Gladstone Resources 10-Q 2000 Q2 Quarterly report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000
	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 1-1525
GLADSTONE ENERGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware (State of Incorporation)			91-0234563 (I.R.S. Employer Identification No.)
3500 Oak Lawn Avenue, Suite 590, LB 49, Dallas, TX (Address of principal executive offices)			75219 (Zip Code)
(214) 528-9710
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $.001 Per Share
(Title of Class)
______________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. YES [X]     NO [   ] Indicate the number of shares outstanding of each of the issuer's classes of common stock at June 30, 2000.
Class:		Common Stock, $.001 par value per share
		Outstanding at June 30, 2000: 848,991 shares

GLADSTONE ENERGY, INC.
INDEX
Part 1.	Financial Information:
Item 1.	Financial Statements
	Accountant's Review Report
	Balance Sheets - June 30, 2000 (Unaudited) and December 31, 1999 (Audited)
	Statements of Operations - For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
	Statements of Stockholders' Equity - For the Six Months Ended June 30, 2000 (Unaudited) and for the Year Ended December 31, 1999 (Audited)
	Statements of Cash Flows - For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
	Notes to Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Part II.	Other Information:
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
Signatures

HAROLD L. RATCLIFF

CERTIFIEDPUBLICACCOUNTANT

4514 COLE AVENUE - LB26

SUITE 1010

DALLAS, TEXAS 75205

                                                                                                                                                                            MEMBER

(214) 526-5555                                                                                                                                        AMERICAN INSTITUTE

(214) 521-9055 - FAX                                                                                                                CERTIFIED PUBLIC ACCOUNTANTS

                                                 ACCOUNTANT'S REVIEW REPORT

Board of Directors
Gladstone Energy, Inc.
Dallas, Texas

I have reviewed the accompanying balance sheet of Gladstone Energy, Inc., as of June 30,
2000, and the related statements of operation, stockholders' equity and changes in cash
flows for the six months then ended and statements of operation and changes in cash flows
for the six months ended June 30, 1999. In accordance with the Statements on Standards
for Accounting and Review Services by the American Institute of Certified Public
Accountants. All information included in these statements is the representation of the
management of Gladstone Energy, Inc.

A review consists principally of inquiries of Company personnel and analytical procedures
applied to financial data.  It is substantially less in scope  than an audit  in accordance with
generally accepted auditing standards,  the objective of which is the expression of an
opinion regarding the financial statements as a whole.   Accordingly, I do not express such
an opinion.

Based on my review, I am not aware of any material modifications that should be made to
the accompanying financial statements in order for them to be in conformity with generally
accepted accounting principles.

The financial statements for the year ended December 31, 1999, were audited by me and I
expressed an unqualified opinion on them in my report dated February 4, 2000, but I have
not performed any auditing procedures since that date.

                                                                       /s/ Harold L. Ratcliff
                                                                       Certified Public Accountant

Dallas, Texas
July 21, 2000

Part I. Financial Information Item 1. Financial Statements
GLADSTONE ENERGY, INC. BALANCE SHEETS At June 30, 2000 (Unaudited) and December 31, 1999 (Audited)
ASSETS
		June 31,                    2000	December 31,                  1999
Current assets:
	Cash	$        41,494	$     134,342
	Accounts receivable	57,373	40,821
	Total current assets	98,867	175,163
Property and equipment:
	Gas and oil properties (successful efforts method)	929,476	991,709
	Field equipment	18,628	17,128
		948,104	1,008,837
	Less accumulated depletion and depreciation	(510,824)	(464,044)
	Total property and equipment	437,280	544,793
Other assets:
	Cost in excess of amount assigned to net assets in New Mexico at date of acquisition, net of amortization	33,690	36,879
	Loan origination fees, net of amortization	4,770	7,156
		41,289	44,035
		$ 574,607	$ 763,991
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$ 12,911	$ 137,458
	Installment note payable to bank	55,000	55,000
	Accrued interest on note	-	1,878
	Total current liabilities	67,911	194,336
Long-term portion of note payable
	Installment note payable to bank	145,000	175,000
Deferred income taxes		-	-
Stockholders' equity:
	Common stock	849	849
	Capital in excess of stated value	1,379,285	1,379,285
	Retained earning (deficit)	(1,018,438)	(985,479)
		361,696	394,655
		$    574,607	$      763,991
See accompanying notes and accountant's report.

