administrative .......................        249,990         204,160         773,788        456,278
          Interest expense .................................          5,759           2,713          11,746          5,544
          Minority interest ................................         26,352          25,609          47,307         39,456
         Plus:
          Interest income ..................................         26,828           6,298          40,390         12,758
          Gain on sale of intangible asset .................           --              --           286,579           --
          Other income, net ................................         30,201          (3,858)         25,125         (7,455)
          Discontinued operations ..........................       (280,130)       (217,017)        102,080       (325,008)
          Gain on disposal of discontinued
            operations - net of taxes ......................      1,256,934            --         1,256,934           --
                                                               ------------    ------------    ------------   ------------
         Net income ........................................   $  1,223,497    $     50,060    $  1,833,527   $     77,145
                                                               ============    ============    ============   ============


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

                                       14
</TABLE>

<PAGE>

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
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 June 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, 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 June 30, 2007 averaged $7.55 per MMBtu, compared to $7.15 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 June 30, 2007 Compared to Three Months Ended June 30, 2006

Total Operations
                                                  Three Months Ended June 30,
                                                 ----------------------------
                                                    2007              2006
                                                 ----------        ----------
       Revenues..............................    $2,940,925        $2,180,189
       Operating margin......................       570,900           603,282
       Depreciation and amortization.........        92,537           100,007

                                       15

<PAGE>


         Operating margins for the three months ended June 30, 2007 decreased
$32,000 compared to the same period of the prior year. Offshore operating margin
increased $24,000 and onshore operating margins decreased by $56,000. These
segments are discussed individually below in greater detail.


Onshore Operations
                                                  Three Months Ended June 30,
                                                 ----------------------------
                                                    2007              2006
                                                 ----------        ----------
        Revenues.............................    $2,595,205        $1,824,555
        Operating margin.....................       287,233           343,553
        Depreciation and amortization........        53,500            61,532

         Operating margins for onshore operations decreased in the second
quarter by $56,000 from the same period of the prior year. The decrease was
mainly due to decreased throughput volumes at the Company's Waxahachie
distribution facility.

Offshore Operations
                                                  Three Months Ended June 30,
                                                 ----------------------------
                                                    2007              2006
                                                 ----------        ----------
        Revenues.............................    $  345,720        $  355,634
        Operating margin.....................       283,667           259,729
        Depreciation and amortization........        38,139            37,948

         Operating margins for offshore operations increased in the second
quarter by $24,000 from the same period of the prior year. The increase was
mainly due to increased throughput volumes at the Company's Bolivar pipeline
system, partially offset by a decrease in throughput on the 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, and other customary
adjustments. In addition, Gateway was released from its guarantee of bank debt
owed by Fort Cobb (see Note 4). 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
three months ended June 30, 2007 and 2006:
                                                       2007            2006
                                                   ------------    ------------
Operating revenues (1) .........................   $    196,382    $    242,472
Operating costs and expenses (2) ...............        189,334         319,489
General and administrative expenses (3) ........        260,685         131,128
Other expenses, net (4) ........................        (26,493)         (8,872)
Loss from discontinued operations, net of taxes        (280,130)       (217,017)
Gain on disposal of discontinued operations,
    net of taxes ...............................      1,256,934            --

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

Basic and diluted income per share from gain on
    disposal of discontinued operations ........           0.07            --
                                                   ------------    ------------
Total ..........................................   $       0.06    $      (0.01)
                                                   ============    ============

Weighted average number of
  common shares outstanding:
Basic ..........................................     17,162,682      17,130,937
Diluted ........................................     17,690,704      17,163,992

                                       16

<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
$46,000 compared to 2006, primarily due to increased legal expenses, investor
relations expenses, and insurance expenses, partially offset by a decrease in
board expenses. The increase in legal fees was due to the write-off of $101,340
accrued in legal fees in the second quarter of 2006 of which there was no such
write-off during the same period 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.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

Total Operations
                                                    Six Months Ended June 30,
                                                 ------------------------------
                                                    2007                2006
                                                 ----------          ----------
       Revenues..............................    $5,138,812          $4,384,400
       Operating margin......................     1,156,677           1,114,361
       Depreciation and amortization.........       188,224             203,922

         Operating margins for the six months ended June 30, 2007 increased
$42,000 compared to the same period of the prior year. Offshore operating margin
increased $70,000, offset by a decrease in Onshore operating margins of $28,000.
These segments are discussed individually below in greater detail.

