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<TITLE>10q399a</TITLE>
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<B><P ALIGN="CENTER">_____________________</B></TD>
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<B><P ALIGN="CENTER">UNITED STATES</B></TD>
</TR>
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<B><P ALIGN="CENTER">SECURITIES AND EXCHANGE COMMISSION</B></TD>
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<B><P ALIGN="CENTER">Washington, D.C. 20549</B></TD>
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<P> </TD>
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<B><P ALIGN="CENTER">FORM 10-Q</B></TD>
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<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="BOTTOM" COLSPAN=2>
<B><P ALIGN="CENTER">[X]</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="CENTER">QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
<FONT FACE="CG Times">OF THE SECURITIES EXCHANGE ACT OF 1934<BR>
For the Quarterly Period Ended September 30, 1999</B></FONT></TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="CENTER">OR</B></TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="BOTTOM" COLSPAN=2>
<B><P ALIGN="CENTER">[  ]</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="CENTER">TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
<FONT FACE="CG Times">OF THE SECURITIES EXCHANGE ACT OF 1934<BR>
</FONT>For the Transition Period from to</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
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<B><FONT FACE="CG Times"><P ALIGN="CENTER">Commission File Number 1-1525</B></FONT></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
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<B><P ALIGN="CENTER">GLADSTONE ENERGY, INC.</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">(Exact name of Registrant as specified in its charter)</B></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="CENTER">Delaware<BR>
(State of Incorporation)</B></TD>
<TD WIDTH="39%" VALIGN="BOTTOM" COLSPAN=2>
<B><P ALIGN="CENTER">91-0234563<BR>
(I.R.S. Employer Identification No.)</B></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="39%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="CENTER">3500 Oak Lawn Avenue, Suite 590, LB 49, Dallas, TX<BR>
(Address of principal executive offices)</B></TD>
<TD WIDTH="39%" VALIGN="BOTTOM" COLSPAN=2>
<B><P ALIGN="CENTER">75219<BR>
(Zip Code)</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">(214) 528-9710</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">(Registrant's telephone number,</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">including area code)</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">Securities registered pursuant to Section 12(b) of the Act:</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">None</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">Securities registered pursuant to Section 12(g) of the Act:</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">Common Stock Par Value $.001 Per Share</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">(Title of Class)</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">______________________________</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="JUSTIFY">Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (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 ninety (90) days.</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER"><BR>
YES [X]     NO [   ]<BR>
</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><FONT FACE="CG Times"><P ALIGN="CENTER">Indicate the number of shares outstanding of each of the issuer's<BR>
 classes</B> </FONT><B>of common stock at September 30, 1999.</B></TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="BOTTOM">
<B><P ALIGN="RIGHT">Class:   </B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=4>
<B><P>Common Stock, $.001 par value per share</B></TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=4>
<B><P ALIGN="JUSTIFY">Outstanding at September 30, 1999: 848,791 shares</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><U><P ALIGN="CENTER">                                      
            </B></U></TD>
</TR>
</TABLE>

<P>			</P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=633>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">GLADSTONE ENERGY, INC.</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<B><P ALIGN="CENTER">INDEX</B></TD>
</TR>
<TR><TD VALIGN="BOTTOM" COLSPAN=5>
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><U><P ALIGN="JUSTIFY">Part 1. </B></U></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><U><P ALIGN="JUSTIFY">Financial Information:</B></U></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">Page<BR>
<U>Number</B></U></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><P ALIGN="JUSTIFY">Item 1.</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="JUSTIFY">Financial Statements</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">2</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P>Balance Sheets - <BR>
September 30, 1999 (Unaudited) and December 31, 1998 (Audited)</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">2</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P>Statements of Operations -<BR>
For the Three Months and Nine Months Ended September 30, 1999 and 1998 (Unaudited)</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">3</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P>Statements of Stockholders' Equity - <BR>
For the Nine Months Ended September 30, 1999 (Unaudited) and<BR>
for the Year Ended December 31, 1998 (Audited)</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">4</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P>Statements of Cash Flows - <BR>
For the Nine Months Ended September 30, 1999 and 1998 <BR>
(Unaudited)</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">5</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P>Notes to Financial Statements</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">6</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<B><P ALIGN="JUSTIFY">Item 2.</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="JUSTIFY">Management's Discussion and Analysis of Financial Condition and Results of Operations</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">12</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><U><P ALIGN="JUSTIFY">Part II.</B></U></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><U><P ALIGN="JUSTIFY">Other Information:</B></U></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><P ALIGN="JUSTIFY">Item 4.</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="JUSTIFY">Submission of Matters to a Vote of Security Holders</B></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<B><P ALIGN="CENTER">16</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><P ALIGN="JUSTIFY">Item 5.</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="JUSTIFY">Other Information</B></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<B><P ALIGN="CENTER">16</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><P ALIGN="JUSTIFY">Item 6.</B></TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<B><P ALIGN="JUSTIFY">Exhibits and Reports on Form 8-K</B></TD>
<TD WIDTH="15%" VALIGN="BOTTOM">
<B><P ALIGN="CENTER">16</B></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="76%" VALIGN="BOTTOM" COLSPAN=3>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="85%" VALIGN="BOTTOM" COLSPAN=4>
<B><P ALIGN="JUSTIFY">Signatures</B></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><P ALIGN="CENTER">17</B></TD>
</TR>
<TR><TD WIDTH="85%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<P> </TD>
</TR>
</TABLE>


<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=636>
<TR><TD VALIGN="TOP" COLSPAN=4 HEIGHT=38>
<P ALIGN="CENTER"><B>Part I. Financial Information<BR>
Item 1. Financial Statements</B></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4 HEIGHT=49>
<B><FONT SIZE=2><P ALIGN="CENTER">GLADSTONE ENERGY, INC.<BR>
BALANCE SHEETS<BR>
At September 30, 1999 (Unaudited) and December 31, 1998 (Audited)</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<B><FONT SIZE=2><P ALIGN="CENTER">ASSETS</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="CENTER">September 30, <BR>
<U>      1999      </B></U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">December 31,<BR>
1998 <U> (Consolidated) </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24>
<B><FONT SIZE=2><P>Current assets:</B></FONT></TD>
<TD WIDTH="35%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Cash</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$       108,446 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$      23,372 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Accounts receivable</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        99,396</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">            6,129</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Total current assets</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      207,842</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          29,501 </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24>
<B><FONT SIZE=2><P>Property and equipment:</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="18%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Gas and oil properties (successful efforts method)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">899,537 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,754,651 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Unproved oil and gas properties</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">75,635 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">56,584 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Field equipment</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         17,128</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         17,128 </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">992,300 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,828,363</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Less accumulated depletion and depreciation</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">     (449,564</U>)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">  (1,280,631</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Total property and equipment</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT FACE="CG Times" SIZE=2><P ALIGN="RIGHT">     542,736</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT FACE="CG Times" SIZE=2><P ALIGN="RIGHT">      547,732</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" COLSPAN=2 HEIGHT=24>
<B><FONT SIZE=2><P>Other assets:</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=24><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Cost in excess of amount assigned to net assets in <BR>
New Mexico at date of acquisition</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">337,000 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">337,000 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Less accumulated amortization</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">      (300,161)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">   ( 293,783)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Loan origination fees, net of amortization</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">            8,348</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">   <U>                -     </U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          45,187</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          43,217</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$ 795,765</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$ 620,450</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<B><FONT SIZE=2><P ALIGN="CENTER">LIABILITIES AND STOCKHOLDERS' EQUITY</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<P> </TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="BOTTOM" COLSPAN=2 HEIGHT=24>
<B><FONT SIZE=2><P>Current liabilities: </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
<TD WIDTH="18%" VALIGN="BOTTOM" HEIGHT=24><P></P></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Accounts payable</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 55,343 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 21,729 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Installment note payable to bank</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">40,000 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Working interest owner's drilling prepayments</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">             3,786</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">              -     </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Total current liabilities</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">           99,129</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         21,729</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Long-term portion of note payable</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Installment note payable to bank</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">190,000 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Deferred income taxes</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" COLSPAN=2>
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Stockholders' equity:</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Common stock</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">849 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">150,000 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Capital in excess of stated value</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,379,285 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,230,134 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=2><P>Retained earning (deficit)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">       (873,498</U>)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      (781,413</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         506,636</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        598,721</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$   795,765</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$      620,450</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="56%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<B><FONT SIZE=2><P ALIGN="CENTER">See accompanying notes</B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="CENTER"> </P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=630>
