<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
              SEPTEMBER 30, 1997

                                       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
                (Issuer'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 October 31, 1997, there were 12,311,288 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

              Consolidated Balance Sheets -
                   September 30, 1997 (unaudited) and December 31, 1996     3

              Unaudited Consolidated Statements of Operations -
                   For the Three Months Ended September 30, 1997 and
                        September 30, 1996
                   For the Nine Months Ended September 30, 1997 and
                        September 30, 1996                                  5

              Unaudited Consolidated Statements of Cash Flows -
                   For the Nine Months Ended September 30, 1997 and
                        September 30, 1996                                  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 1.      Legal Proceedings                                             17


Item 6.      Exhibits and Reports on Form 8-K                              17


Signatures                                                                 18
</TABLE>

                                     -2-

<PAGE>   3
                                    PART I.
                             FINANCIAL INFORMATION


ITEM 1.           FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                     SEPTEMBER 30,          DECEMBER 31,
                                                                         1997                  1996
                                                                   --------------         --------------
                                                                      (UNAUDITED)
<S>                                                                 <C>                   <C>
ASSETS

CURRENT ASSETS:
    Cash and cash equivalents                                      $    1,053,892         $      889,543
    Trade receivables, less allowance for doubtful accounts
       of $120,401 and $136,967, respectively                           3,052,792              3,097,756
    Other receivables                                                     160,149                116,779
    Inventory                                                           2,885,708              2,428,466
    Net assets of discontinued operations                                 626,647              2,676,898
    Prepaid expenses and other current assets                             233,445                315,200
                                                                   --------------         --------------

       Total current assets                                             8,012,633              9,524,642
                                                                   --------------         --------------

PROPERTY, PLANT AND EQUIPMENT, AT COST:
    Equipment                                                           2,313,757              2,169,729
    Vehicles                                                               56,793                 50,896
    Furniture and fixtures                                                451,374                454,558
    Land, building and improvements                                       448,937                382,323
                                                                   --------------         --------------
       Total                                                            3,270,861              3,057,506
    Less accumulated depreciation                                       1,967,382              1,782,102
                                                                   --------------         --------------

       Property, plant and equipment, net                               1,303,479              1,275,404
                                                                   --------------         --------------

OTHER ASSETS:
    Customer lists (net of accumulated amortization of
       $1,954,138 and $1,620,204, respectively)                         6,938,749              7,272,683
    Goodwill and other intangibles (net of accumulated
       amortization of $435,494 and $306,481, respectively)               897,483              1,026,496
    Investments in unconsolidated affiliates                              606,026                297,584
    Other assets                                                          218,419                192,626
                                                                   --------------         --------------

       Total other assets                                               8,660,677              8,789,389
                                                                   --------------         --------------

TOTAL                                                              $   17,976,789         $   19,589,435
                                                                   ==============         ==============
</TABLE>



           See notes to unaudited consolidated financial statements.

                                     - 3 -
<PAGE>   4
               MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,          DECEMBER 31,
                                                                         1997                  1996
                                                                     -------------         -------------
                                                                      (UNAUDITED)
<S>                                                                  <C>                   <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                                 $     711,667         $     446,121
    Accrued and other liabilities                                          823,313             1,204,692
    Current maturities of notes payable                                    477,146               581,071
    Current maturities of long-term debt
       and capital lease obligations                                        14,613                10,866
                                                                     -------------         -------------

       Total current liabilities                                         2,026,739             2,242,750
                                                                     -------------         -------------

LONG-TERM NOTE PAYABLE                                                     211,111                46,845
                                                                     -------------         -------------

CAPITAL LEASE OBLIGATION                                                    15,323                 7,353
                                                                     -------------         -------------

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, 12,311,288 and 12,231,327
       shares, respectively                                                123,113               122,313
    Additional paid-in-capital                                          36,913,646            36,844,447
    Foreign currency translation adjustment                                  6,658                (4,354)
    Accumulated deficit                                                (21,319,801)          (19,669,919)
                                                                     -------------         -------------