GLADSTONE ENERGY, INC. STATEMENTS OF OPERATIONS For the six months ended June 30, 2000 and 1999 (Unaudited)
		For the three months ended                         June 30,		For the six months ended                            June 30,
		2000	1999	2000	1999
Sales:
	Gas and oil	$ 138,266	$      14,641	$ 220,830	$      22,780
Cost of sales:
	Production taxes	15,788	1,184	24,871	1,808
	Well operating expense	28,661	4,591	39,315	8,279
		44,449	5,775	64,186	10,087
Gross profit on sales		93,817	8,866	156,644	12,693
Expenses:
	Dry hole and abandonment loss (recovery)	(2,500)	(1,685)	84,975	(5,032)
	Depletion	24,437	6,527	44,508	12,665
	Prospect expenses	-	-	-	-
	Depreciation and amortization	4,005	1,972	7,849	3,824
	General and administrative	2,714	18,780	24,222	26,499
	Interest	3,643	-	10,886	-
	Taxes	382	108	2,452	108
	Legal, auditing and accounting	3,954	32,092	14,730	50,284
		36,635	57,794	189,622	88,348
		57,182	(48,928)	( 32,978)	( 75,655)
Other income:
	Interest and dividend income	3	4,549	19	5,087
Income (loss) before taxes		57,185	(44,379)	(32,959)	( 70,568)
Income taxes		-	-	-	-
NET INCOME (LOSS)		$      57,185	$     (44,379)	$     (32,959)	$     (70,568)
Earnings per share:
	Basic earnings per share(1)  (See Note 8)	$         .07	$           (.05)	$       (.04)	$           (.08)
	Diluted earnings per share (1) (See Note 8)	$         .07	$           (.05)	$        (.04)	$           (.08)
(1) The earning per share have been adjusted to the current number of shares outstanding (848,991 shares).
See accompanying notes and accountant's report.

GLADSTONE ENERGY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY For the six months ended June 30, 2000 (Unaudited) and the year ended December 31, 1999 (Audited)
			Capital in
			Excess of	Retained
		Common	Stated	Earnings
		Stock (A)	Value	(Deficit)	Total
Balance at December 31, 1998		150,000	1,230,134	(781,413)	598,721
Net loss for the year 1999		-	-	(204,066)	(204,066)
Net change for the period (A)		(149,151)	149,151	-	-
Balance at December 31, 1999		849	1,379,285	(985,479)	394,655
Net loss for the period		-	-	(32,959)	(32,959)
Balance at June 30, 2000		$ 849	$ 1,379,285	$(1,018,438)	$     361,696
(A)	Common Stock consisted of no par value shares only until August 10, 1999. There were 6,000,000 shares authorized and 4,244,060 shares issued and outstanding, The stated value for all outstanding shares was $150,000. On August 10, 1999, the Company effected a 1 for 5 reverse stock split. On August 13, 1999, the Company reincorporated as a Delaware corporation with authorized capital inventory of 10,000,000 shares of Common Stock with par value of $.001 per share and 5,000,000 shares of Preferred Stock with a par value of $.001 per share. At June 30, 2000, there were 848,991 shares of Common Stock outstanding. See NOTE 1 - ORGANIZATION
See accompanying notes and accountant's report