<TR><TD VALIGN="TOP" COLSPAN=6 HEIGHT=66>
<P ALIGN="CENTER"><B><FONT SIZE=2>GLADSTONE ENERGY, INC. <BR>
STATEMENTS OF OPERATIONS<BR>
For the three months and nine months ended September 30, 1999 and 1998</B><BR>
</FONT><B><FONT SIZE=1>(Unaudited)</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="28%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="CENTER">For the three months ended</P>
<U><P ALIGN="CENTER">        September 30,           </B></U></FONT></TD>
<TD WIDTH="31%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="CENTER">For the nine months ended</P>
<U><P ALIGN="CENTER">             September 30,               </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P> </B></FONT></TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="CENTER">      1999      </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="CENTER">1998<BR>
</FONT><U><FONT SIZE=1>(Consolidated)</B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="CENTER">      1999      </B></U></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="CENTER">1998<BR>
</FONT><U><FONT SIZE=1>(Consolidated)</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Sales:</B></FONT></TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Gas and oil</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 82,511 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 62,615 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 142,771 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">$ 206,907 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Administrative charges</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         13,045 </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -     </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         13,045 </B></U></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -     </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">95,556 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">62,615 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">155,816 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">206,907 </B></FONT></TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Cost of sales:</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Production taxes</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">9,169 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">2,817 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">15,419 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">9,129 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Well operating expense</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         17,123</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        31,122</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         31,396</U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        91,452</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         26,292 </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        33,939</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         46,815 </B></U></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      100,581</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Gross profit on sales</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         69,264</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        28,676</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      109,001</U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      106,326</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Expenses:</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Dry hole and abandonment loss </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">24,764 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">25,828 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">19,732 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">219,083 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Depletion</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">23,063 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">20,271 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">42,493 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">68,602 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Prospect expenses</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">21,115 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">21,115 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Depreciation and amortization</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">2,666 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">3,096 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">6,490 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">8,963 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>General and administrative</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">18,279 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,896 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">44,778 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">7,075 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Interest</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">2,665 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">2,665 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">-     </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Taxes</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">491 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">240 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">599 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">352 </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Legal, auditing and accounting</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        12,190</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          2,414</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        72,357</U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        13,367</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      105,233</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        53,745</U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      210,229</U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      317,442</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">( 35,969)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">( 25,069)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">(101,228)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">(211,116)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Other income:</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Interest income</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">4,056 </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">649</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">9,143 </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">3,519</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Net unrealized gain (losses) on marketable securities</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -    </U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">       (31,330</U>)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -    </U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">       (90,714</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Income (loss) before taxes</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">(31,913)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">( 55,750)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">(92,085)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">(298,311)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Income taxes</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -    </U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -    </U> </B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">               -    </U> </B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          (1,300</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>NET INCOME (LOSS)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$     (31,913</U>)<U> </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$     (55,750</U>)<U> </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$      (92,085</U>)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$      (297,011</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="40%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Earnings per share:</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Basic earnings per share <BR>
    (See Note 8)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$       (.04</U>)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$           (.07) </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$        (.11</U>)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              (.35) </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="9%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="31%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Diluted earnings per share<BR>
    (See Note 8)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$        (.04</U>)</B></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$           (.07) </B></U></FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$        (.11</U>)</B></FONT></TD>
<TD WIDTH="17%" VALIGN="BOTTOM">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              (.35) </B></U></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<B><FONT SIZE=2><P ALIGN="CENTER">See accompanying notes</B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="CENTER"> </P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=637>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P ALIGN="CENTER"><B><FONT SIZE=2>GLADSTONE ENERGY, INC. </P>
<P ALIGN="CENTER">STATEMENTS OF STOCKHOLDERS' EQUITY</P>
<P ALIGN="CENTER">For the nine months ended September 30, 1999 (Unaudited)</P>
<P ALIGN="CENTER">and the year ended December 31, 1998 (Audited)</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Capital in</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Excess of</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Retained</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Common</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Stated</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Earnings</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="CENTER">     Stock (A)   </B></U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="CENTER">       Value       </B></U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="CENTER">     (Deficit)     </B></U></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="CENTER">         Total        </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Balance at December 31, 1997</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">$       150,000 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">$    1,230,134 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">$     (295,146)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">$    1,084,988 </B></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Net loss for the year 1998</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -    </U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -    </U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      (486,267</U>)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">     (486,267</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Balance at December 31, 1998</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">150,000 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">1,230,134 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">(781,413)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">598,721 </B></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Net change for the period (A)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">(149,151)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="RIGHT">149,151 </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Net loss for the period</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -    </U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -    </U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (92,085</U>)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (92,085</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=2><P>Balance at September 30, 1999</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$ 849</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$ 1,379,285</U> </B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$ (873,498</U>)</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$     506,636</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="28%" VALIGN="TOP" COLSPAN=2 HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="16%" VALIGN="TOP">
<B><FONT SIZE=2><P>(A)</B></FONT></TD>
<TD WIDTH="84%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=1><P ALIGN="JUSTIFY">On August 10, 1999, the Company effected a 1 for 5 reverse stock split. On August 13, 1999, the Company reincorporated as a Delaware corporation. Prior to the reverse stock split and reincorporation, Common Stock
consisted of no par value shares only. There were 6,000,000 shares authorized and 4,244,060 shares issued and outstanding immediately prior to the 1 for 5 reverse stock split. The stated value for all outstanding shares prior to the 1 for 5 reverse stock
split was $150,000. As a result of the reincorporation the Company's authorized capital consists of 10,000,000 shares of Common Stock with par value of $.001 per share and 5,000,000 shares of Preferred Stock with a par value of $.001 per share. At