       Total stockholders' equity                                       15,723,616            17,292,487
                                                                     -------------         -------------
TOTAL                                                                $  17,976,789         $  19,589,435
                                                                     =============         =============
</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            NINE MONTHS ENDED
                                                          SEPTEMBER 30,                SEPTEMBER 30,
                                                    ------------------------  ---------------------------
                                                        1997         1996         1997           1996
                                                    -----------  -----------  ------------   ------------
<S>                                                <C>          <C>           <C>            <C>
REVENUES:
   Natural gas measurement sales and services       $ 5,165,135  $ 4,195,598  $ 14,860,802   $ 13,635,574
   Other                                                132,656       72,117       315,247        479,372
                                                    -----------  -----------  ------------   ------------

     Total revenues                                   5,297,791    4,267,715    15,176,049     14,114,946
                                                    -----------  -----------  ------------   ------------

COSTS AND EXPENSES:
   Cost of measurement sales and services             3,359,785    2,766,113     9,400,021      8,953,636
   General and administrative                           706,610      978,452     2,667,068      2,845,007
   Selling, marketing and service                       393,069      412,931     1,170,555      1,208,163
   Depreciation and amortization                        239,124      211,587       706,354        650,518
   Research and development                             292,250      160,449       796,932        487,936
   Interest and other                                    20,677       22,952        75,654         69,499
                                                    -----------  -----------  ------------   ------------

     Total costs and expenses                         5,011,515    4,552,484    14,816,584     14,214,759
                                                    -----------  -----------  ------------   ------------

INCOME (LOSS) FROM
   CONTINUING OPERATIONS                                286,276     (284,769)      359,465        (99,813)
                                                    -----------  -----------  ------------   ------------

DISCONTINUED OPERATIONS:
   Loss from operations                                             (395,690)     (278,769)    (1,208,499)
   Loss from disposal                                                           (1,730,578)
                                                    -----------  -----------  ------------   ------------

LOSS FROM DISCONTINUED OPERATIONS                                   (395,690)   (2,009,347)    (1,208,499)
                                                    -----------  -----------  ------------   ------------

NET INCOME (LOSS)                                   $   286,276  $  (680,459) $ (1,649,882)  $ (1,308,312)
                                                    ===========  ===========  ============   ============

INCOME (LOSS) PER SHARE:
   Continuing operations                            $      0.02  $     (0.03) $       0.03   $      (0.01)
   Discontinued operations                                             (0.03)        (0.16)         (0.10)
                                                    -----------  -----------  ------------   ------------

NET INCOME (LOSS) PER SHARE                         $      0.02  $     (0.06) $      (0.13)  $      (0.11)
                                                    ===========  ===========  ============   ============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                12,308,197   12,187,409    12,301,353     12,045,569
                                                    ===========  ===========  ============   ============
</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>                                                                       NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,
                                                                          ------------   --------------
                                                                              1997            1996
                                                                          ------------   --------------
<S>                                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                              $ (1,649,882)  $   (1,308,312)
    Adjustments to reconcile net loss to net cash provided
       by continuing operations:
          Loss from discontinued operations                                    278,769        1,208,499
          Loss from disposal of discontinued operations                      1,730,578
          Depreciation and amortization                                        706,354          650,518
          Stock compensation expense                                                            219,652
          Royalty payments made with restricted stock                                            41,667
          Loss on disposal of assets                                            11,361           13,983
          Equity in income of unconsolidated affiliates                        (24,210)         (56,290)
    Changes in other assets and liabilities:
          Trade receivables                                                     44,964          937,561
          Inventory                                                           (457,242)         (12,756)
          Other current assets                                                  38,385          276,416
          Other noncurrent assets                                              (23,516)         (48,419)
          Accounts payable                                                     265,546          (80,913)
          Accrued and other liabilities                                       (381,379)        (429,467)
                                                                          ------------   --------------
    Net cash provided by continuing operations                                 539,728        1,412,139
    Net cash provided (used) by discontinued operations                         40,905       (1,194,986)
                                                                          ------------   --------------
    Net cash provided by operating activities                                  580,633          217,153
                                                                          ------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Additions to property, plant and equipment                                (257,757)        (145,844)
    Additions to manufacturing rights and software development costs                           (353,984)
    Net cash from acquisitions                                                                  164,308
    Proceeds from sale of assets                                                 6,283           24,440
    Investments in unconsolidated affiliates                                  (340,000)        (245,125)
    Distributions from unconsolidated affiliates                                55,769           27,106
                                                                          ------------   --------------
    Net cash used in investing activities                                     (535,705)        (529,099)
                                                                          ------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from new promissory note                                          400,000
    Payments on notes payable to bank                                         (339,659)         (23,423)
    Issuance of common stock                                                    70,000          112,327
    Payments on long-term debt and capital lease obligations                   (10,920)          (7,097)
                                                                          ------------   --------------
    Net cash provided by financing activities                                  119,421           81,807
                                                                          ------------   --------------

NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS                                                                164,349         (230,139)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                               889,543        1,500,812
                                                                          ------------   --------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $  1,053,892   $    1,270,673
                                                                          ============   ==============
</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 September 30, 1997 and December 31, 1996
    For the Three Month Periods Ended September 30, 1997 and 1996 and For
           the Nine Month Periods Ended September 30, 1997 and 1996


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, 1996.