GLADSTONE ENERGY, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2000 and 1999
(Unaudited)
					For the six months ended                                 June 30,
					2000	1999
Cash flows (to) operating activities:
	Net earnings (loss)				$       (32,959)	$      (70,568)
		Adjustments to reconcile net earnings to net
			Cash provided by (to) operating activities:
				Depreciation, depletion and amortization	52,354	16,489
				(Increase) decrease in accounts receivable	(16,552)	(3,566)
				Decrease in oil and gas properties	63,186	-
				(Decrease) in accounts payable	(126,425)	151,489
				Prepayment from working interest owner	-	613,499
	Net cash (to) operating activities				(60,396)	707,343
Cash flows from (to) investing activities:
	Investment in oil and gas properties				(2,452)	109,607
	Net cash from (to) investing activities				(2,452)	109,607
Cash flows (to) financing activities:
	Payments on bank loan				(30,000)	-
	Net cash (to) financing activities				(30,000)	-
Net increase (decrease) in cash					(92,848)	816,950
Cash beginning of period					134,342	23,372
Cash at end of period					$       41,494	$       840,322
Supplemental disclosure of cash flow information:
	Cash paid during the period for:
			Interest		$          10,886	$              -
			Federal income taxes		$               -	$              -
See accompanying notes and accountant's report

GLADSTONE ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

June 30, 2000

NOTE 1 - ORGANIZATION

Gladstone Energy, Inc. (f/k/a Gladstone Resources, Inc.) (the "Company") was incorporated in the State of Washington on July 19, 1916. The Company sells oil and gas in Louisiana, Texas and New Mexico. The sales to the customers are on open accounts receivable, which are unsecured. As ofAugust 10, 1999, the Company merged its wholly owned subsidiary into the parent company. As of August 12, 1999, the Company reorganized under Code Section 368 of the Internal Revenue Code of 1986 changing its jurisdiction of incorporation from Washington to Delaware and changing its name to Gladstone Energy, Inc.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On an accrual basis, the Company uses the successful efforts method of accounting. This method follows the premise that an enterprise is to capitalize only those costs it incurs that directly result in an asset that has future benefits measured in terms of future cash flows.

For purposes of the statements of cash flows, the Company considers all short-term debt securities purchased with a maturity of six months or less to be cash equivalents. There were no cash equivalents at June 30, 2000, or December 31, 1999. There were no significant non-cash investing or financing activities during the periods ended June 30, 2000 and December 31, 1999.

Depreciation, depletion and amortization are calculated using the straight-line and unit of production method over the estimated useful lives of the assets or production of the estimated recoverable oil and gas reserves.

For income tax reporting, the Company uses accounting methods that recognize depreciation sooner than for financial statement reporting As a result, the basis of property and equipment for financial reporting exceeds its tax basis by the cumulative amount that accelerated depreciation exceeds straight-line depreciation. Also, for tax purposes the Company deducts intangible drilling costs and capitalizes them on the successful efforts accounting method. Deferred income taxes had been recorded in prior years for the excess deductions, which will be taxable in future periods through reduced depreciation and cost depletion deductions for tax purposes. Currently the Company has not assigned any future tax benefits to the accumulated losses.

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.

NOTE 3 - ACCOUNTS RECEIVABLE

Of the net revenue interest amount of $57,314 due from oil and gas sales and joint interest billings as of June 30, 2000, $9,799 has been received from the operators and participants as of the date of this report. The sales to the customers are on open accounts receivable, which are unsecured, and generally are received within 60 days.

NOTE 4 - PROPERTY AND EQUIPMENT

Gas and oil properties

Currently, the Company has producing wells in Pecos County in Texas, San Juan County in New Mexico, and in Beauregard and Allen Parishes of Louisiana.

The Company owns a 28.125% net revenue interest in 5 producing gas wells in San Juan County, New Mexico.

GLADSTONE ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

June 30, 2000

The Company closed, on July 15, 1999, an acquisition of 12.25% working interest in the Righthand Creek Field located in Beauregard and Allen Parishes of Louisiana. The effective date of the acquisition was May 1, 1999. The interest consists of 6 producing wells (.735 net productive wells) with current net production of approximately 47.5 barrels of oil per day, 1 injection well, and 2 gross (.245 net) non-producing wells.

