<PAGE>   1
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                          ----------------------------

                                   FORM 10-QSB

(Mark One)
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934 
       FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                       or

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934
      For the transition period from              to
                                    --------------  --------------

                         Commission File Number 0-19793

                        MARCUM NATURAL GAS SERVICES, INC.
        (Exact name of small business issuer as specified in its charter)

               DELAWARE                                    84-1169358
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

     1675 Broadway, Suite 2150
          Denver, Colorado                                    80202
(Address of principal executive offices)                    (Zip code)

                                  (303)592-5555
              (Registrant's telephone number, including area code)


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

                                 Yes [X] No [ ]

         As of May 4, 1998 there were 14,170,979 shares of the issuer's Common
Stock outstanding.

         Transitional Small Business Disclosure Format

                                 Yes [ ] No [X]


================================================================================

<PAGE>   2

                        MARCUM NATURAL GAS SERVICES, INC.

                                   FORM 10-QSB
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>                                                                             <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Unaudited Consolidated Balance Sheets -
                  March 31, 1998 and December 31, 1997                            3

         Unaudited Consolidated Statements of Operations -
                  For the Three Months Ended March 31, 1998 and
                  March 31, 1997                                                  5

         Unaudited Consolidated Statements of Cash Flows -
                  For the Three Months Ended March 31, 1998 and
                  March 31, 1997                                                  6

         Notes to Unaudited Consolidated Financial Statements                     7

Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                            11


PART II. OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds                               18

Item 6.  Exhibits and Reports on Form 8-K                                        19

Signatures                                                                       20
</TABLE>



                                       2
<PAGE>   3

                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       MARCH 31,      DECEMBER 31,
                                                                         1998            1997
                                                                      -----------     -----------
<S>                                                                   <C>             <C>        
ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                        $ 2,448,595     $ 1,938,554
     Trade receivables, less allowance for doubtful accounts
         of $119,376 and $121,278, respectively                         2,946,131       3,466,282
     Other receivables                                                    345,063         276,322
     Inventory                                                          2,824,175       2,748,626
     Net assets of discontinued operations                                180,169         204,067
     Prepaid expenses and other current assets                            244,675         291,004
                                                                      -----------     -----------

         Total current assets                                           8,988,808       8,924,855
                                                                      -----------     -----------

PROPERTY, PLANT AND EQUIPMENT, AT COST:
     Equipment                                                          2,433,026       2,413,850
     Vehicles                                                              44,942          56,793
     Furniture and fixtures                                               453,798         452,389
     Land, building and improvements                                      404,866         399,491
                                                                      -----------     -----------
         Total                                                          3,336,632       3,322,523
     Less accumulated depreciation                                      2,115,875       2,047,837
                                                                      -----------     -----------

         Property, plant and equipment, net                             1,220,757       1,274,686
                                                                      -----------     -----------

OTHER ASSETS:
     Customer lists (net of accumulated amortization
       of $2,176,760 and $2,065,449, respectively)                      6,716,127       6,827,438
     Goodwill and other intangibles (net of accumulated
       amortization of $521,201 and $478,348, respectively)               811,776         854,629
     Investments in unconsolidated affiliates                             372,193         435,177
     Other assets                                                         391,687         362,679
                                                                      -----------     -----------

         Total other assets                                             8,291,783       8,479,923
                                                                      -----------     -----------

TOTAL                                                                 $18,501,348     $18,679,464
                                                                      ===========     ===========
</TABLE>


See notes to unaudited consolidated financial statements.

                                       3
<PAGE>   4

               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                           MARCH 31,        DECEMBER 31,
                                                                                              1998              1997
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                                     $    632,366      $    615,778
     Accrued and other liabilities                                                           1,413,610         1,826,434
     Current maturities of notes payable                                                                         182,878
     Current maturities of long-term debt
         and capital lease obligations                                                          12,969            14,791
                                                                                          ------------      ------------

         Total current liabilities                                                           2,058,945         2,639,881
                                                                                          ------------      ------------

LONG-TERM NOTE PAYABLE                                                                         478,778           177,778
                                                                                          ------------      ------------

CAPITAL LEASE OBLIGATIONS                                                                       11,507            12,443
                                                                                          ------------      ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
     Redeemable preferred stock - Series A, $.01 par value; authorized,
         1,000,000 shares; none issued and outstanding
     Redeemable preferred stock - Series B, $.01 par value; authorized,
         1,000,000 shares; none issued and outstanding
     Redeemable preferred stock - Series C, $.01 par value; authorized, 500,000
         shares; none issued and outstanding
     Common stock, $.01 par value; authorized, 25,000,000 shares;
         issued and outstanding, 12,391,819 and 12,311,288
         shares, respectively                                                                  123,918           123,113
     Additional paid-in capital                                                             36,998,406        36,913,648
     Foreign currency translation adjustment                                                     6,657             6,657
     Accumulated deficit                                                                   (21,176,863)      (21,194,056)
                                                                                          ------------      ------------

         Total stockholders' equity                                                         15,952,118        15,849,362
                                                                                          ------------      ------------




TOTAL                                                                                     $ 18,501,348      $ 18,679,464
                                                                                          ============      ============
</TABLE>


See notes to unaudited consolidated financial statements.