September 30, 1999, there were 848,791 shares of Common Stock outstanding. See NOTE 1 - ORGANIZATION</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=6>
<B><FONT SIZE=2><P ALIGN="CENTER">See accompanying notes</B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="CENTER"> </P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=635>
<TR><TD VALIGN="TOP" COLSPAN=9>
<P ALIGN="CENTER"><B><FONT SIZE=2>GLADSTONE ENERGY, INC. </B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<B><FONT SIZE=2><P ALIGN="CENTER">STATEMENTS OF CASH FLOWS</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<B><FONT SIZE=2><P ALIGN="CENTER">For the nine months ended September 30, 1999 and 1998</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<B><FONT SIZE=1><P ALIGN="CENTER">(Unaudited)</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="41%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P> </B></FONT></TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="CENTER">      1999      </B></U></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="CENTER">1998<BR>
<U>(Consolidated)</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Cash flows from operating activities:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Net earnings (loss)</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">$       (92,085)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">$    (297,011)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="4%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="62%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Adjustments to reconcile net earnings to net</B></FONT></TD>
<TD WIDTH="6%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="16%" VALIGN="BOTTOM">
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="41%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Cash provided by (to) operating activities:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Depreciation, depletion and amortization</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">48,983 </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">77,565 </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>(Increase) decrease in accounts receivable</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">(93,267)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">24,726 </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Marketable securities unrealized loss</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">-      </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">90,714 </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Decrease in oil and gas properties</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">-      </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">48,626 </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Increase in accounts payable</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">33,614 </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">11,943 </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>Prepayments from working interest owners</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">3,786 </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">-      </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P>(Decrease) in deferred taxes</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -     </U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">           (1,300</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Net cash from (to) operating activities</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         (98,969</U>)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (44,737</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="3%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="38%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Cash flows from (to) investing activities:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Sale of oil and gas properties</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">315,000 </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">-      </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Investment in oil and gas properties</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">       (352,609</U>)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         (24,996</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Net cash (to) from investing activities</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         (37,609</U>)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         (24,996</U>)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Cash flows from financing activities:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Proceeds from bank loan</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         221,652</U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                -     </U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Net increase (decrease) in cash</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">85,074 </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="RIGHT">(69,733)</B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Cash beginning of period</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">           23,372</U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">         114,071</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Cash at end of period</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$      108,446</U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$        44,338</U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="BOTTOM" COLSPAN=5>
<B><FONT SIZE=2><P>Supplemental disclosure of cash flow information:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="48%" VALIGN="BOTTOM" COLSPAN=4>
<B><FONT SIZE=2><P>Cash paid during the period for:</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="41%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Interest</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$           2,665</U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              -     </U> </B></FONT></TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="41%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
</TR>
<TR><TD WIDTH="12%" VALIGN="BOTTOM">
<P> </TD>
<TD WIDTH="7%" VALIGN="BOTTOM" COLSPAN=2>
<P> </TD>
<TD WIDTH="41%" VALIGN="BOTTOM" COLSPAN=2>
<B><FONT SIZE=2><P>Federal income taxes</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$               -     </U> </B></FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              -     </U> </B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<P> </TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=9>
<B><FONT SIZE=2><P ALIGN="CENTER">See accompanying notes</B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P> </P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
<P ALIGN="CENTER">September 30, 1999</P>
<P ALIGN="CENTER"> </P>
<P> </P>
<P>NOTE 1 - ORGANIZATION</P>
<P ALIGN="JUSTIFY">Gladstone Resources, Inc. (the "Company") was incorporated in the State of Washington on July 19, 1916. In March, 1973, the Company acquired 100% ownership of Brooks NM, Inc., a Texas corporation (now named NM Corporation). </P>
<P ALIGN="JUSTIFY">At the Company's Annual Meeting of Stockholders, on July 15, 1999, the stockholders of the Company approved an amendment to the Company's Restated Articles of Incorporation authorizing a 1 for 5 reverse stock split, which became
effective August 10, 1999. All share and per share numbers have been adjusted retroactively to record the effects of the reverse split. </P>
<P ALIGN="JUSTIFY">On August 10, 1999, the Company changed its name to Gladstone Energy, Inc. and merged its wholly owned subsidiary, NM Corporation, into the Company. All financial information for 1998 is for the Company and its then existing subsidiary,
NM Corporation, and is prepared on a consolidated basis. </P>
<P ALIGN="JUSTIFY">At the Company's 1999 Annual Meeting of Stockholders, the stockholders of the Company also approved the merger of the Company into a wholly-owned subsidiary of the Company organized under the laws of the State of Delaware
("Gladstone-Delaware") in order to effect the change of the Company's state of incorporation from Washington to Delaware (the "Reincorporation"). In connection with the Reincorporation, the stockholders adopted provisions of the Certificate of
Incorporation of Gladstone-Delaware which, among other provisions, authorizes up to 10 million shares of common stock, par value $.001 per share and up to 5 million shares of preferred stock, par value $.001 per share. The Reincorporation occurred on
August 13, 1999. In the Reincorporation, each outstanding share of the Company's common stock, no par value (after giving effect to the reverse stock split) was automatically converted into one share of the common stock, par value $.001 of
Gladstone-Delaware. </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P><DIR>

<P ALIGN="JUSTIFY">NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</P></DIR>

<P ALIGN="JUSTIFY">On an accrual basis, the Company uses the successful efforts method of accounting. This method follows the premise that an enterprise is to capitalize only those costs it incurs that directly result in an asset that has future benefits
measured in terms of future cash flows.</P>
<P ALIGN="JUSTIFY">For 1998 financial information only, which is for the Company and its then existing subsidiary, NM Corporation, and which was prepared on a consolidated basis, all intercompany transactions have been eliminated.</P>
<P ALIGN="JUSTIFY">For purposes of the statements of cash flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at September 30, 1999, or
December 31, 1998. There were no significant non-cash investing or financing activities during the periods ended September 30, 1999 and December 31, 1998.</P>
<P ALIGN="JUSTIFY">Depreciation, depletion and amortization are calculated using the straight-line and unit of production method over the estimated useful lives of the assets or production of the estimated recoverable oil and gas reserves.</P>
<P ALIGN="JUSTIFY">For income tax reporting, the Company uses accounting methods that recognize depreciation sooner than for financial statement reporting As a result, the basis of property and equipment for financial reporting exceeds its tax basis by
the cumulative amount that accelerated depreciation exceeds straight-line depreciation. Also, for tax purposes the Company deducts intangible drilling costs and capitalizes them on the successful efforts accounting method. Deferred income taxes had been
recorded in prior years for the excess deductions, which will be taxable in future periods through reduced depreciation and cost depletion deductions for tax purposes. Currently no deferred tax and no tax benefits have been calculated since the Company
does not have the ability to generate taxable income in excess of the net operating loss carryover.</P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
<P ALIGN="CENTER">September 30, 1999</P>
<P ALIGN="JUSTIFY">Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.</P>
<P ALIGN="CENTER">NOTE 3 - MARKETABLE (TRADING) SECURITIES</P>
<P>Cost and fair market value of marketable equity securities at September 30, 1999, and December 31, 1998, are as follows:</P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=638>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Gross</B></FONT></TD>
<TD WIDTH="22%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Unrealized</B></FONT></TD>
<TD WIDTH="22%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Fair</B></FONT></TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><U><FONT SIZE=2><P>September 30, 1999      </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">               Cost               </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">         Gain (Loss)         </B></U></FONT></TD>
<TD WIDTH="22%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">            Value            </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><FONT SIZE=2><P>Trading Securities:</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="22%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><FONT SIZE=2><P>Equity (common) securities </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$            109,071         </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$          (109,071)        </B></FONT></TD>
<TD WIDTH="22%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$                -                </B></FONT></TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="22%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><U><FONT SIZE=2><P>December 30, 1998       </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="22%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><FONT SIZE=2><P>Trading Securities:</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="22%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="33%" VALIGN="TOP">
<B><FONT SIZE=2><P>Equity (common) securities </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$            109,071         </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$          (109,071)        </B></FONT></TD>
<TD WIDTH="22%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$                -                </B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="JUSTIFY">NOTE 4 - ACCOUNTS RECEIVABLE</P>
<P ALIGN="JUSTIFY">Of the net revenue interest amount of $99,396 due from oil and gas sales and joint interest billings as of September 30, 1999, $44,042 has been received from the operators and participants as of the date of this report. The sales to the
customers are on open accounts receivable, which are unsecured.</P>
<P>NOTE 5 - PROPERTY AND EQUIPMENT</P>
<U><P>Gas and oil properties</P>
</U><P ALIGN="JUSTIFY">In March 1973, the Company acquired 100% ownership of Brooks NM, Inc. (NM Corporation), a Texas corporation, in exchange for 453,000 shares of common stock. As of August 10, 1999, NM Corporation was merged with the parent company.
