Gateway Energy Reports Third Quarter 2009 Results

HOUSTON, Nov. 12 /PRNewswire-FirstCall/ -- Gateway Energy Corporation (OTC
Bulletin Board: GNRG) today announced the financial results for the quarter
ended September 30, 2009.

For the quarter the Company reported;
-- Total revenues of $1,573,429, a decrease from $4,097,502 for the same
quarter of 2008.
-- Revenues from onshore operations decreased to $977,602 from
$3,632,786 for the quarter ended September 30, 2008. The Company
buys natural gas for its onshore Waxahachie system based on an
index
less a fixed amount and sells the gas on the same index plus a
fixed
amount and the decrease in revenues reflects the drop in the price
of natural gas along with the drop in industrial demand for
natural
gas due to prevailing economic conditions.
-- Revenues from offshore operations increased to $600,018 from
$464,716, due primarily to higher throughput volumes.
-- Operating income (loss) from continuing operations for the quarter
ended
September 30, 2009 showed a loss of $153,200 as compared to a loss of
$75,924 for the same quarter of 2008. This loss is due to reduced
volumes transported through the onshore systems as well as the
impairment of an intangible asset in the amount of $53,000.
-- Net loss attributable to controlling interest for the third quarter of
2009 was $141,728 as compared to a net loss of $54,635 for the same
period in 2008.
-- Adjusted EBITDA for the third quarter of 2009 was $3,624 compared to
$117,292 for the same quarter 2008.
-- Total operating cost and expenses for the quarter were $1,707,282 as
compared to $4,188,776 for the same quarter of 2008. The cost of
natural gas purchased decreased from $3,253,814 for the third quarter
of
2008 to $777,747 for the third quarter of 2009.
-- Operation and maintenance costs for the third quarter of 2009 were
$195,129 as compared to $195,817 for the third quarter of 2008.
-- Depreciation, depletion and amortization costs increased to $159,460
for
the quarter ending September 30, 2009 as compared to $155,297 for the
quarter ending September 30, 2008.

-- General and administrative costs for the third quarter of 2009 were
decreased to $574,946, as compared to $583,848 reported in the third
quarter of 2008.

For the nine months the Company reported;

-- Total revenues of $5,283,627, a decrease from the $11,931,092 for the
same period of 2008. This decrease in total revenues reflects a
decrease
from onshore operations to $3,187,643 from $10,296,340 for the nine
months ended September 30, 2008 and an increase from offshore
operations
to $2,100,984 from $1,634,752.
-- Operating income (loss) from continuing operations for the nine months
ending September 30, 2009 showed a loss of $270,438 as compared to a
loss of $175,820 for the nine months ended September 30, 2008. This
loss is due to reduced volumes transported through the onshore
systems,
increased insurance costs associated with the Shipwreck platform prior
to its sale and consulting fees associated with Sarbanes-Oxley
compliance.
-- Net loss attributable to controlling interest for the first nine
months
of 2009 was $85,363 as compared to net income of $28,940 for the same
period in 2008.
-- Adjusted EBITDA for the first nine months of 2009 was $150,636
compared
to $692,732 for the same period 2008. Adjusted EBITDA for 2009
excludes
a $340,972 gain on sale.
-- Total operating costs and expenses for the nine months were $5,583,252
as compared to $12,102,597 for the same period of 2008. The cost of
natural gas purchased decreased from $9,143,975 for the first nine
months of 2008 to $2,564,444 for the same period of 2009.
-- Operation and maintenance costs for the first nine months of 2009
decreased slightly to $569,531 from $594,794 reported for the first
nine
months of 2008.
-- Depreciation, depletion and amortization costs for the nine months
ended
September 30, 2009 were $462,115, as compared to $467,407 for the
first
nine months of 2008.

-- General and administrative costs for the first nine months of 2009
were
$1,987,162 as compared to $1,896,421 in the same period 2008. This
increase reflects increased insurance costs associated with the
Shipwreck platform prior to its sale and consulting fees associated
with
Sarbanes-Oxley compliance.

Management Comments

Mr. Robert Panico, President and CEO of Gateway said, "We continue to feel the
effects of the economic downturn and the low cost of natural gas. In this
environment, containing costs is critical and we are now realizing cost
reductions from the sale of the Crystal Beach terminal, Shipwreck platform and
pipeline system and the Pirates' Beach gathering system, including, a
reduction in annual insurance costs of approximately $320,000 which began in
the fourth quarter of 2009. Also during the first nine months of 2009, we
have eliminated our bank debt and accumulated approximately $3.2 million of
working capital. By focusing on containing costs and improving our balance
sheet this year, we are now better positioned than ever to pursue our
acquisition strategy."