                                       4
<PAGE>   5

               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                            ----------------------------
                                                               1998             1997
                                                            -----------      -----------
<S>                                                         <C>              <C>        
REVENUES:
     Natural gas measurement sales and services             $ 4,449,796      $ 4,260,024
     Other                                                      218,809           99,396
                                                            -----------      -----------

         Total revenues                                       4,668,605        4,359,420
                                                            -----------      -----------

COSTS AND EXPENSES:
     Cost of measurement sales and services                   2,895,471        2,678,815
     General and administrative                                 985,638        1,022,903
     Selling, marketing and service                             307,759          357,364
     Depreciation and amortization                              237,292          234,513
     Research and development                                   213,543          217,012
     Interest and other                                          11,709           36,099
                                                            -----------      -----------

         Total costs and expenses                             4,651,412        4,546,706
                                                            -----------      -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS
  BEFORE TAXES                                                   17,193         (187,286)

INCOME TAX PROVISION
                                                            -----------      -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS                         17,193         (187,286)
                                                            -----------      -----------
DISCONTINUED OPERATIONS:
     Loss from operations                                                       (278,769)
     Loss from disposal                                                       (1,300,000)
                                                            -----------      -----------
LOSS FROM DISCONTINUED OPERATIONS                                             (1,578,769)
                                                            -----------      -----------
NET INCOME (LOSS)                                           $    17,193      $(1,766,055)
                                                            ===========      ===========

INCOME (LOSS) PER BASIC COMMON SHARE:
     Continuing operations                                  $      0.00      $     (0.01)
     Discontinued operations                                       0.00            (0.13)
                                                            -----------      -----------

NET INCOME (LOSS) PER BASIC COMMON SHARE                    $      0.00      $     (0.14)
                                                            ===========      ===========

INCOME (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
     Continuing operations                                  $      0.00      $     (0.01)
     Discontinued Operations                                       0.00            (0.13)
                                                            -----------      -----------

NET INCOME (LOSS) PER SHARE - ASSUMING DILUTION             $      0.00      $     (0.14)
                                                            ===========      ===========
</TABLE>



See notes to unaudited consolidated financial statements.

                                       5
<PAGE>   6

               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                                                 MARCH 31,
                                                                        ----------------------------
                                                                           1998             1997
                                                                        -----------      -----------
<S>                                                                     <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                  $    17,193      $(1,766,055)
     Adjustments to reconcile net income (loss) to net cash
       provided by continuing operations:
         Loss from discontinued operations                                                   278,769
         Loss from disposal of discontinued operations                                     1,300,000
         Depreciation and amortization                                      237,292          234,513
         Stock compensation expense                                          42,782
         (Gain) loss on disposal of assets                                     (682)           3,583
         Equity in income of unconsolidated affiliates                       (4,356)         (17,604)
     Changes in other assets and liabilities:
          Trade receivables                                                 520,151          345,884
          Inventory                                                         (75,549)        (186,524)
          Other current assets                                              (22,412)         131,989
          Other noncurrent assets                                           (30,028)          11,798
          Accounts payable                                                   16,588          204,241
          Accrued and other liabilities                                    (412,824)        (333,852)
                                                                        -----------      -----------
     Net cash provided by continuing operations                             288,155          206,742
     Net cash provided (used) by discontinued operations                     23,898         (106,312)
                                                                        -----------      -----------
     Net cash provided by operating activities                              312,053          100,430
                                                                        -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to property, plant and equipment                             (29,744)         (31,259)
     Proceeds from sale of property, plant and equipment                      2,246            3,819
     Distributions from unconsolidated affiliates                            67,340           31,027
                                                                        -----------      -----------
     Net cash provided by investing activities                               39,842            3,587
                                                                        -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments on notes payable to bank                                      (80,178)        (270,267)
     Borrowings on notes payable to bank                                    198,300
     Issuance of common stock                                                42,782           66,500
     Payments on long-term debt and capital lease obligations                (2,758)          (2,081)
                                                                        -----------      -----------
     Net cash provided (used) by financing activities                       158,146         (205,848)
                                                                        -----------      -----------

NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                                                       510,041         (101,831)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          1,938,554          889,543
                                                                        -----------      -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                              $ 2,448,595      $   787,712
                                                                        ===========      ===========
</TABLE>


See notes to unaudited consolidated financial statements.