The Company currently owns oil and gas interests in Louisiana, New Mexico and Texas.</P>
<P ALIGN="JUSTIFY">The Company owns a 28.71% net revenue interest in 5 producing gas wells in San Juan County, New Mexico. In 1994, the Company participated in a re-entry well drilled to replace a shut-in well. The new well began production in October 1994.
 </P>
<P ALIGN="JUSTIFY">Currently, the Company has producing wells in Pecos County in Texas, San Juan County in New Mexico, and in Beauregard and Allen Parishes of Louisiana. On January 19, 1999, the Company sold its oil and gas properties in Schleicher and
Kent Counties, Texas to EXCO Resources, Inc., a Texas corporation ("EXCO"). These properties included 66 gross productive wells (9.75 net productive wells) with current net production of approximately 42.18 barrels of oil and 126,000 cubic feet of natural
gas per day, and 6 gross (.75 net) non-producing wells. These properties constituted approximately 90.418% of the gross productive wells (71.17% net productive wells) and approximately 88.68% of the barrels of oil and 59.38% of the cubic feet of natural
gas per day produced by all of the Company's oil and gas properties held at that time.</P>
<P ALIGN="JUSTIFY">The Company closed, on July 15, 1999, an acquisition of 12.25% working interest in the Righthand Creek Field located in Beauregard and Allen Parishes of Louisiana. The effective date of the acquisition was May 1, 1999. The interest
consists of 6 producing wells (.735 net productive wells) with current net production of approximately 55 barrels of oil and 3,000 cubic feet of natural gas per day, 1 injection well, and 2 gross (.245 net) non-producing wells. As of the date of this
report, the operator is in the process of re-working one of the non-producing wells and is preparing to spud an offset well. </P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
</FONT><FONT FACE="CG Times" SIZE=2><P ALIGN="CENTER">September 30, 1999</P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY">A summary of changes in the Company's gas reserves (in MCF's) is as follows (oil reserves have been included as MCF's by multiplying barrels by 6). ALL RESERVE AMOUNTS, INCLUDING THE REVISIONS, HAVE BEEN FURNISHED BY
THE COMPANY MANAGEMENT AND HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT PETROLEUM ENGINEERS. The Company believes there are no "proved undeveloped reserves" at September 30, 1999.</P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=480>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<P> </TD>
<TD WIDTH="45%" VALIGN="TOP" COLSPAN=2>
<B><U><FONT SIZE=2><P ALIGN="CENTER">Total for United States in MCF's</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">September 30,<BR>
<U>       1999       </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">December 31,<BR>
<U>       1998       </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Beginning of period (January 1)</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,160,243      </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">1,293,559        </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Purchase of reserves</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">512,376      </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-        </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Deduction for sale of leases</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">(976,459)     </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-        </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Adjustment to reserves (1)</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-        </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">(4,284)       </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Production (total to date)</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (56,532</U>)     </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (129,032</U>)       </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P>Balance at end of period</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        639,629</U>      </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">      1,160,243</U>        </B></FONT></TD>
</TR>
<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="6%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">(1)</B></FONT></TD>
<TD WIDTH="94%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=2><P>Based on reevaluation of estimated reserves by the Company.  The estimates were based on current production levels of all properties.</B></FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P>NOTE 6 - FEDERAL AND STATE INCOME TAXES</P>
<P>A reconciliation of income tax expense (benefit) computed by applying the U.S. federal tax rates to loss from continuing operations before income taxes and extraordinary items and recorded income tax expense (benefit) is as follows:</P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=480>
<TR><TD WIDTH="79%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">       1998      </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Tax expense (benefit) at statutory rate</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$       (73,135)     </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Non-deductible items</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">34,158      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Change in valuation allowance</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">          37,677</U>      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$       (  1,300</U>)     </B></FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P>The components of the Company's deferred income taxes for 1998 are as follows:</P></B></FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=480>
<TR><TD WIDTH="79%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P>         1998        </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Amortization of asset cost</B></FONT></TD>
<TD WIDTH="21%" VALIGN="BOTTOM">
<B><FONT SIZE=2><P ALIGN="RIGHT">$         (5,556)     </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Depreciation</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">11,323      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Cost depletion</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">(61,237)     </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Intangible development costs</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">29,540      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Impairment of asset value</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">27,292      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Net operating loss carryforward</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">43,150      </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Valuation allowance</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">        (44,512</U>)     </B></FONT></TD>
</TR>
<TR><TD WIDTH="79%" VALIGN="TOP">
<B><FONT SIZE=2><P>Total</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              -     </U>      </B></FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P><BR>
Net operating loss deductions and credits carryforward consists of the following:</P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=594>
<TR><TD WIDTH="27%" VALIGN="TOP">
<P ALIGN="CENTER"><B><FONT SIZE=2>From year</B></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">Year</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">               Ended                 </B></U></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">              Expires              </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">              Losses              </B></U></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="CENTER">              Credit              </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-84</B></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-99</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$                     -                
</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">$                    384          </B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-94</B></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-09</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">100,759          </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-               </B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-97</B></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-12</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">57,877          </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">-               </B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-98</B></FONT></TD>