Onshore Operations
                                                    Six Months Ended June 30,
                                                 ------------------------------
                                                    2007                2006
                                                 ----------          ----------
        Revenues.............................    $4,406,768          $3,682,210
        Operating margin.....................       552,932             580,540
        Depreciation and amortization........       109,723             123,019

         Operating margins for onshore operations decreased by $28,000 for the
six months ended June 30, 2007 compared to the same period of the prior year.
The decrease was mainly due to decreased throughput volumes at the Company's
Waxahachie distribution system.


Offshore Operations

                                                    Six Months Ended June 30,
                                                 ------------------------------
                                                    2007                2006
                                                 ----------          ----------
        Revenues.............................    $  732,044          $  702,190
        Operating margin.....................       603,745             533,821
        Depreciation and amortization........        76,661              75,639

                                       17

<PAGE>


         Operating margins for offshore operations increased by $70,000 for the
six months ended June 30, 2007 compared to the same period of the prior year.
The increase was due to an increase in transportation volumes on the Company's
Bolivar pipeline system offset by a reduction in transporation 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, and other customary
adjustments. In addition, Gateway was released from its guarantee of bank debt
owed by Fort Cobb (see Note 4). 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
six months ended June 30, 2007 and 2006:
                                                     2007              2006
                                                 ------------      ------------
Operating revenues (1) .....................     $  1,117,541      $    782,631
Operating costs and expenses (2) ...........          692,097           835,070
General and administrative
    expenses (3) ...........................          295,037           260,726
Other expenses, net (4) ....................          (28,327)          (11,843)
Income (loss) from discontinued
    operations, net of taxes ...............          102,080          (325,008)
Gain on disposal of discontinued
    operations, net of taxes ...............        1,256,934              --

Basic and diluted income per
    share from discontinued
    operations .............................     $       0.01      $      (0.02)

Basic and diluted income per
    share from gain on disposal of
    discontinued operations ................             0.07              --
                                                 ------------      ------------
Total ......................................     $       0.08      $      (0.02)
                                                 ============      ============

Weighted average number of
common shares outstanding:
Basic and diluted ..........................       17,151,869        17,130,937
Basic and diluted ..........................       17,616,297        17,154,959

     (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.

                                       18

<PAGE>


Operations Support

         General and administrative expenses for the six months ended June 30,
2007 increased by $318,000 compared to 2006, primarily due to increased
insurance expense and legal fees. 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 $4,141,271 at June 30, 2007.

         Net cash provided by continuing operating activities totaled $906,000
for the six months ended June 30, 2007, compared to $110,000 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.

         On May 31, 2007, in conjunction with the sale of the Fort Cobb
subsidiary (see Note 6), the buyer, Navitas Assets, LLC, paid in full the
remaining balances of all debt associated with Fort Cobb. The amount of the debt
was $174,333. All liens attributable to these notes have been released.

         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 will be paid in full on October
1, 2007.

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

         At June 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
$7.55 and $7.15 for the three months ended June 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 June 30, 2007;
however, see Note 5 to the consolidated financial statements regarding
Commitments and Contingencies.

                                       19

<PAGE>


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 June 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

           None

Item 3.    Defaults Upon Senior Securities

           None

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


         At the Annual Meeting of Stockholders held on May 23, 2007, the seven
nominees named below received the following votes with respect to the election
of the Board of Directors.

                  Name                      Votes For        Votes Withheld
         -----------------------------      ----------       --------------

         Steven W. Cattron                   6,044,684         7,799,888
         Chauncey J. Gundlefinger, Jr.      13,272,822           571,750
         Robert Panico                       6,010,076         7,834,496
         John A. Raasch                     12,226,360         1,618,212
         Steven C. Scheler                  13,185,546           659,026
         J. Darby Sere                      13,626,711           217,861
         Gordon L. Wright                   13,626,871           217,701


       Proposal 2, the 2007 Equity Incentive Plan, received the following votes:

                                           Votes For        Votes Withheld
        -----------------------------      ----------       --------------
        Proposal 2                          8,169,355         1,271,814

                                       20

<PAGE>




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

                                       21

<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

August 13, 2007
---------------
    (Date)


                                       22