                                       6
<PAGE>   7

               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                   As of March 31, 1998 and December 31, 1997
          and For the Three Month Periods Ended March 31, 1998 and 1997


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       The accompanying consolidated financial statements include the accounts
of Marcum Natural Gas Services, Inc. and its wholly owned subsidiaries and have
been prepared pursuant to rules and regulations of the Securities and Exchange
Commission. The accompanying consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997.

       In the opinion of the Company's management, all adjustments (all of which
are normal and recurring) have been made which are necessary for a fair
statement of the consolidated financial position of the Company and its
subsidiaries as of March 31, 1998 and the consolidated results of their
operations and cash flows for the three month periods ended March 31, 1998 and
1997.

2.    ACQUISITION

       Pursuant to an asset purchase agreement entered into on March 23, 1998,
the Company, through its wholly owned subsidiary, Metretek, Incorporated
("Metretek"), purchased, on May 4, 1998, substantially all of the assets and
business of Eagle Research Corporation ("Eagle"), a subsidiary of American Meter
Company ("American Meter"), which is ultimately controlled by Ruhrgas AG, a
German corporation. The assets acquired by Metretek include certain inventory,
equipment, trademarks and technology of Eagle and American Meter used in the
design, manufacture and sales of electronic measurement process control and
telemetry systems to utility companies in the natural gas and petroleum
industries. In connection with the acquisition, Metretek assumed certain
transitional employee costs and product warranty obligations of Eagle. The
assets and business operations acquired are being relocated to Metretek's
existing facility in Melbourne, Florida.

       The purchase price included $1,300,000 cash, a $1,200,000 convertible
subordinated promissory note, and 1,758,242 shares of Common Stock of the
Company valued at $2,032,967. The purchase price is subject to downward
adjustment based upon Metretek's actual sales of products in the business
acquired from Eagle during the 18-month period commencing July 1, 1998. If
Metretek's annualized sales of products in the business acquired are less than
$4,500,000 during such period, then the purchase price will be decreased on a
dollar-for-dollar basis to the extent of such sales deficit, but the purchase
price shall not be reduced below $3,900,000 even if annualized sales are less
than that amount. Any reduction in the purchase price will be effected by
reducing the amount of the note. The purchase price is also subject to upward or



                                       7
<PAGE>   8

downward adjustment based upon certain changes in Eagle's inventory between
December 31, 1997 and May 4, 1998, and any adjustment will be paid in cash.

       A maximum amount of $1,028,107 of the principal balance of the note may
be converted, in the discretion of Eagle, into up to 723,064 shares of Common
Stock of the Company at the rate of approximately $1.42 per share. The note
bears interest on the unpaid principal balance at a fixed rate equal to 7.5% per
annum, payable quarterly in arrears, it is due and payable May 4, 2002, and may
be prepaid at any time without penalty or premium.

       In connection with the transaction, the Company granted Eagle the
one-time option to cause the shares of Common Stock issued to Eagle at the
closing and upon the conversion of the note to be registered under the
Securities Act of 1993, as amended, and applicable state securities laws, and
has also granted Eagle certain piggy-back registration rights to include such
shares in any registration statement filed by the Company, subject to customary
underwriter cutbacks.

       American Meter and Eagle also entered into a Non-Competition Agreement
with the Company and Metretek, pursuant to which American Meter and Eagle have
agreed not to compete with Metretek in the acquired business for five years from
the closing date, and all such parties have mutually agreed to confidentiality
covenants.

       Metretek also entered into a license agreement ("License Agreement") with
American Meter and Eagle, providing for the license by American Meter and Eagle
to Metretek of certain operating software, and the development, manufacture and
sale by Metretek to American Meter and Eagle of certain electronic components
and related equipment pertaining to electronic temperature and pressure
correction to be imbedded with certain new rotary and turbine meters of American
Meter. The License Agreement also grants American Meter and its affiliates the
right to sell Metretek products in the United States and Canada at certain
agreed-upon prices.

       Concurrent with the acquisition, Harry I. Skilton, President, Chief
Executive Officer and a director of American Meter and Vice President of Eagle,
became a member of the Board of Directors of the Company.

       The acquisition has been accounted for as a purchase, and therefore the
results of operations of the Eagle business acquired will be combined with those
of the Company effective from the date of acquisition. The allocation of the
purchase price among inventory, equipment, goodwill and other intangibles has
not yet been determined.

3.   INVESTMENTS IN UNCONSOLIDATED AFFILIATES

       The Company, through its wholly owned subsidiary Marcum Gas Transmission,
Inc. ("MGT"), owns a 4% limited partnership interest in Marcum-Patrick Pipeline
Program 1993-1, L.P. ("MPP 1993-1"), of which MGT is a co-managing general
partner. On March 30, 1998, MPP 1993-1 sold substantially all of its assets to
Franks 



                                       8
<PAGE>   9

Petroleum Inc. for $1,650,000. Upon completion of the sale, MGT received $32,000
which it had advanced to MPP 1993-1, $115,941 of unpaid administrative and
management fees, and a $54,000 distribution from the partial liquidation of MPP
1993-1.