<TD WIDTH="27%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">12-31-13</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">              129,028</U>          </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">                     -       </U>        
</B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="27%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$              287,664</U>          </B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><U><FONT SIZE=2><P ALIGN="RIGHT">$                    384</U>          </B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P>Utilization of losses will be limited due to change of control which occurred in this period.</P>
<P>At December 31 1998, there was $289,609 of statutory depletion carryforward to 1999.</P>
<P>At December 31 1998, there was a Section 179 depreciation carryforward of $55,000 to 1999.</P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
<P ALIGN="CENTER">September 30, 1999</P>
<P> </P>
<P>NOTE 7 - COMMITMENT AND CONTINGENCY</P>
<P>At September 30, 1999, the Company had no material commitments.</P>
<P> </P>
<P>NOTE 8 - COMMON STOCK</P>
<P>Currently the Company's common stock is not traded on any exchange or automated quotation system.</P>
<P>At September 30, 1999, there were no outstanding stock options issued by the Company.</P>
<P>The following shares of common stock were outstanding for the periods under report.</P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=612>
<TR><TD WIDTH="64%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">September 30,<BR>
<U>         1999        </B></U></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">December 31,<BR>
<U>         1998         </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP">
<B><FONT SIZE=2><P>Common stock, no par value</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">4,244,060        </B></FONT></TD>
</TR>
<TR><TD WIDTH="64%" VALIGN="TOP">
<B><FONT SIZE=2><P>Common stock, $.001 par value</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">848,791       </B></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P> </TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P>At the Annual Shareholders' Meeting, held on July 15, 1999, a one for five reverse split was approved, which was effected August 10, 1999. </P>
<P>With the reincorporation to Delaware, 10,000,000 shares of common stock, par value $.001 per share were authorized and 5,000,000 shares of preferred stock, par value $.001, were authorized.</P>
<P> </P>
<P>NOTE 9 - SIGNIFICANT ESTIMATES AND CONCENTRATIONS</P>
<P ALIGN="JUSTIFY">Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters included the following:</P>
<P ALIGN="JUSTIFY">1. <U>Year 2000 Readiness Disclosure</P><DIR>

</U><P ALIGN="JUSTIFY">Like all entities, the Company is exposed to risks associated with the Year 2000 issue which affects computer software and hardware; transactions with customers, vendors and other entities; and equipment dependent on microchips. The
Company has begun but not yet completed the process of identifying and remediating potential Year 2000 problems. It is not possible for any entity to guarantee the results of its own remediation efforts or to accurately predict the impact of the Year 2000
issue on third parties with which the Company does business. If remediation efforts of the Company or third parties with which it does business are not successful, the Year 2000 problem could have negative effects on the Company's financial condition and
results of operations in the near term.</P>
<P ALIGN="JUSTIFY"> </P></DIR>

<P ALIGN="JUSTIFY">2. <U>Major Customers</P><DIR>

</U><P ALIGN="JUSTIFY">In 1998, the Company had two customers which represented 47% and 23% of their total revenue.</P>
<P ALIGN="JUSTIFY"> </P></DIR>

<P ALIGN="JUSTIFY">NOTE 10 - RENT EXPENSE</P>
<P ALIGN="JUSTIFY">The Company currently pays rent of $575.00 per month to Humphrey Oil Corporation, inclusive of phone service. Rent expense through September 30, 1999 was $5,088. The Company does not have a commitment on a lease contract. Rent expense
for 1998 was $6,606.</P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
<P ALIGN="CENTER">September 30, 1999</P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">NOTE 11 - ACQUISITION OF PROPERTIES</P>
<P ALIGN="JUSTIFY">The Company closed, on July 15, 1999, with an effective date of May 1, 1999, an acquisition of 12.25% working interest in the Right Hand Creek Field located in Beauregard and Allen Parishes of Louisiana (collectively, the "Right Hand
Creek Properties") from Humphrey Oil Interests, L.P., a Texas limited partnership ("Humphrey") (Charles B. Humphrey, a Director of the Company, is the limited partner in Humphrey and President of Humphrey Oil Corporation, its general partner) being 50% of
the interest acquired by Humphrey from EXCO Resources, Inc. effective May 1, 1999. The Right Hand Creek Properties include 6 gross productive wells (.735 net productive wells) with current net production of approximately 55 barrels of oil and 2 gross
(.245 net) non-producing wells that will require recompletions and/or workovers. The Right Hand Creek Properties include 725.3 gross (88.85 net) developed acres and 234.22 gross (28.69 net) undeveloped acres. Based on independent engineering estimates as
of June 1, 1999, the Right Hand Creek Properties are estimated to contain 956,097 gross (85,396 net) barrels of oil and no gross or net million cubic feet of natural gas or proved reserves. The aggregate purchase price paid for the Right Hand Creek
Properties was $349,125. The Company borrowed $230,000 of the purchase price under a new credit facility and the balance of the purchase price was paid out of working capital. </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">NOTE 12 - CREDIT AGREEMENT </P>
<P ALIGN="JUSTIFY">On July 15, 1999, the Company entered into a credit facility (the "Credit Facility") with Compass Bank (the "Lender"). The Credit Facility provides for borrowings up to $15 million, subject to borrowing base limitations. </P>
<P ALIGN="JUSTIFY">The Credit Facility consists of a regular revolver which at October 1, 1999, had a borrowing base of $230,000. A portion of the borrowing base is available for the issuance of letters of credit. All borrowings under the Credit Facility
are secured by a first lien deed of trust providing a security interest in certain oil and natural gas working interests in the Right Hand Creek Properties. </P>
<P ALIGN="JUSTIFY">The Credit Facility provides that the unpaid principal balance of the loans shall bear interest, payable as it accrues on the 1st day of each month, commencing September 1, 1999, and at maturity (stated or by acceleration), at a rate
per annum equal to the lesser of the (i) Highest Lawful Rate or (ii) 1% over the CBIR rate from time to time in effect, as therein defined. The Credit Facility also permits the Company to repay and reborrow amounts under the Credit Facility without any
penalty, thereby, allowing the Company the flexibility to utilize any available cash to reduce its outstanding indebtedness and thus, its cost of borrowed funds. </P>
<P ALIGN="JUSTIFY">Under the terms of the Credit Facility, the Company must not permit its Current Ratio (as defined) of Current Assets (as defined) to its Current Liabilities (as defined) to be less than 1.21 for 5.0 at any time. Furthermore, the Company
must not permit its Tangible Net Worth (as defined) to be less at any time than $1.00 plus (i) 50% of positive Net Income (as defined) for all quarterly periods ending subsequent to December 31, 1998, plus (ii) 100% of any Equity Infusions (as defined) to
Debt Service (as defined) to be less than 1.21 for 5.0, determined as of the end of each fiscal quarter of the Company on or after September 30, 1999. </P>
<P ALIGN="JUSTIFY">A new Borrowing Base shall be determined as of each April 1 and October 1 during the Revolving Credit Period (the "semi-annual determinations"), or at such other or additional times during the Revolving Credit Period as the Lender in
its reasonable discretion and at its sole cost may elect ("discretionary determinations"), and the Lender shall determine a new Borrowing Base at such additional times, but no more often than one (1) time in any 12-month period without Lender's consent,