       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 September 30, 1997 and the consolidated results of their
operations and cash flows for the three and nine month periods ended September
30, 1997 and 1996.

2.     DISCONTINUED OPERATIONS

       On June 27, 1997, the Company, through its wholly-owned subsidiary,
Marcum Fuel Systems, Inc. ("MFS"), sold its refueling equipment segment and
substantially all of the operating assets related thereto to Natural Fuels
Corporation ("Natural"), an affiliate of Public Service Co. of Colorado and
Colorado Interstate Gas, pursuant to the provisions of an Asset Purchase
Agreement, dated as of June 27, 1997 (the "Asset Purchase Agreement").
Subsequent to the sale, MFS changed its name to Marcum Denver, Inc.

       The assets sold by MFS to Natural included certain inventory, equipment,
contracts, patents, trademarks and technology of MFS used in the compressed
natural gas vehicle fueling business, but excluded receivables and payables
(other than those attributed to assumed jobs), certain inventory and contracts
attributable to jobs in progress as of the closing date, and the capital stock
of its wholly-owned subsidiaries.





                                     - 7 -
<PAGE>   8
       Pursuant to the Asset Purchase Agreement, (a) Natural paid MFS $373,628
in cash at closing; (b) Natural agreed to pay an additional $47,735 in cash for
certain vehicles and equipment upon transfer of title to such vehicles and
equipment; (c) Natural assumed the warranty and service obligations of MFS with
respect to jobs completed by MFS and certain liabilities and obligations of MFS
in connection with pending jobs and job quotes assumed by Natural; (d) Natural
agreed to pay MFS 30% of the gross margin upon Natural's completion of the
assumed jobs; and (e) Natural agreed to pay MFS a royalty on the sale by
Natural and its affiliates of compressed natural gas vehicle refueling
dispensers that incorporate MFS metering technology in an amount equal to (i)
$750 per dispenser sold until the earlier of the sale of the first 500
dispensers or five years from the closing date, plus (ii) $500 per dispenser
sold thereafter until the earlier of the sale of 500 additional dispensers or
five additional years.  MFS also granted to Natural a one-year license of the
name "Marcum Fuel Systems, Inc." and certain other trademarks and trade names
pursuant to a License Agreement.

       The Asset Purchase Agreement provides for mutual respective
indemnification in the event of a breach of representations, warranties,
covenants, or obligations by either MFS or Natural.  The obligations of MFS to
Natural under the Asset Purchase Agreement have been guaranteed by the Company.
In addition, the Company and W. Phillip Marcum, the Chairman of the Board,
President, Chief Executive Officer and a director of the Company, also entered
into a noncompetition agreement with Natural, pursuant to which the Company and
Mr. Marcum have agreed not to compete with Natural in the compressed natural
gas vehicle refueling business for four years from the closing date.

       MFS will complete certain jobs in progress as of the closing date which
were not sold to Natural and will liquidate its remaining assets.  MFS has
subcontracted certain projects to Natural until appropriate consents are
obtained to transfer the projects to Natural.  MFS, as well as the Company and
its other wholly-owned subsidiaries, will remain as indemnitors with respect to
certain bonds underwritten in connection with certain projects of MFS that will
be completed by Natural.  Pursuant to the Asset Purchase Agreement, Natural
will use commercially reasonable efforts to assume the obligations of MFS and
its affiliates under such bonds or to replace such bonds, but there is no
assurance that such assumption or replacement of bonds or obligations will
occur.