4.    DEBT

       On April 14, 1998, the Company and its wholly owned subsidiaries,
Southern Flow Companies, Inc. ("SFC") and Metretek, entered into a loan and
security agreement (the "Loan Agreement") with a commercial bank (the "Lender")
providing for a combined $5,000,000 credit facility consisting of loans (the
"Loans") and letters of credit to SFC and Metretek, subject to limitations
described below. Terms of the Loan Agreement provide for daily advances to SFC
and Metretek in the form of Loans to fund capital requirements, daily paydowns
on outstanding balances of the Loans from collection of customer accounts
receivable, monthly interest payments computed at prime plus 1% on outstanding
balances of the Loans, and a maturity of March 14, 2001. The Loans are secured
by the tangible and intangible assets of the Company, SFC, and Metretek,
including equipment, inventory, receivables, and cash deposits, and the pledge
of the shares of the Company's subsidiaries. The Loan Agreement requires the
Company to maintain a minimum tangible net worth, a maximum debt to tangible net
worth ratio, minimum annual net income, a minimum debt service coverage ratio,
and contains other standard covenants related to operations of the Company,
including prohibitions on the payment of dividends and the issuance of
securities (with certain exceptions) without the Lender's consent. Borrowings on
the Loans are limited to the sum of 80% of eligible accounts receivable of SFC
and Metretek and 50% of raw materials and finished goods inventory (up to a
combined maximum of $1,500,000) of SFC and Metretek.

       As of the date of the loan closing, SFC and Metretek had a combined
$2,321,220 Loan availability under the Loan Agreement. Proceeds from initial
advances under the Loan Agreement were used to extinguish the Company's existing
loans and lines of credit with two commercial bank lenders in the aggregate
amount of $468,993, including accrued interest.

5.    STOCK PLANS

       In January 1998, the Company approved a non-qualified, compensatory
Employee Stock Purchase Plan (the "1998 Stock Purchase Plan"), which allows
eligible employees to purchase shares of the Company's common stock through
payroll deductions. The shares can be purchased for 100% of the lower of the
beginning or ending fair market value of each one-month offering period and are
matched by the Company on a share-for-share basis. Purchases are limited to 15%
of an employee's eligible compensation. A total of 200,000 shares of common
stock are registered for offer and issuance under the 1998 Stock Purchase Plan,
of which 80,531 shares were issued during the three months ended March 31, 1998.
Stock compensation expense in the amount of $42,782 was recognized during the
three months ended March 31, 1998 



                                       9
<PAGE>   10

representing the market value of the shares matched by the Company under the
1998 Stock Purchase Plan.

       In March 1998, the Board of Directors of the Company adopted the Marcum
Natural Gas Services, Inc. 1998 Stock Incentive Plan (the "1998 Stock Incentive
Plan"), subject to approval by the Company's stockholders at the Annual Meeting
of Stockholders which will be held June 12, 1998. The 1998 Stock Incentive Plan
authorizes the Board of Directors to grant non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock,
performance awards and other stock-based awards to officers, directors,
employees, consultants and advisors of the Company and its subsidiaries for up
to 1,000,000 shares of the Company's common stock. The 1998 Stock Incentive
Plan, if adopted by the Company's stockholders, will become effective as of June
12, 1998 and will replace the Company's existing 1991 Stock Option Plan and the
Company's Directors' Stock Option Plan, and no further awards will be made under
such existing plans, although options outstanding under the Company's existing
plans will not be affected by the adoption of the 1998 Stock Incentive Plan.

6.    INCOME (LOSS) PER SHARE

       In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which
the Company adopted during the year ended December 31, 1997. Income (loss) per
basic common share is based upon the weighted average shares of common stock
outstanding during the respective period. For each of the three months ended
March 31, 1998 and 1997, the Company's net income (loss) from continuing
operations, loss from discontinued operations and net income (loss), for
purposes of computing the basic and diluted per share amounts, are identical.
The following is a reconciliation of the weighted average shares outstanding to
the weighted average shares outstanding assuming dilution:

<TABLE>
<CAPTION>
                                                                              March 31,
                                                                      -------------------------
                                                                         1998           1997
                                                                      ----------     ----------
<S>                                                                   <C>            <C>       
Weighted average common shares                                        12,331,833     12,288,316
Incremental shares from assumed exercise of stock options                 48,833          2,876
                                                                      ----------     ----------
Weighted average common shares assuming dilution                      12,380,666     12,291,192
                                                                      ==========     ==========
</TABLE>




                                       10
<PAGE>   11

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

INTRODUCTION

       The following discussion of the results of operations for the Company for
the three month periods ended March 31, 1998 and 1997 and of the consolidated
financial condition of the Company as of March 31, 1998 should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto included elsewhere herein.