as the Company may request ("Borrower requested determinations"). </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="CENTER">GLADSTONE ENERGY, INC.</P>
<P ALIGN="CENTER">NOTES TO FINANCIAL STATEMENTS (Unaudited)</P>
</FONT><FONT FACE="CG Times" SIZE=2><P ALIGN="CENTER">September 30, 1999</P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY">The Borrowing Base shall be automatically reduced as of the 1st day of each month commencing February 1, 2000, and continuing through the Revolving Credit Period. The initial monthly reduction shall be in the amount
of $5,000 per month. At the time of each new semi-annual determination, the Lender, in its sole discretion may increase or decrease the amount of such monthly reduction. If a Borrowing Base Deficiency (as defined) exists after giving effect to a
redetermination, then the Company must either (i) prepay the principal of the outstanding Loans or (ii) cause to be created first and prior perfected Liens (subject only to Permitted Liens, as defined) in favor of the Lender, by instruments satisfactory
to the Lender, on producing oil and gas properties, which in the opinion of the Lender would increase the Borrowing Base by an amount sufficient, in combination with clause (i) preceding, to eliminate such Borrowing Base deficiency. </P>
<P ALIGN="JUSTIFY">The Credit Facility contains a number of covenant affecting the Company's liquidity and capital resources, including restrictions a the Company's ability (i) to incur indebtedness other than (a) under the Credit Facility or (b)
Permitted Indebtedness, as defined, or (ii) to pledge assets outside of the Credit Facility, other than Permitted Liens, and with respect to the Company's maintenance of a minimum net worth. </P>
<P ALIGN="JUSTIFY"> </P>
</FONT><P ALIGN="CENTER">  </P>
<P ALIGN="CENTER">Item 2.</P>
<P ALIGN="CENTER">Gladstone Energy, Inc.</P>
<P ALIGN="CENTER">MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL </P>
<P ALIGN="CENTER">CONDITION AND RESULTS OF OPERATIONS</P>
</B><I><P ALIGN="JUSTIFY">This <FONT FACE="CG Times">quarterly report on form 10-Q of the Company contains "forwarding-looking statements" within the meaning of, Section 27a of the Securities Act of 1933, as amended (the "Securities Act"), and section 21e
of the Securities Exchange Act of 1934, as amended (the "exchange act"). Specifically, all statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy and plans and objectives
of management of the Company for future operations are forward- looking statements. These forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's
management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements.
Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, price levels for oil and natural gas,
concentration of oil and natural gas reserves and production, drilling risks, uncertainty of oil and gas reserves, risks associated with the development of additional revenues and with the acquisition of oil and gas properties and other energy assets,
operating hazards and uninsured risks, general economic conditions, governmental regulation, changes in industry practices, marketing risks, one time events and other factors described herein ("cautionary statements"). Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward- looking
statements. All subsequent written and oral forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. Reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information - Cautionary Statements" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, which is incorporated herein by
reference.</P>
</I></FONT><B><U><FONT SIZE=2><P ALIGN="JUSTIFY">Results of Operations - Comparison of Three and Nine Month Periods Ended September 30, 1999 and 1998</P>
<P ALIGN="JUSTIFY">Sale and Acquisition of Properties</U>. On January 19, 1999, the Company sold its oil and gas properties in Schleicher and Kent Counties, Texas (the "Properties Sale") to EXCO Resources, Inc., a Texas corporation ("EXCO"). These
properties included 66 gross productive wells (9.75 net productive wells) with current net production of approximately 42.18 barrels of oil and 126,000 cubic feet of natural gas per day, and 6 gross (.75 net) non-producing wells. These properties
constituted approximately 90.418% of the gross productive wells (71.17% net productive wells) and approximately 88.68% of the barrels of oil and 59.38% of the cubic feet of natural gas per day produced by all of the Company's oil and gas properties. The
Company's results of operations were significantly affected by the Properties Sale.</P>
<P ALIGN="JUSTIFY">The Company closed, on August 10, 1999, with an effective date of May 1, 1999, an acquisition of 12.25% working interest in the Right Hand Creek Field located in Beauregard and Allen Parishes of Louisiana (collectively, the "Right Hand
Creek Properties") from Humphrey Oil Interest, L.P., a Texas limited partnership ("Humphrey") (Charles B. Humphrey, a Director of the Company, is the limited partner in Humphrey and President of Humphrey Oil Corporation, its general partner) being 50% of
the interest acquired by Humphrey from EXCO Resources, Inc. effective May 1, 1999. The Right Hand Creek Properties include 6 gross productive wells (.735 net productive wells) with current net production of approximately 55 barrels of oil and no cubic
feet of natural gas per day, 1 injection well, and 2 gross (.245 net) non-producing wells that will require recompletions and/or workovers. The Right Hand Creek Properties include 725.3 gross (88.85 net) developed acres and 234.22 gross (28.69 net)
undeveloped acres. Based on independent engineering estimates as of June 1, 1999, the Right Hand Creek Properties are estimated to contain 956,097 gross (85,396 net) barrels of oil and no gross or net million cubic feet of natural gas or proved reserves.
The Company's revenues were significantly affected by the acquisition.</P>
<U><P ALIGN="JUSTIFY">Net Income (Loss)</U>. The Company had a net loss for the three month period ended September 30, 1999 of ($31,913) compared to the net loss of ($55,750) for the corresponding period of 1998, representing ($.04) per share for the
period in 1999 and ($.07) per share for the same period in 1998. The Company had a net loss for the nine month period ended September 30, 1999 of ($92,085) compared to the net loss of ($297,011) for the corresponding period of 1998, representing ($.11)
per share for the period in 1999 and ($.35) per share for the same period in 1998. Earnings per share figures have been adjusted retroactively to record the effects of the reverse split.</P>
<U><P ALIGN="JUSTIFY">Revenues</U>. Revenues for the three month period ended September 30, 1999 were $95,556 compared with $62,615 for the corresponding period in 1998, a 52% increase. These increases in revenues were primarily a result of the
acquisition of the Right Hand Creek Properties, which was effective as of May 1, 1999. Revenues for the nine month period ended September 30, 1999 were $142,771 compared with $206,907 for the corresponding period in 1998, a 31% decrease. These decreases
in revenues were primarily a result of the Properties Sale, which was effective as of October 1, 1998.</P>
<U><P ALIGN="JUSTIFY">Costs and Expenses</U>. Costs and expenses for the three month period ended September 30, 1999 increased $51,488, or 96, to $105,233 versus $53,745 for the corresponding period of 1998. General and administrative expenses increased
due to administrative fees paid to prepare for and conduct or implement the annual meeting, the change of incorporation from Washington to Delaware, the 1 for 5 reverse split, and reporting related to these actions and to the addition of an officers and
directors insurance policy that had not previously been carried. Legal, auditing, and accounting fees increased $9,776, or 405%, from $2,414 for the three month period ended September 30, 1998 to $12,190 for the same period in 1999, due to legal and
accounting time necessary to prepare for and conduct or implement the annual meeting, the change of incorporation from Washington to Delaware, the 1 for 5 reverse split. Costs and expenses for the nine month period ended September 30, 1999 decreased
$107,213, or 34%, to $210,229 versus $317,442 for the corresponding period of 1998. Decreases in most expense items were primarily a result of the Properties Sale, which occurred on January 1, 1999, but was effective as of October 1, 1998. General and