Complete financials can be found at the end of this release.

About Gateway Energy

Gateway Energy Corporation owns and operates natural gas gathering,
transportation and distribution systems in Texas, Texas state waters and in
federal waters of the Gulf of Mexico off the Texas and Louisiana coasts.
Gateway gathers offshore wellhead natural gas production and liquid
hydrocarbons from producers, and then aggregates this production for
processing and transportation to other pipelines. Gateway also transports gas
through its onshore systems for non-affiliated shippers and through its
affiliated distribution system and makes sales of natural gas to end users.

Safe Harbor Statement

Certain of the statements included in this press release, which express a
belief, expectation or intention, as well as those regarding future financial
performance or results, or which are not historical facts, are
"forward-looking" statements as that term is defined in the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended. The
words "expect", "plan", "believe", "anticipate", "project", "estimate", and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are not guarantees of future performance or events
and such statements involve a number of risks, uncertainties and assumptions,
including but not limited to industry conditions, prices of crude oil and
natural gas, regulatory changes, general economic conditions, interest rates,
competition, and other factors. Should one or more of these risks or
uncertainties materialize or should the underlying assumptions prove
incorrect, actual results and outcomes may differ materially from those
indicated in the forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

September 30, December 31,
2009 2008
------------- ------------
ASSETS (unaudited) (reclassified)
Current Assets
Cash and cash equivalents $1,620,211 $1,789,029
Restricted cash 900,000 -
Accounts receivable trade, net 1,102,511 969,859
Notes receivable 295,638 -
Prepaid expenses and other assets 70,321 121,398
Current assets of discontinued
operations - 1,805,167
--- ---------
Total current assets 3,988,681 4,685,453
--------- ---------

Property and Equipment, at cost
Gas gathering, processing and
transportation 8,851,082 8,843,142
Net profits production interest 779,424 763,909
Office furniture and other
equipment 148,751 143,654
------- -------
9,779,257 9,750,705
Less accumulated depreciation and
amortization (2,674,708) (2,371,704)
----------- -----------
7,104,549 7,379,001
--------- ---------
Other Assets
Deferred tax assets, net 1,281,584 1,205,000
Intangible assets, net of
accumulated amortization of
$309,762 and $222,082 as of
September 30, 2009 and December
31, 2008, respectively 597,970 765,337
Other 18,652 136,657
Non-current assets of
discontinued operations - 2,519,253
--- ---------
1,898,206 4,626,247
--------- ---------
Total assets $12,991,436 $16,690,701
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $411,611 $776,519
Accrued expenses and other
liabilities 332,988 323,100
Insurance notes payable 2,783 -
Current maturities of long-term
debt - 1,062,000
Current maturities of capital
lease 14,540 20,235
------ ------
Total current liabilities 761,922 2,181,854
------- ---------

Long-term capital lease, less
current maturities - 9,187
Non-current liabilities of
discontinued operations - 2,318,315
--- ---------
Total liabilities $761,922 $4,509,356
-------- ----------

Commitments and contingencies - -

Stockholders' Equity
Preferred stock - $1.00 par
value; 10,000 shares authorized;
no shares issued and outstanding - -
Common stock - $0.25 par value;
35,000,000 shares authorized;
19,397,125 and 19,207,249 shares
issued and outstanding at
September 30, 2009 and December
31, 2008, respectively 4,849,281 4,801,812
Additional paid-in capital 17,370,548 17,284,485
Accumulated deficit (9,990,315) (9,904,952)
----------- -----------
Total stockholders' equity 12,229,514 12,181,345
---------- ----------
Total liabilities and
stockholders' equity $12,991,436 $16,690,701
=========== ===========

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
--------------- ----------------
2009 2008 2009 2008
---- ---- ---- ----
(reclassified) (reclassified)