       The Company incurred a loss on the disposition of the segment of
$1,730,578.  The results of the refueling equipment segment have been reported
separately as discontinued operations.  Prior year consolidated financial
statements have also been reclassified to present the refueling equipment
segment as a discontinued operation.  Revenues of the discontinued segment were
$2,593,088 and $3,241,377 for the nine months ended September 1997 and 1996,
respectively.  Net assets of the discontinued segment at September 30, 1997 and
December 31, 1996 consisted of the following:





                                     - 8 -
<PAGE>   9
<TABLE>
<CAPTION>
                                            September 30,        December 31,
                                                1997                 1996   
                                           --------------       --------------
       <S>                                 <C>
       Current assets (mainly trade
              receivables and inventory)   $      870,148       $    3,190,250
       Other assets, net                                               883,300
       Accounts payable, accrued
              expenses and other
              disposal costs                     (243,501)          (1,396,652)
                                           ---------------      -------------- 
       Net assets of discontinued
              operations                   $      626,647       $    2,676,898
                                           ===============      ==============
</TABLE>

3.     INVESTMENTS IN UNCONSOLIDATED AFFILIATES

       In August 1997, the Company, through its wholly-owned subsidiary, Marcum
Gas Transmission, Inc. ("MGT"), formed Marcum Midstream 1997-1 Business Trust
("MM 1997-1"), of which MGT is the managing trustee.  MM 1997-1 purchased and
plans to expand an existing natural gas liquids processing facility
(fractionator) near Midland/Odessa, Texas.  The purchase and planned expansion
was financed by a $8,000,000 private placement of preferred shares of MM 1997-
1.  MGT purchased 5% of the preferred shares of MM 1997-1 for $340,000.  MGT,
as managing trustee, is responsible for the administrative activities of MM
1997-1 for which it is paid management and administrative fees by MM 1997-1.
In addition, MGT holds performance shares of MM 1997-1 which entitles it to
receive performance share distributions equal to 8.5% of the cash available for
distribution by MM 1997-1 prior to "payout" and 21.25% of the cash available
for distribution subsequent to "payout", as defined in the Declaration of
Trust.  Upon formation of MM 1997-1, MGT was reimbursed $380,000 for
organization and offering expenses incurred and was paid a $75,000 acquisition
expense reimbursement from proceeds of the private placement.  Subsequent to
the formation of MM 1997-1, the private placement was expanded by an additional
$1,250,000, of which MGT contributed $53,125.

4.     DEBT AGREEMENTS

       In order to fund the organization of and its investment in MM 1997-1,
the Company, through its wholly-owned subsidiaries, MGT and Southern Flow
Companies, Inc. ("Southern Flow"), entered into a loan agreement on April 18,
1997, as amended May 14, 1997, with a commercial bank for a $400,000 term loan
repayable in equal monthly principal payments plus interest over a 36 month
period (the "MGT Loan").  The MGT Loan is secured by the accounts receivable,
inventory, selected equipment and real estate of Southern Flow and an
assignment of MGT's preferred and performance share interest in MM 1997-1 and
is guaranteed by the Company.  The loan agreement requires the Company to
maintain a minimum consolidated tangible  net worth and Southern Flow to
maintain a minimum debt service coverage ratio, and contains other standard
covenants related to the operations of Southern Flow and MGT.  The outstanding
balance under the loan agreement is limited to an amount equal to 80% of the
eligible accounts receivable of Southern Flow.





                                     - 9 -
<PAGE>   10
       On May 30, 1997, the Company, through its wholly-owned subsidiary,
Metretek, Incorporated ("Metretek"), entered into a loan agreement (the
"Metretek Loan") with its commercial lender for an additional $200,000 line of
credit that will convert into a term loan on March 15, 1998, after which any
outstanding balance due on the line of credit will become payable in monthly
principal payments plus interest over an 18 month period.  No amounts have been
borrowed under the Metretek Loan at September 30, 1997.  The loan agreement
also extended the term of Metretek's existing $400,000 working capital line of
credit with the commercial bank from January 31, 1998 to April 30, 1998.  The
Metretek Loan, together with the existing indebtedness to the commercial
lender, are secured by Metretek's accounts receivable, inventory and equipment,
cross-collateralized and cross-defaulted, and guaranteed by the Company.  The
loan agreement requires Metretek to maintain a minimum adjusted working capital
level, a minimum current ratio, a maximum debt to tangible net worth ratio and
contains other standard covenants related to operations by Metretek.
Cumulative borrowings under the loan agreement are limited to the sum of 75% of
eligible domestic trade accounts receivable, 55% of eligible foreign trade
accounts receivable and 50% of raw materials inventory of Metretek.