A summary of changes in the Company's gas reserves (in MCF's) is as follows (oil reserves have been included as MCF's by multiplying barrels by 6). ALL RESERVE AMOUNTS, INCLUDING THE REVISIONS, HAVE BEEN FURNISHED BY THE COMPANY MANAGEMENT AND HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT PETROLEUM ENGINEERS. The Company believes there are no "proved undeveloped reserves" at June 30, 2000.

		Total for United States in MCF's
		June 30,                                    2000	December 31,                                 1999
Beginning of period (January 1)		644,895	1,160,243
Purchase of reserves		-	464,899
Deduction for sale of leases		-	(976,459)
Adjustment to reserves (1)		-	83,055
Production (total to date)		(66,244)	(86,843)
Balance at end of period		578,651	644,895
(1)	Based on reevaluation of estimated reserves by the Company. The estimates were based on current production levels of all properties.

NOTE 5 - FEDERAL AND STATE INCOME TAXES

As noted in Note 2, due to the amount of losses that are currently being carried forward, along with the carryover percentage depletion, the Company has not assigned any future tax benefits to the accumulated losses.

Net operating loss deductions and credits carryforward consists of the following:

From year	Year
Ended	Expires	Losses
12-31-94	12-31-09	$              100,759
12-31-97	12-31-12	57,877
12-31-98	12-31-13	129,028
12-31-99	12-31-14	118,486
		$              406,150

There are limitations on the use of the losses due to change of control which occurred in 1999.

At December 31 1999, there was $298,732 of statutory depletion carryover to 2000.

At December 31 1999, there was $10,000 of Section 179 depreciation carryover to 2000.

At December 31, 1999, there was $109,071 in capital loss carryover to 2000.

NOTE 6 - COMMITMENT AND CONTINGENCY

At June 30, 2000, the Company had no material commitments.

GLADSTONE ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

June 30, 2000

NOTE 7 - COMMON STOCK

Currently the Company's common stock is not traded on any exchange or automated quotation system.

At June 30, 2000, there were no outstanding stock options issued by the Company.

The following shares of common stock were outstanding for the periods under report.

	June 30,                  2000	December 31,                  1999
Common stock, $.001 par value	848,991	848,991

At the Annual Shareholders' Meeting, held on July 15, 1999, a one for five reverse split was approved, which was effected August 10, 1999. All share and per share numbers have been adjusted retroactively to record the effects of the reverse split.

With the reincorporation to Delaware, 10,000,000 shares of common stock, par value $.001 per share were authorized and 5,000,000 shares of preferred stock, par value $.001, were authorized.

NOTE 8 - SIGNIFICANT ESTIMATES AND CONCENTRATIONS

Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters included the following:

1.Major Customers

In 1999, the Company had two customers which represented 72% and 19% of their total revenue.

NOTE 9 - RENT EXPENSE

The Company currently pays rent of $500.00 per month to Humphrey Oil Corporation, inclusive of phone service. Rent expense through June 30, 2000 was $3,560, which includes an expense adjustment. The Company does not have a commitment on a lease contract. Rent expense for 1999 was $6,088.

NOTE 10 - ACQUISITION OF PROPERTIES

The Company closed, on July 15, 1999, with an effective date of May 1, 1999, an acquisition of 12.25% working interest in the Right Hand Creek Field located in Beauregard and Allen Parishes of Louisiana (collectively, the "Right Hand Creek Properties") from Humphrey Oil Interests, L.P., a Texas limited partnership ("Humphrey") (Charles B. Humphrey, a Director of the Company, is the limited partner in Humphrey and President of Humphrey Oil Corporation, its general partner) being 50% of the interest acquired by Humphrey from EXCO Resources, Inc. effective May 1, 1999. The Right Hand Creek Properties include 6 gross productive wells (.735 net productive wells) with current net production of approximately 55 barrels of oil and 2 gross (.245 net) non-producing wells that will require recompletions and/or workovers. The Right Hand Creek Properties include 725.3 gross (88.85 net) developed acres and 234.22 gross (28.69 net) undeveloped acres. Based on independent engineering estimates as of June 1, 1999, the Right Hand Creek Properties are estimated to contain 956,097 gross (85,396 net) barrels of oil and no gross or net million cubic feet of natural gas or proved reserves. The aggregate purchase price paid for the Right Hand Creek Properties was $349,125. The Company borrowed $230,000 of the purchase price under a new credit facility and the balance of the purchase price was paid out of working capital.