RESULTS OF OPERATIONS

       The following table sets forth selected information related to the
Company's primary products and services and should assist in an understanding of
the Company's results of operations for the periods presented.

<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                                   March 31,
                                                              1998         1997
                                                        (dollar amounts in thousands)
<S>                                                         <C>          <C>    
REVENUES:
       Southern Flow                                        $ 2,737      $ 2,722
       Metretek                                               1,713        1,538
       Other                                                    219           99
                                                            -------      -------
       Total                                                $ 4,669      $ 4,359
                                                            =======      =======
GROSS PROFIT:
       Southern Flow                                        $   654      $   631
       Metretek                                                 900          950
                                                            -------      -------
       Total                                                $ 1,554      $ 1,581
                                                            =======      =======
NET INCOME (LOSS):
       Southern Flow                                        $   213      $   162
       Metretek                                                   2            0
       Other                                                   (198)        (349)
                                                            -------      -------
       Income (loss) from continuing operations                  17         (187)
       Loss from discontinued operations                                  (1,579)
                                                            -------      -------
       Total                                                $    17      $(1,766)
                                                            =======      =======
</TABLE>

       On June 27, 1997, the Company sold its natural gas refueling equipment
segment and substantially all of the operating assets related thereto. The
financial statements account for this segment as discontinued operations. The
following discussion relates only to the Company's continuing operations.




                                       11
<PAGE>   12

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

         Revenues. The Company's consolidated revenues for the three months
ended March 31, 1998 increased $309,185, or 7%, compared to the same period in
1997, due to an increase in revenues by each of the Company's two subsidiaries
engaged in natural gas measurement sales and services and an increase in the
Company's other revenues. Metretek's revenues for the three months ended March
31, 1998 increased $174,213, or 11%, compared to the same period in 1997,
consisting of an increase in international sales of $258,162, offset in part by
a decrease in domestic sales of $83,949. The increase in Metretek's
international revenues in 1998 was due primarily to improved sales by Metretek,
Europe, its European distribution subsidiary, as well as an increase in sales to
Metretek's Canadian customers. The decrease in Metretek's domestic revenues in
1998 was the net result of two key factors: (i) a decrease in sales of automated
energy consumption monitoring and recording systems, Metretek's core business,
due to overall decreased domestic market demand; and (ii) improved circuit board
assembly sales by its wholly owned subsidiary, Sigma VI, due to an expansion of
Sigma VI's business. Southern Flow's revenues increased $15,559, or less than
1%, for the three months ended March 31, 1998, compared to the same period in
1997, as a result of its customers engaging in increased natural gas exploration
and production activities. Other Company revenues increased $119,413, or 120%,
for the three months ended March 31, 1998, compared to the same period in 1997,
due principally to the net effect of three factors: (i) an increase in MGT fees
earned from the management of its unconsolidated affiliates; (ii) reduced MGT
equity income from its unconsolidated affiliates; and (iii) increased interest
income.

         Costs and Expenses. Cost of sales and services for the three months
ended March 31, 1998 increased $216,656, or 8%, compared to the same period in
1997. Metretek's cost of sales and services for the three months ended March 31,
1998 increased $223,886, or 38%, compared to the same period in 1997 and was due
primarily to increased sales activity in 1998 and a higher cost of sales factor
associated with sales of Sigma VI. Costs of circuit board assembly sales as a
percentage of sales is higher than the costs of sales of Metretek's automated
energy consumption monitoring and recording systems. As a result of increased
circuit board assembly sales as a percentage of its total sales, Metretek's
gross profit margin after costs of sales and services for the three months ended
March 31, 1998, decreased from 61.8% to 52.6% compared to the same period in
1997. Southern Flow's cost of sales and services for the three months ended
March 31, 1998 decreased $7,230, or less than 1%, compared to the same period in
1997. Southern Flow's gross profit margin after costs of sales and services for
the three months ended March 31, 1998 increased slightly from 23.2% to 23.9%
compared to the same period in 1997.

         General and administrative expenses for the three months ended March
31, 1998 decreased $37,265, or 4%, compared to the same period in 1997, due
principally to the net effect of the following factors: (i) a decrease in
expenses of MGT of approximately $128,000 related to costs that were incurred in
1997 associated with the organization of 



                                       12
<PAGE>   13

a business trust for which there were no comparable costs in 1998; (ii) a
decrease in expenses of Southern Flow of approximately $24,000 attributable to
reduced state and franchise taxes in 1998 compared to 1997; (iii) increases in
general and corporate expenses of approximately $81,000 due to increased
personnel costs and compensation costs associated with the Company's 1998
Employee Stock Purchase Plan for which there were no comparable costs in 1997;
and (iv) an increase in expenses of Metretek of approximately $34,000.