5.     LEGAL PROCEEDINGS

       On July 24, 1997, the action in Denver District Court filed by a former
employee against the Company and its subsidiary, DVCO Fuel Systems, Inc.
("DVCO"), was dismissed as a result of the Court's grant of the motion by the
Company and DVCO for summary judgement against the former employee's claims.
The former employee has indicated he intends to appeal the Court's grant of
summary judgement.  The Company's counterclaims against the former employee
remain pending.





                                     - 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 nine month periods ended September 30, 1997 and 1996 and of the
consolidated financial condition of the Company as of September 30, 1997 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>
                                                       Nine Months Ended 
                                                         September 30,
                                                  --------------------------- 
                                                        1997         1996
                                                  -------------- ------------ 
<S>                                               <C>            <C>           
REVENUES:                                                                      
       Southern Flow                              $      8,349   $      8,057  
       Metretek                                          6,512          5,579  
       Other                                               315            479
                                                  ------------   ------------
       Total                                      $     15,176   $     14,115 
                                                  ============   ============
GROSS PROFIT:                                                                  
       Southern Flow                              $      2,113   $      2,027  
       Metretek                                          3,348          2,655  
                                                  ------------   ------------  
       Total                                      $      5,461   $      4,682  
                                                  ============   ============  
NET INCOME (LOSS):                                                             
       Southern Flow                              $        839   $        700
       Metretek                                            190             83
       Other                                              (670)          (883)  
                                                  ------------   ------------ 
       Income (loss) from continuing operations            359           (100)
       Loss from discontinued operations                (2,009)        (1,208)
                                                  ------------   ------------ 
       Total                                      $     (1,650)  $     (1,308) 
                                                  ============   ============  
</TABLE>                                                                        


       On June 27, 1997, the Company sold its natural gas refueling equipment
segment and substantially all of the operating assets related there to.  The
financial statements have been reclassified to exclude the operating results of
the natural gas refueling equipment segment from continuing operations and to
account for this segment as discontinued operations (see Note 2 to the
Unaudited Consolidated Financial Statements).  The following discussion relates
only to the Company's continuing operations.





                                     - 11 -
<PAGE>   12
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30,
1996

       Revenues.  Revenues increased $1,061,103, or 8%, for the nine months
ended September 30, 1997 compared to the same period in 1996.  Revenues from
Southern Flow increased $291,639, or 4%, for the nine months ended September
30, 1997, compared to the same period in 1996 due to overall higher activity
levels in its operations.  Revenues from Metretek increased $933,589, or 17%,
for the nine months ended September 30, 1997 compared to the same period in
1996, which was comprised of an increase in domestic sales of $894,827 and an
increase in Metretek's international sales of $38,762.  The increase in
Metretek's domestic sales was comprised of an increase of approximately
$1,019,000 in automatic meter reading (AMR) systems and an increase of
approximately $412,000 of circuit board assembly sales through Metretek's
wholly-owned subsidiary, Sigma VI, which was acquired in June 1996.  These
increases were offset, in part, by a decrease in OEM product sales of
approximately $536,000.  The increase in Metretek's international sales was due
primarily to an increase in sales to customers in Canada and Argentina, offset,
in part, by reduced sales through its wholly-owned subsidiary, Metretek Europe.
Other revenues decreased $164,125, or 34%, for the nine months ended September
30, 1997 compared to the same period in 1996.  This decrease resulted primarily
from the one-time receipt in 1996 of approximately $124,000 in settlement with
a former Metretek licensee coupled with reduced interest income and reduced
equity income from unconsolidated affiliates for the nine months ended
September 30, 1997, compared to the same period in 1996.

       Costs and Expenses.  Cost of sales and services increased $446,385, or
5%, for the nine months ended September 30, 1997 compared to the same period in
1996.  Costs of sales and services from Metretek increased $240,629, or 8%, in
the nine month period in 1997 compared to the same period in 1996 and was due
primarily to increased sales activity in 1997.  As a result of cost reductions
in components of certain of its products, Metretek's gross profit margin after
costs of sales and services increased from 47.6% to 51.4% in the 1997 period
compared to the same period in 1996.  Cost of sales and services from Southern
Flow increased $205,756, or 3%, in the nine months ended September 30, 1997
compared to the same period last year, primarily as a result of its increased
sales and services activity in 1997.  Southern Flow's gross profit margin after
costs of sales and services increased slightly from 25.2% to 25.3% in the 1997
period compared to the same period in the previous year.