GLADSTONE ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS (Unaudited)

June 30, 2000

NOTE 11 - CREDIT AGREEMENT

On July 15, 1999, the Company entered into a credit facility (the "Credit Facility") with Compass Bank (the "Lender"). The Credit Facility provides for borrowings up to $15 million, subject to borrowing base limitations.

The Credit Facility consists of a regular revolver which at July 1, 2000, had a borrowing base of $200,000. A portion of the borrowing base is available for the issuance of letters of credit. All borrowings under the Credit Facility are secured by a first lien deed of trust providing a security interest in certain oil and natural gas working interests in the Right Hand Creek Properties.

The Credit Facility provides that the unpaid principal balance of the loans shall bear interest, payable as it accrues on the 1st day of each month, commencing September 1, 1999, and at maturity (stated or by acceleration), at a rate per annum equal to the lesser of the (i) Highest Lawful Rate or (ii) 1% over the CBIR rate from time to time in effect, as therein defined. The Credit Facility also permits the Company to repay and reborrow amounts under the Credit Facility without any penalty, thereby, allowing the Company the flexibility to utilize any available cash to reduce its outstanding indebtedness and thus, its cost of borrowed funds.

Under the terms of the Credit Facility, the Company must not permit its Current Ratio (as defined) of Current Assets (as defined) to its Current Liabilities (as defined) to be less than 1.25 to 1.0 at any time. Furthermore, the Company must not permit its Tangible Net Worth (as defined) to be less at any time than $1.00 plus (i) 50% of positive Net Income (as defined) for all quarterly periods ending subsequent to December 31, 1998, plus (ii) 100% of any Equity Infusions (as defined) to Debt Service (as defined) to be less than 1.25 for 1.0, determined as of the end of each fiscal quarter of the Company on or after September 30, 1999.

A new Borrowing Base shall be determined as of each April 1 and October 1 during the Revolving Credit Period (the "semi-annual determinations"), or at such other or additional times during the Revolving Credit Period as the Lender in its reasonable discretion and at its sole cost may elect ("discretionary determinations"), and the Lender shall determine a new Borrowing Base at such additional times, but no more often than one (1) time in any 12-month period without Lender's consent, as the Company may request ("Borrower requested determinations").

The Borrowing Base shall be automatically reduced as of the 1st day of each month commencing February 1, 2000, and continuing through the Revolving Credit Period. The initial monthly reduction shall be in the amount of $5,000 per month. At the time of each new semi-annual determination, the Lender, in its sole discretion may increase or decrease the amount of such monthly reduction. If a Borrowing Base Deficiency (as defined) exists after giving effect to a redetermination, then the Company must either (i) prepay the principal of the outstanding Loans or (ii) cause to be created first and prior perfected Liens (subject only to Permitted Liens, as defined) in favor of the Lender, by instruments satisfactory to the Lender, on producing oil and gas properties, which in the opinion of the Lender would increase the Borrowing Base by an amount sufficient, in combination with clause (i) preceding, to eliminate such Borrowing Base deficiency.

The Credit Facility contains a number of covenant affecting the Company's liquidity and capital resources, including restrictions a the Company's ability (i) to incur indebtedness other than (a) under the Credit Facility or (b) Permitted Indebtedness, as defined, or (ii) to pledge assets outside of the Credit Facility, other than Permitted Liens, and with respect to the Company's maintenance of a minimum net worth.

Item 2.