         Selling, marketing and service expenses for the three months ended
March 31, 1998 decreased $49,605, or 14%, compared to the same period in 1997,
all of which related to activities at Metretek. The decrease in these expenses
was due principally to the net effects of the following: (i) decreases of
approximately $8,000 incurred at its wholly owned subsidiaries, Metretek Europe
and Sigma VI; and (ii) a decrease of approximately $42,000 at Metretek due to a
reduction in advertising and promotional expenses.

         Depreciation and amortization expenses for the three months ended March
31, 1998 increased $2,779, or 1%, compared to the same period in 1997. This
increase was due to increased depreciation at Southern Flow.

         Research and development expenses for the three months ended March 31,
1998 decreased $3,469, or 2%, compared to the same period in 1997, due to
reduced product development costs at Metretek.

         Interest and other expenses for the three months ended March 31, 1998
decreased $24,390, or 68%, compared to the same period in 1997. These expenses
decreased because Metretek reduced its borrowings under its credit facilities in
1998 compared to 1997.

SEASONALITY AND CYCLICALITY

         The business of Metretek is subject to seasonal and cyclical
fluctuations, being largely dependent on sales to natural gas utilities. The
utility industry is generally characterized by long budget and purchase cycles.
Purchases of Metretek's products by utilities are, to a substantial extent,
deferrable in the event utilities reduce capital expenditures as a result of
such conditions as unfavorable regulatory decisions, poor revenues due to
weather conditions or general economic downturns.

FINANCIAL CONDITION AND LIQUIDITY

         The Company requires capital principally for (i) the financing of
inventory and accounts receivable, (ii) research and development expenses, (iii)
capital expenditures for property and equipment and software development, (iv)
the Eagle Research Corporation asset acquisition discussed elsewhere herein, and
(iv) the funding of possible future acquisitions.



                                       13
<PAGE>   14

         Net cash provided by operating activities was approximately $312,000
for the three months ended March 31, 1998, which resulted primarily from
approximately $292,000 of cash provided by continuing operations, before changes
in assets and liabilities. Approximately $4,000 in cash used to fund changes in
working capital and other asset and liability accounts was more than offset by
approximately $24,000 of cash provided by discontinued operations.

         The Company, through its wholly owned subsidiary, MGT, owns a 4%
limited partnership interest in Marcum Patrick Pipeline Program 1993-1, L.P.
("MPP 1993-1"), of which MGT is a co-managing general partner. On March 30,
1998, MPP 1993-1 sold substantially all of its assets to Franks Petroleum Inc.
for $1,650,000. Upon completion of the sale, MGT received $32,000 which it had
advanced to MPP 1993-1, $115,941 of unpaid administrative and management fees,
and a $54,000 distribution from the partial liquidation of MPP 1993-1.

         The Company plans to continue research and development efforts to
enhance its existing products and develop new products. The Company anticipates
that its research and development costs in 1998 will be approximately
$1,250,000, all of which will relate to Metretek's business. Research and
development expenses in the amount of $213,543 were incurred in the three month
period ended March 31, 1998.

         The Company anticipates capital expenditures in 1998 of approximately
$425,000, primarily for production and laboratory equipment, computer software
and hardware. Capital expenditures for the three month period ended March 31,
1998 totaled $29,744.

         On May 4, 1998, the Company, through its wholly owned subsidiary,
Metretek, purchased substantially all of the assets and business of Eagle
Research Corporation ("Eagle"), a subsidiary of American Meter Company
("American Meter"), which is ultimately controlled by Ruhrgas AG, a German
corporation. The assets acquired by Metretek include certain inventory,
equipment, trademarks and technology of Eagle and American Meter used in the
design, manufacture and sales of electronic measurement process control and
telemetry systems to utility companies in the natural gas and petroleum
industries. In connection with the acquisition, Metretek assumed certain
transitional employee costs and product warranty obligations of Eagle. The
assets and business operations acquired are being relocated to Metretek's
existing facility in Melbourne, Florida.

         The purchase price included $1,300,000 cash, a $1,200,000 convertible
subordinated promissory note, and 1,758,242 shares of Common Stock of the
Company valued at $2,032,967. The purchase price is subject to downward
adjustment based upon Metretek's actual sales of products in the business
acquired from Eagle during the 18-month period commencing July 1, 1998. If
Metretek's annualized sales of products in the business acquired are less than
$4,500,000 during such period, then the purchase price will be decreased on a
dollar-for-dollar basis to the extent of such sales deficit, but the purchase
price shall not be reduced below $3,900,000 even if annualized sales 



                                       14
<PAGE>   15

are less than that amount. Any reduction in the purchase price will be effected
by reducing the amount of the note. The purchase price is also subject to upward
or downward adjustment based upon certain changes in Eagle's inventory between
December 31, 1997 and May 4, 1998, and any adjustment will be paid in cash.