       General and administrative expenses decreased $177,939, or 6%, for the
nine months ended September 30, 1997 compared to the same period in 1996.  This
decrease resulted primarily from decreases in general and corporate expenses of
approximately $211,000 attributable to a reduction in personnel costs together
with reduced stock compensation expense related to the employee stock purchase
plan which was discontinued in late 1996, a decrease in expenses of Southern
Flow of approximately $50,000 attributable to reduced personnel costs offset,
in part, by increased state and franchise taxes in 1997 compared to 1996, and a
decrease in expenses of MGT of approximately $24,000 attributable to
reimbursement of expenses incurred in connection with the organization and
formation of a new business trust in 1997.  These decreases were partially
offset by an increase in expenses of Metretek of approximately $107,000 due
primarily to costs incurred at its wholly-owned subsidiaries, Metretek Europe
and Sigma VI, which were acquired during 1996.





                                     - 12 -
<PAGE>   13
       Selling, marketing and service expenses decreased $37,608, or 3%, for
the nine months ended September 30, 1997 compared to the same period in 1996.
This decrease resulted primarily from a reduction in advertising and
promotional expenses at Metretek.

       Depreciation and amortization expenses increased $55,836, or 9%, for the
nine months ended September 30, 1997 compared to the same period in 1996.  This
increase resulted primarily from increased amortization associated with
capitalized software development at Metretek.

       Research and development expenses increased $308,996, or 63%, for the
nine months ended September 30, 1997 compared to the same period in 1996, all
of which related to new product development projects at Metretek.

       Interest and other expenses increased $6,155, or 9%, for the nine months
ended September 30, 1997 compared to the same period in 1996.  This increase
resulted primarily from interest expense associated with MGT's loan agreement
entered into in April 1997 with a commercial bank in order to fund the
organization of and MGT's investment in a new business trust.

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,
and (iv) the funding of possible future acquisitions.

       Net cash provided by operating activities was approximately $581,000 for
the nine months ended September 30, 1997.  The principal components of this
increase in cash were (i) approximately $1,053,000 of cash provided by
continuing operations, before changes in assets and liabilities, (ii) cash
provided in the amount of approximately $266,000 for the increase of accounts
payable, (iii) cash provided in the amount of approximately $45,000 due to the
decrease in accounts receivables, (iv) cash used in the amount of approximately
$457,000 related to the increases in inventory levels, (v) approximately
$367,000 net cash used for a combination of the payment of miscellaneous
liabilities offset by proceeds from miscellaneous assets, and (vi)
approximately $41,000 of cash provided by discontinued operations.

       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 1997 will be
approximately $1,200,000, all of which will relate to Metretek's business.
Research and development expenses in the amount of $796,932 were incurred in
the nine month period ended September 30, 1997.





                                     - 13 -
<PAGE>   14
       The Company anticipates capital expenditures in 1997 of approximately
$325,000, primarily for production and laboratory equipment, computer software
and hardware.  Capital expenditures for the nine month period ended September
30, 1997 totaled $257,757.

       In order to fund the organization of and MGT's investment in Marcum
Midstream 1997-1 Business Trust ("MM 1997-1"), MGT and Southern Flow entered
into a loan agreement on April 18, 1997, as amended May 14, 1997, with a
commercial bank for a $400,000 term loan repayable in equal monthly principal
payments plus interest over a 36 month period (the "MGT Loan").  The MGT Loan
is secured by the accounts receivable, inventory, selected equipment and real
estate of Southern Flow and an assignment of MGT's preferred and performance
share interest in MM 1997-1 and is guaranteed by the Company.  The loan
agreement requires the Company to maintain a minimum consolidated tangible net
worth and Southern Flow to maintain a minimum debt service coverage ratio, and
contains other standard covenants related to the operations of Southern Flow
and MGT.  The outstanding balance under the loan agreement is limited to an
amount equal to 80% of the eligible accounts receivable of Southern Flow.