Operating revenues
Sales of natural gas $917,957 $3,566,278 $3,004,101 $10,018,914
Transportation of
natural gas and
liquids 480,932 417,043 1,867,686 1,588,373
Treating and other 174,540 114,181 411,840 323,805
------- ------- ------- -------
1,573,429 4,097,502 5,283,627 11,931,092
--------- --------- --------- ----------
Operating costs and
expenses
Cost of natural gas
purchased 777,747 3,253,814 2,564,444 9,143,975
Operation and
maintenance 195,129 195,817 569,531 594,794
Depreciation,
depletion and
amortization 159,460 155,297 462,115 467,407
General and
administrative 574,946 583,848 1,987,162 1,896,421
------- ------- --------- ---------
1,707,282 4,188,776 5,583,252 12,102,597
--------- --------- --------- ----------
Operating income
(loss) (133,853) (91,274) (299,625) (171,505)

Other income (expense)
Interest income 10,839 6,767 22,363 23,378
Interest expense (30,211) (38,900) (114,042) (119,782)
Other income
(expense), net (53,597) (2,802) (11,852) (1,500)
-------- ------- -------- -------
Other expense (72,969) (34,935) (103,531) (97,904)
-------- -------- --------- --------

Income (loss) from
operations before
income taxes and
discontinued
operations (206,822) (126,209) (403,156) (269,409)

Income tax benefit
(expense) 53,622 50,285 132,718 93,589
------ ------ ------- ------

Income (loss) from
continuing operations (153,200) (75,924) (270,438) (175,820)

Discontinued
operations, net of
taxes
Income (loss) from
discontinued
operations, net of
taxes (4,504) 21,289 (155,897) 233,584

Gain on disposal of
assets, net of taxes 15,976 - 340,972 -
------ --- ------- ---
Income from
discontinued
operations 11,472 21,289 185,075 233,584

Net income (141,728) (54,635) (85,363) 57,764
Net income
attributable to
noncontrolling
interest - - - (28,824)
--- --- --- --------
Net income
attributable to
controlling interest $(141,728) $(54,635) $(85,363) $28,940
========= ======== ======== =======

Basic and diluted
income per share:
Continuing operations $(0.01) $- $(0.01) $(0.01)
Discontinued
operations - - 0.01 0.01
--- --- ---- ----
Net income $(0.01) $- $- $-
====== === === ===

Weighted average
number of common
shares outstanding
Basic 19,397,125 19,207,249 19,271,932 19,099,404
Diluted 19,397,125 19,207,249 19,271,932 19,099,404

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended June 30,
----------------------------
2009 2008
---- ----
(reclassified)
Cash flows from operating
activities - continuing
operations
Loss from continuing operations $(270,438) $(175,820)
Adjustments to reconcile income
from continuing operations to
net cash provided by operating
activities:
Depreciation, depletion and
amortization 462,115 467,407
Impairment of intangible assets 52,066 -
Deferred tax benefit (126,082) (21,765)
Stock based compensation
expense 133,532 141,368
Net income attributable to
noncontrolling interests - 28,824
Amortization of deferred loan
costs 93,633 94,445
Change in operating assets and
liabilities:
Accounts receivable trade (132,652) 165,544
Prepaid expenses and other
assets 536,067 214,372
Accounts payable (345,037) (16,775)
Accrued expenses and other
liabilities (33,127) 30,492
-------- ------
Net cash provided by operating
activities 370,077 928,092
------- -------

Cash flows from investing
activities - continuing
operations
Capital expenditures (28,552) (23,968)
Restricted cash for asset
acquisition - (539,166)
Other - 475
--- ---
Net cash used in investing
activities (28,552) (562,659)
-------- ---------

Cash flows from financing
activities - continuing
operations
Payments on borrowings (1,403,036) (1,359,683)
Proceeds from borrowings - 600,000
Restricted cash on credit
facility (900,000) -
Deferred financing costs (18,139) -
Distributions to minority
partner - (39,821)
--- --------
Net cash used in financing
activities (2,321,175) (799,504)
----------- ---------

Net decrease in cash and cash
equivalents from continuing
operations (1,979,650) (434,071)

Discontinued operations:
Net cash provided by
discontinued operating
activities 1,813,532 383,580
Net cash used in discontinued
investing activities (2,700) (113,764)
------- ---------

Net increase in cash and cash
equivalents from discontinued
operations 1,810,832 269,816
--------- -------

Net decrease in cash and cash
equivalents (168,818) (164,255)
Cash and cash equivalents at
beginning of period 1,789,029 1,807,224
--------- ---------
Cash and cash equivalents at
end of period $1,620,211 $1,642,969
========== ==========

Supplemental disclosures of
cash flow information:
Income taxes paid $43,000 $46,000
Cash paid for interest 52,270 42,187

Supplemental schedule of
noncash investing and
financing activities:
Trade note payable for
insurance premiums $328,938 $408,703
======== ========

GATEWAY ENERGY CORPORATION AND SUBSIDIARIES
Non-GAAP Financial Measures

Operating Margin
The following table presents a reconciliation of the non-GAAP financial
measures of total segment operating margin (which consists of the sum of
individual segment operating margin and corporate) to the nearest comparable
GAAP financial measure of operating income.

Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
Onshore Operations
Revenues $977,602 $3,632,786 $3,187,643 $10,296,340
Cost of natural gas
purchased 777,747 3,253,814 2,564,444 9,143,975
Operation and maintenance
expense 51,359 59,051 162,577 188,103
------ ------ ------- -------
Operating margin 148,496 319,921 460,622 964,262
General and administrative
expense - (149) - 82
Depreciation and
amortization expense 44,428 49,143 116,431 147,246
------ ------ ------- -------
Operating income 104,068 270,927 344,191 816,934

Offshore Operations
Revenues $600,018 $464,716 $2,100,984 $1,634,752
Operation and maintenance
expense 143,770 136,766 406,954 406,691
------- ------- ------- -------
Operating margin 456,248 327,950 1,694,030 1,228,061
Depreciation and
amortization expense 102,947 104,805 314,243 316,436
------- ------- ------- -------
Operating income 353,301 223,145 1,379,757 911,625

Net Profits Interest
Revenues (loss) $(4,191) $- $(5,000) $-
------- --- ------- ---
Operating margin (loss) (4,191) - (5,000) -
Depletion expense 10,389 - 26,300 -
------ --- ------ ---
Operating loss (14,580) - (31,300) -
-------- --- -------- ---

Adjusted EBITDA

Adjusted EBITDA is defined as pre-tax net income plus:

-- interest expense;
-- depreciation, depletion and amortization expense;
-- non-recurring gain (loss) on sale of assets;
-- non-controlling interest;
-- accretion expense; and

-- non-cash compensation expense.

Adjusted EBITDA is a significant performance metric used by Company
management, and by external users of Company's financial statements, such as
investors, commercial banks, research analysts and others, including our
principal lender.

Adjusted EBITDA should not be considered an alternative to, or more meaningful
than, net income, operating income, cash flows from operating activities or
any other measure of financial performance presented in accordance with GAAP
as measures of operating performance, liquidity or ability to service debt
obligations. Adjusted EBITDA does not include interest expense, income taxes,
depreciation, depletion and amortization expense, non-recurring gain (loss) on
sale of assets, minority interest, accretion expense or non-cash compensation
expense. Because the Company has borrowed, and intend to borrow, money to
finance their operations, interest expense is a necessary element of Company's
overall costs. Because the Company uses capital assets, depreciation and
amortization are also necessary elements of Company's overall costs. Because
the Company have used, and intend to use, non-cash equity awards as part of
their overall compensation package for executive officers and employees,
non-cash compensation expense is a necessary element of Company's overall
costs. Therefore, any measures that exclude these elements have material
limitations. To compensate for these limitations, Company management believes
that it is important to consider net income determined under GAAP, as well as
Adjusted EBITDA, to evaluate Company's financial performance.

Management compensates for the limitations of Adjusted EBITDA as an analytical
tool by reviewing the comparable GAAP measures, understanding the differences
between the measures and incorporating this knowledge into management's
decision-making processes.

Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----
Net (loss) income $(141,728) $(54,635) $(85,363) $28,940
Net loss attributable to
noncontrolling interest - - - 28,824
Interest expense 30,211 38,900 114,042 119,782
Income taxes (53,622) (50,285) (132,718) (93,589)
Depreciation, depletion
and amortization expense 159,460 155,297 462,115 467,407
Non-cash stock
compensation 25,279 28,015 133,532 141,368
Gain on sale of assets,
net of tax (15,976) - (340,972) -
----------------------- ------- --- -------- ---
Adjusted EBITDA $3,624 $117,292 $150,636 $692,732

SOURCE Gateway Energy Corporation

Brad Holmes, Investor Relations, +1-713-654-4009, or Chris Rasmussen, CFO,
+1-713-336-0844, both of Gateway Energy Corporation