         A maximum amount of $1,028,107 of the principal balance of the note may
be converted, in the discretion of Eagle, into up to 723,064 shares of Common
Stock of the Company at the rate of approximately $1.42 per share. The note
bears interest on the unpaid principal balance at a fixed rate equal to 7.5% per
annum, payable quarterly in arrears, it is due and payable May 4, 2002, and may
be prepaid at any time without penalty or premium.

         On April 14, 1998, the Company and its wholly owned subsidiaries,
Southern Flow and Metretek, entered into a loan and security agreement (the
"Loan Agreement") with a commercial bank (the "Lender") providing for a combined
$5,000,000 credit facility consisting of loans (the "Loans") and letters of
credit to Southern Flow and Metretek, subject to limitations described below.
Terms of the Loan Agreement provide for daily advances to Southern Flow and
Metretek in the form of Loans to fund capital requirements, daily paydowns on
outstanding balances of the Loans from collection of customer accounts
receivable, monthly interest payments computed at prime plus 1% on outstanding
balances of the Loans, and a maturity of March 14, 2001. The Loans are secured
by the tangible and intangible assets of the Company, Southern Flow, and
Metretek, including equipment, inventory, receivables, and cash deposits, and
the pledge of the shares of the Company's subsidiaries. The Loan Agreement
requires the Company to maintain a minimum tangible net worth, a maximum debt to
tangible net worth ratio, minimum annual net income, a minimum debt service
coverage ratio, and contains other standard covenants related to operations of
the Company, including prohibitions on the payment of dividends and the issuance
of securities (with certain exceptions) without the Lender's consent. Borrowings
on the Loans are limited to the sum of 80% of eligible accounts receivable of
Southern Flow and Metretek and 50% of raw materials and finished goods inventory
(up to a combined maximum of $1,500,000) of Southern Flow and Metretek.

         As of the date of the loan closing, Southern Flow and Metretek had a
combined $2,321,220 Loan availability under the Loan Agreement. Proceeds from
initial advances under the Loan Agreement were used to extinguish the Company's
existing loans and lines of credit with two commercial bank lenders in the
aggregate amount of $468,993, including accrued interest.

         Based on the Company's current plans and assumptions, management
believes that its capital resources, including its cash on hand, available
borrowings and expected cash flow from continuing operations, and additional
proceeds from the disposition of the remaining net assets of its discontinued
operations, will be sufficient to fund its currently anticipated working capital
needs, capital commitments and debt service requirements for at least the next
twelve months. Depending upon the Company's financial condition, including its
liquidity needs and business activity, the conditions in 



                                       15
<PAGE>   16

the capital and other financial markets, as well as other factors, the Company
may from time to time seek additional funds from the proceeds of debt financing,
the sale of equity or assets or other financing methods. However, there can be
no assurance that the Company will be able to obtain any such additional funds
when needed or on terms that will be favorable to the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements, with
reclassification of comparative (earlier period) financial statements. The
Company adopted the provisions of SFAS No. 130 effective January 1, 1998. The
adoption of SFAS 130 did not have a material impact on the Company's
disclosures.

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for periods
beginning after December 15, 1997. SFAS 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company adopted the
provisions of SFAS No. 131 effective January 1, 1998. The adoption of SFAS 131
did not have a material impact on the Company's disclosures.

FORWARD-LOOKING STATEMENTS

         Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as in other parts of this report on
Form 10-QSB that look forward in time, which include everything other than
historical information, are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements which are other than statements of historical facts. From time
to time, the Company may publish or otherwise make available forward-looking
statements of this nature. All such forward-looking statements are based on the
current expectations of management and are subject to, and are qualified by,
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by those statements. These risks and
uncertainties include, but are not limited to, changes in the energy industry in
general and the natural gas industry in particular; the capital resources,
technological requirements and internal business plans of the natural gas
utilities industry; technological changes in the natural gas industry; the
timely development and market acceptance of new product designs and
technologies; general economic conditions; the the Company's ability to
successfully integrate and utilize the product lines and business acquired from
American Meter, and the timing, amount and value of future sales of those
product lines and business; the impact and timing of the deregulation of 



                                       16
<PAGE>   17

the various energy markets; the effect of weather patterns on utility purchasing
requirements; reliance on strategic alliances; the amount of additional proceeds
from the disposition of the remaining net assets, and the gross margin payments
on the disposed portion, of the natural gas refueling equipment segment; the
receipt and timing of future customer orders; changes in competitive factors
affecting the Company's operations; unanticipated impacts of restructuring
initiatives in natural gas utilities; occurrences of events affecting the
Company's ability to obtain funds from operations, debt or equity to finance
needed capital expenditures and other investments; the ability to successfully
identify and finance natural gas opportunities; the impact of current and future
laws and government regulations affecting the energy industry in general and the
natural gas industry in particular; as well as other risks and uncertainties
that are discussed in this report or that are discussed from time to time in the
Company's other reports and filings with the Securities and Exchange Commission.
The Company assumes no responsibility to update any forward-looking statements,
whether as a result of new information, future events or otherwise.