administrative expenses increased due to administrative fees paid to prepare for and conduct or implement the annual meeting, the change of incorporation from Washington to Delaware, the 1 for 5 reverse split, reporting related to these actions, and to
improve reporting procedures in readiness of future activities and to the addition of an officers and directors insurance policy that had not previously been carried. Legal, auditing, and accounting fees increased $58,990, or 441%, from $13,367 for the
nine month period ended September 30, 1998 to $72,357 for the same period in 1999, due to legal and accounting time necessary to prepare for and conduct or implement the annual meeting, the change of incorporation from Washington to Delaware, the 1 for 5
reverse split, reporting related to these actions, as well as improving reporting procedures in readiness of future activities.</P>
<U><P ALIGN="JUSTIFY">Liquidity and Capital Resources</P>
</U><P ALIGN="JUSTIFY">Prior to the third quarter of 1999, the Company has financed its operating and capital expenditure requirements principally through cash flow from operations. The Company funded capital expenditures in the third quarter in part
through borrowing under the Credit Facility.</P>
<P ALIGN="JUSTIFY">Cash increased $85,074 to $108,446 at September 30, 1999, from $23,372 at December 31, 1998, as a result of the Properties Sale and the prepayment by participating parties of the Cache Creek #1 well. The sale price received in the
Properties Sale was $315,000, and has been utilized for the payment of expenses with the remainder being invested in a money market savings until it can be used for future acquisitions. The amount of participating parties remaining prepayment of drilling
and completion costs as of September 30, 1999 for the Cache Creek #1 well was $3,786. Accounts receivable increased $93,267 to $99,396 from $6,129 during the nine months ended September 30, 1999 and accounts payable increased $33,614 to $55,343 from
$21,729 during the nine months ended September 30, 1999. The increase in accounts receivable is primarily due to the Right Hand Creek Properties acquisition as well as higher oil prices for the period, while the increase in accounts payable is primarily
due to lease operating expenses related to the Right Hand Creek Properties, and to the drilling of the Cache Creek #1 well. Earnings before interest, taxes, depreciation, depletion and amortization ("EBITDA") for the nine month period ended September 30,
1999 was ($48,890) or (.06) per share for the nine month period in 1999 compared to ($141,266), or ($.17) per share for the same period in 1998. (Per share figures have been adjusted retroactively to record the effects of the reverse split.) Management is
of the opinion that any significant acquisitions, projects or drilling and/or recompletion work will require debt and/or equity financing. There is no assurance that the Company will be able to borrow additional amounts under the Credit Facility or obtain
other debt and/or equity financing for any significant activities. The Company plans to raise capital through a private offering to qualified investors with the capital raised being used to acquire oil and gas properties to increase and solidify the
company's cash flow and reserve base. </P>
<P ALIGN="JUSTIFY">On July 15, 1999, the Company entered into a credit facility (the "Credit Facility") with Compass Bank (the "Lender"). The Credit Facility provides for borrowings up to $15 million, subject to borrowing base limitations. </P>
<P ALIGN="JUSTIFY">The Credit Facility consists of a regular revolver which at October 1,1999, had a borrowing base of $230,000. The Company borrowed $230,000 under the Credit Facility on July 15, 1999 to pay a portion of the purchase price for the
Company's interest in the Right Hand Creek Properties. A portion of the borrowing base is available for the issuance of letter of credit. All borrowings under the Credit Facility are secured by a first lien deed of trust providing a security interest in
certain oil and natural gas working interests in the Right Hand Creek Field.</P>
<P ALIGN="JUSTIFY">The Credit Facility provides that the unpaid principal balance of the loans shall bear interest, payable as it accrues on the 1st day of each month, commencing September 1, 1999, and at maturity (stated or by acceleration), at a rate
per annum equal to the lesser of the (i) Highest Lawful Rate or (ii) 1% over the CBIR rate from time to time in effect, as therein defined. The Credit Facility also permits the Company to repay and reborrow amounts under the Credit Facility without any
penalty, thereby allowing the Company the flexibility to utilize any available cash to reduce its outstanding indebtedness and, thus, its cost of borrowed funds. </P>
<P ALIGN="JUSTIFY">Under the terms of the Credit Facility, the Company must not permit its Current Ratio (as defined) of Current Assets (as defined) to its Current Liabilities (as defined) to be less than 1.21 for 5.0 at any time. Furthermore, the Company
must not permit its Tangible Net Worth (as defined) to be less at any time than $1.00 plus (i) 50% of positive Net Income (as defined) for all quarterly periods ending subsequent to December 31, 1998, plus (ii) 100% of any Equity Infusions (as defined)
occurring subsequent to December 31, 1998. Furthermore, the Company must not permit the ratio of Cash Flow (as defined) to Debt Service (as defined) to be less than 1.21 for 5.0, determined as of the end of each fiscal quarter of the Company on or after
September 30, 1999. On September 30, 1999, the Company was in compliance with the current ratio covenant, the net worth covenant, and the cash flow covenant.) </P>
<P ALIGN="JUSTIFY">A new Borrowing Base shall be determined as of each April 1 and October 1during the Revolving Credit Period (the "semi-annual determinations"), or at such other or additional times during the Revolving Credit Period as the Lender in its
reasonable discretion and at its sole cost may elect ("discretionary determinations"), and the Lender shall determine a new Borrowing Base at such additional times, but no more often than one (1) time in any 12-month period without Lender's consent, as
the Company may request ("Borrower requested determinations"). </P>
<P ALIGN="JUSTIFY">The Borrowing Base shall be automatically reduced as of the 1st day of each month commencing February 1, 2000, and continuing through the Revolving Credit Period. The initial monthly reduction shall in the amount of $5,000 per month. At
the time of each new semi-annual determination, the Lender in its sole discretion may increase of decrease the amount of such monthly reduction. If a Borrowing Base Deficiency (as defined) exists after giving effect to a redetermination, then the Company
must either (i) prepay the principal of the outstanding Loans or (ii) cause to be created first and prior perfected Liens (subject only to Permitted Liens, as defined) in favor of the Lender, by instruments satisfactory to the Lender, on producing oil and
gas properties, which in the opinion of the Lender would increase the Borrowing Base by an amount sufficient, in combination with clause (i) preceding, to eliminate such Borrowing Base deficiency. </P>
<P ALIGN="JUSTIFY">The Credit Facility contains a number of covenants affecting the Company's liquidity and capital resources, including restrictions on the Company's ability(i) to incur indebtedness other than (a) under the Credit Facility or
(b)Permitted Indebtedness, as defined, or (ii) to pledge assets outside of the Credit Facility, other than Permitted Liens, and with respect to the Company's maintenance of a minimum net worth.</P>
<U><P ALIGN="JUSTIFY">Inflation and Changing Prices</P>
</U><P ALIGN="JUSTIFY">The impact of inflation, as always, is difficult to assess. During the three years ended December 1998, the oil and gas industry remained depressed. As a result, the Company experienced continued weakness in demand and in prices
received for its oil and gas production. The general softening of the market has, however, also reduced the cost of labor, materials, contract services, and other operating costs. The Company cannot anticipate whether the present trend of low inflation
will remain; however, a sudden increase in inflation and/or an increase in operating costs coupled with a continuation of low oil prices could have an adverse effect on the operations of the Company.</P>
</FONT><P ALIGN="JUSTIFY"> </P>