       On May 30, 1997, Metretek entered into a loan agreement (the "Metretek
Loan") with its commercial lender for an additional $200,000 line of credit
that will convert to a term loan on March 15, 1998, after which any outstanding
balance due on the line of credit will become payable in monthly principal
payments plus interest over an 18 month period.  No amounts have been borrowed
under the Metretek Loan at September 30, 1997.  The loan agreement also
extended the term of its existing $400,000 working capital line of credit with
the commercial bank from January 31, 1998 to April 30, 1998.  The Metretek
Loan, together with the existing indebtedness to the commercial lender are
secured by Metretek's accounts receivable, inventory and equipment, cross-
collateralized and cross-defaulted, and guaranteed by the Company.  The loan
agreement requires Metretek to maintain a minimum adjusted working capital
level, a minimum current ratio, a maximum debt to tangible net worth ratio and
contains other standard covenants related to operations by Metretek.
Cumulative borrowings under the loan agreement are limited to the sum of 75% of
eligible domestic trade accounts receivable, 55% of eligible foreign trade
accounts receivable and 50% of raw materials inventory of Metretek.

       Based on the Company's current plans and assumptions, management
believes that its capital resources, including its cash on hand, expected
additional proceeds from the disposition of the remaining net assets of its
discontinued operations, expected cash flow from continuing operations and its
borrowings, 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 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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which revises the manner in which earnings per share is calculated.
The Company is required to adopt the provisions of





                                     - 14 -
<PAGE>   15
SFAS 128 for the year ending December 31, 1997.  The adoption of SFAS 128 is
not expected to have a material impact on the computation or manner of
presentation of the Company's earnings per share.

       In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure", which is
effective for periods ending after December 15, 1997.  SFAS 129 established
standards for disclosing information about an entity's capital structure.  The
adoption of SFAS 129 is not expected to have a material impact on the Company's
disclosures.

       In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which is effective for periods beginning
after December 15, 1997.  SFAS 130 requires businesses to disclose
comprehensive income and its components in their general-purpose financial
statements, with reclassification of comparative (earlier period) financial
statements.  The adoption of SFAS 130 is not expected to have a material impact
on the Company's disclosures.

       In June 1997, the Financial Accounting Standards Board 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 adoption of SFAS 131 is not expected to 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 certain other parts of this
report on Form 10-QSB that look forward in time, which includes 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, the amount of additional
proceeds from the disposition of the remaining net assets, and the gross margin
payments on the disposed portion, of the MFS segment; 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; reliance on strategic alliances;
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





                                     - 15 -
<PAGE>   16
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.





                                     - 16 -
<PAGE>   17
                                    PART II.
                               OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS

       On July 24, 1997, the action in Denver District Court filed by a former
employee against the Company and its subsidiary, DVCO Fuel Systems, Inc.
("DVCO"), was dismissed as a result of the Court's grant of the motion by the
Company and DVCO for summary judgement against the former employee's claims.
The former employee has indicated he intends to appeal the Court's grant of
summary judgement.  The Company's counterclaims against the former employee
remain pending.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Exhibits

              10.1   Amendment No. 1 to the Employment Agreement between Marcum
                     Natural Gas Services, Inc. and W. Phillip Marcum

              10.2   Amendment No. 1 to the Employment Agreement between Marcum
                     Natural Gas Services, Inc. and A. Bradley Gabbard

              27     Financial Data Schedule

       (b)    The Company filed a report on Form 8-K dated July 14, 1997 (Items
              2 and 7), reporting the completion of the sale of its compressed
              natural gas vehicle refueling business and substantially all of
              the operating assets related thereto.





                                     - 17 -
<PAGE>   18
                                   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: November 11, 1997     By:     /s/ W. PHILLIP MARCUM
             -----------------            -------------------------
                                          W. Phillip Marcum
                                          President and Chief Executive Officer




       Date:  November 11, 1997    By:     /s/ A. BRADLEY GABBARD
              -----------------           --------------------------
                                          A. Bradley Gabbard
                                          Executive Vice President
                                          and Chief Financial Officer





                                     - 18 -
<PAGE>   19




                                 EXHIBIT INDEX



<TABLE>
<CAPTION>
EXHIBIT
NUMBER           DESCRIPTION
-------          -----------
<S>              <C>                                                                     
10.1             Amendment No. 1 to the Employment Agreement between Marcum Natural Gas  
                 Services, Inc. and W. Phillip Marcum                                    
                                                                                         
10.2             Amendment No. 1 to the Employment Agreement between Marcum Natural Gas  
                 Services, Inc. and A. Bradley Gabbard                                   
                                                                                         
27.1             Financial Data Schedule                                                 
</TABLE>