                                       17
<PAGE>   18

                                    PART II.
                                OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     (a) On March 23, 1998, in connection with the Asset Purchase Agreement
         ("Purchase Agreement"), dated March 23, 1998, among American Meter
         Company ("American Meter'), Eagle Research Corporation, the Company and
         Metretek, Incorporated, the Company executed Amendment No. 1 (the
         "Amendment") to the Rights Agreement ("Rights Agreement"), dated as of
         December 2, 1991, by and between the Registrant and American Securities
         Transfer & Trust, Inc. (formerly named American Securities Transfer,
         Inc.), as rights agent. The Rights Agreement, as amended, sets forth
         the rights, terms and conditions of the Preferred Share Purchase Rights
         (the "Rights"). Until certain events specified in the Rights Agreement,
         as amended, occur, one Right is attached to each share of Common Stock.
         The Amendment amends Section 1(a), 3(a) and 11 of the Rights Agreement
         to (a) prevent American Meter and its affiliates from becoming an
         "Acquiring Person" (as such term is defined and used in the Rights
         Agreement), (b) prevent a "Distribution Date" (as such term is defined
         and used in the Rights Agreement) from occurring, and (c) prevent an
         adjustment of the Purchase Price, number and kind of shares, and the
         number of "Rights" (as such term is defined in the Rights Agreement),
         as a result of: (i) the execution of the Purchase Agreement (or any
         amendment thereto in accordance with the terms thereof), or the
         consummation of the transactions contemplated thereby, or the
         announcement or commencement thereof, or (ii) the beneficial ownership
         by American Meter and its affiliates of up to, but not in excess of,
         25% of the Common Shares then outstanding pursuant to the Purchase
         Agreement or otherwise. The Amendment also amends Section 13 of the
         Rights Agreement to exempt the execution of the Purchase Agreement (or
         any amendment thereto in accordance with the terms thereof), the
         consummation of the transactions contemplated thereby, or the
         announcement or commencement thereof, from the triggering provisions of
         Section 13. The Amendment also provides for certain conforming
         technical amendments in Sections 1, 3(c) and 27 of the Rights
         Agreement.

     (b) Not applicable

     (c) On March 13, 1998, the Company issued a warrant to purchase 200,000
         shares of the Company's Common Stock to National Securities
         Corporation, for final advisory services, pursuant to Section 4(2) of
         the Securities Act of 1933, as amended, as a transaction not involving
         a public offering based on the facts that the Company reasonably
         believed that the warrant holder had 



                                       18
<PAGE>   19

         such knowledge and experience in financial and business matters to be
         capable of evaluating the merits and risks of the transaction, the
         warrant holder represented an intention to acquire the securities for
         investment only and not with a view to the distribution thereof, no
         commissions were paid, and an appropriate legend restricting transfer
         is affixed to the warrant certificate.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

         10.1   Loan and Security Agreement, by and between National Bank of
                Canada, Marcum Natural Gas Services, Inc., Metretek,
                Incorporated and Southern Flow Companies, Inc., dated April 14,
                1998.

         10.2   Warrant for the purchase of 200,000 shares of Common Stock, $.01
                par value per share, dated March 13, 1998, issued by Marcum
                Natural Gas Services, Inc. to National Securities Corporation.

         27.1   Financial Data Schedule

     (b) The Company filed a report on Form 8-K with the Securities and 
         Exchange Commission on May 12, 1998 (Items 2 and 7), reporting the
         acquisition of substantially all of the assets and business of Eagle
         Research Corporation, a wholly owned subsidiary of American Meter
         Company.



                                       19
<PAGE>   20

                                   SIGNATURES



         In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                   MARCUM NATURAL GAS SERVICES, INC.



Date:  May 13, 1998                By:   /s/ W. Phillip Marcum
      -------------                   ---------------------------------------
                                       W. Phillip Marcum
                                       President and Chief Executive Officer




Date:  May 13, 1998                By:   /s/ A. Bradley Gabbard
      -------------                   ---------------------------------------
                                       A. Bradley Gabbard
                                       Executive Vice President
                                       and Chief Financial Officer




                                       20
<PAGE>   21

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
Number
-------
<S>      <C>
10.1     Loan and Security Agreement, by and between National Bank of Canada,
         Marcum Natural Gas Services, Inc., Metretek, Incorporated and Southern
         Flow Companies, Inc., dated April 14, 1998.

10.2     Warrant for the purchase of 200,000 shares of Common Stock, $.01 par
         value per share, dated March 13, 1998, issued by Marcum Natural Gas
         Services, Inc. to National Securities Corporation.

27.1     Financial Data Schedule
</TABLE>