<U><FONT SIZE=2><P ALIGN="JUSTIFY">Year 2000 Readiness Disclosure</P>
</U><P ALIGN="JUSTIFY">"Year 2000," or the ability of computer systems to process dates with years beyond 1999, affects almost all companies and organizations. Computer systems that are not Year 2000 compliant by January 1, 2000 may cause material adverse
effects to companies and organizations that rely upon those systems.</P>
<P ALIGN="JUSTIFY">The Company's timely receipt of royalty income will largely depend upon performance of computer systems and computer-controlled equipment of the operators of the Company's oil and gas producing properties and other third parties
including oil and natural gas purchasers and significant service providers such as electric utility companies and natural gas plant, pipeline and gathering system operators. The Company is seeking written verification from its operators that they will be
Year 2000 compliant. The Company anticipates that the cost of seeking verification will be minimal. The Company believes that it is not practical to independently verify the response it receives because the cost would not be affordable. </P>
<P ALIGN="JUSTIFY">The Company has undertaken an inventory of its financial software and hardware systems for Year 2000 readiness. The Company used an outside consultant to assist in this review. The outside consultant has completed his review and
identified the required upgrades. All required upgrades to the Company's financial software and hardware system were completed by October 30, 1999. The cost of the outside consultant, as well as the cost of upgrades, is expected to be minimal.</P>
<P ALIGN="JUSTIFY">The failure to remediate critical systems (software or hardware), or the failure of a material third party to resolve critical Year 2000 issues could have a serious adverse impact on the Company's ability to continue operations and meet
obligations. Any Year 2000 problems that do occur will likely manifest themselves in reduced production through equipment shut down or impaired liquidity through an inability of the Company's customers to take delivery or to process payment. At the
current time, the Company believes that any interruption in operation will be minor and short-lived. As the Company's review has been completed, it has been determined that due to the minor and short-lived nature of any interruption in operation, a
contingency plan is unnecessary at this time. However, management has appointed specific staff member to closely monitor the situation and to take any and all actions necessary to deal with any interruptions, should they occur.</P>
</FONT><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Part II. Other Information</P>
<P ALIGN="JUSTIFY"> </P>
<U><FONT SIZE=2><P ALIGN="JUSTIFY">Item 4. Submission of Matters to a Vote of Security Holders</P>
</U><P ALIGN="JUSTIFY">Reference is made to "Item 4. Submission of Matters to a Vote of Security Holders" included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, which is incorporated herein by reference.</P>
<U><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Item 5. Other Information</P>
</U><P ALIGN="JUSTIFY">On August 10, 1999, the Company changed its name from Gladstone Resources, Inc. to Gladstone Energy, Inc.</P>
<U><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Item 6. Exhibits and Reports on Form 8-K</P></B></U></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=638>
<TR><TD WIDTH="10%" VALIGN="MIDDLE">
<P ALIGN="RIGHT"><B><FONT SIZE=2>(a)  </B></FONT></TD>
<TD WIDTH="90%" VALIGN="MIDDLE">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">Exhibits</B></FONT></TD>
</TR>
<TR><TD WIDTH="10%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="90%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">See exhibit index</B></FONT></TD>
</TR>
<TR><TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="RIGHT">(b)  </B></FONT></TD>
<TD WIDTH="90%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">Reports on Form 8-K - The Company filed one Report on Form 8-K and one Amended Report on Form 8-K/A during the three months ended September 30, 1999. On July 30, 1999, the Company filed a Report on Form 8-K, Date of
Report: July 15, 1999, reporting an acquisition of assets and incurring bank debt. On September 28, 1999, the Company filed an Amended Report on Form 8-K/A amending its Report on Form 8-K, Date of Report: July 15, 1999, filed July 30, 1999, to include
Unaudited Statement of Operating Revenues and Direct Operating expenses for the Right Hand Creek Properties for the six months ended June 30, 1999 and Proforma Combined Condensed Financial Statement of Gladstone Energy, Inc. for the six months ended June
30, 1999.</B></FONT></TD>
</TR>
</TABLE>

<B><P ALIGN="JUSTIFY"> <FONT SIZE=2> </P>
<P ALIGN="CENTER"> </P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=636>
<TR><TD VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="CENTER">SIGNATURES</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="JUSTIFY"> </B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=2><P ALIGN="JUSTIFY">Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=2> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">GLADSTONE ENERGY, INC.</B></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="50%" VALIGN="TOP">
<P> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">Date: November 11, 1999<U> </B></U></FONT></TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">By: <U>                                   
                                          
      </B></U></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<P> </TD>
<TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="JUSTIFY">Katherine R. Murphy, Treasurer</B></FONT></TD>
</TR>
</TABLE>

<B><FONT SIZE=2><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY"> </P></B></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=1 WIDTH=638>
<TR><TD VALIGN="TOP" COLSPAN=2>
<P ALIGN="CENTER"><B>INDEX TO EXHIBITS</B></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">Exhibit<BR>
<U>  No.  </B></U></TD>
<TD WIDTH="89%" VALIGN="BOTTOM">
<B><U><P ALIGN="CENTER">          Item          </B></U></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">2.1</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Assignment and Bill of Sale made and entered into January 19, 1999, but effective as of October 1, 1998, be and between Gladstone Resources, Inc. and EXCO Resources, Inc. incorporated by reference from the Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (Exhibit 2.1)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">2.2</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Agreement and Plan of Merger entered into August __, 1999 by and between Gladstone Energy, Inc., a Washington corporation, and Gladstone Energy, Inc., a Delaware corporation, incorporated by reference from the Definitive Schedule
14/A Information, Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 for the 1999 Annual Meeting of Shareholders (the "1999 Proxy Statement") (Exhibit A)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">3.1</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Certificate of Incorporation of Gladstone Energy, Inc. incorporated by reference from the 1999 Proxy Statement (Exhibit C)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">3.2</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Bylaws incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (Exhibit 3.2)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">10.1</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Purchase and Sale Agreement between Humphrey Oil Interests, L.P., and Gladstone Resources, Inc., dated July 8, 1999, incorporated by reference from the Report on Form 8-K Date of Report July 15, 1999 (Exhibit 10.1)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">10.2</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Credit Agreement between Gladstone Resources, Inc., Borrower, and Compass Bank, as Lender, dated July 15, 1999, incorporated by reference from the Report on Form 8-K Date of Report July 15, 1999 (Exhibit 10.2)</TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><P ALIGN="CENTER">10.3</B></TD>
<TD WIDTH="89%" VALIGN="TOP">
<P ALIGN="JUSTIFY">Mortgage and Security Agreement from Gladstone Resources, Inc., as Mortgagee, in favor of Compass Bank as Lender dated July 15, 1999 incorporated by reference from the Report on Form 8-K Date of Report July 15, 1999 (Exhibit
10.3)</TD>
</TR>
</TABLE>

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