Gladstone Energy, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Thisquarterly report on form 10-Q of the Company contains "forwarding-looking statements" within the meaning of, Section 27a of the Securities Act of 1933, as amended (the "Securities Act"), and section 21e of the Securities Exchange Act of 1934, as amended (the "exchange act"). Specifically, all statements other than statements of historical facts included in this report regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward- looking statements. These forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, price levels for oil and natural gas, concentration of oil and natural gas reserves and production, drilling risks, uncertainty of oil and gas reserves, risks associated with the development of additional revenues and with the acquisition of oil and gas properties and other energy assets, operating hazards and uninsured risks, general economic conditions, governmental regulation, changes in industry practices, marketing risks, one time events and other factors described herein ("cautionary statements"). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward- looking statements. All subsequent written and oral forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information - Cautionary Statements" included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, which is incorporated herein by reference.

Results of Operations - Comparison of Three Month and Six Month Periods Ended June 30, 2000 and 1999

Net Income (Loss). The Company had net income for the three month period ended June 30, 2000 of $57,185 compared to the net loss of $44,379 for the corresponding quarter of 1999, representing $.07 and ($.05) per share, respectively. The Company had a net loss for the six month period ended June 30, 2000 of ($32,959) compared to the net loss of ($70,568) for the corresponding period of 1999, representing ($.04) per share for the period in 2000 and ($.08) per share for the same period in 1999.

Revenues. Revenues for the three month period ended June 30, 2000 were $138,266 compared with $14,641 for the corresponding period in 1999, a 844% increase. Revenues for the six month period ended June 30, 2000 were $220,830 compared with $22,780 for the corresponding period in 1999, a 869% increase. These increases in revenues were primarily a result of the acquisition of the Right Hand Creek Properties, which was effective as of May 1, 1999.

Costs and Expenses. Costs and expenses for the three month period ended June 30, 2000, increased $17,515, or 28%, to $81,084 versus $63,569 for the corresponding period of 1999. Costs and expenses for the six month period ended June 30, 2000 increased $155,373, or 157%, to $253,808 versus $98,435 for the corresponding period of 1999. General and administrative expenses increased due to the abandonment of dry holes and the associated acreage, and an officers and directors insurance policy that had not previously been carried. Legal, auditing, and accounting fees decreased $35,554, or 71%, from $50,284 for the six month period ended June 30, 1999 to $14,730 for the same period in 2000 because improved reporting procedures have been implemented and the Company completed its reorganization.

Liquidity and Capital Resources

Cash decreased $92,848 to $41,494 at June 30, 2000, from $134,342 at December 31, 1999, as a result of the cost of dry holes drilled and payments on bank loans. Accounts receivable increased $16,552 to $57,373 from $40,821 during the six months ended June 30, 2000 and accounts payable decreased $124,547 to $12,911 from $137,458 during the six months ended June 30, 2000. The increase in accounts receivable is primarily related to increased revenue from the Right Hand Creek Properties which has been accrued but not received as well as higher oil prices for the period, while the decrease in accounts payable is primarily due to paying invoices due on the drilling of a dry hole and an unsuccessful recompletion of a shut-in well related to the Right Hand Creek Properties, as well as to final payments on the drilling of the Cache Creek #1 dry hole in 1999.

Earnings (loss) before interest, taxes, depreciation, depletion and amortization ("EBITDA") for the three-month period ended June 30, 2000 is $89,649 or .11 per share compared to ($40,321), or ($.05) per share for the corresponding period of 1999. EBITDA for the six month period ended June 30, 2000 was $32,717 or $ .04 per share for the six month period in 2000 compared to ($59,058), or ($.07) per share for the same period in 1999. (Per share figures have been adjusted retroactively to record the effects of the reverse split.) Management is of the opinion that any significant acquisitions, projects or drilling and/or recompletion work will require debt and/or equity financing. There is no assurance that the Company will be able to borrow additional amounts under the Credit Facility or obtain other debt and/or equity financing for any significant activities.

For the six months ended June 30, 2000, net cash used in operating activities was $60,396 compared to $707,343 received for use for the six months ended June 30, 1999. Significant uses of cash in operations for the six months ended June 30, 2000, in addition to our net loss, was cash used to reduce payable. Additionally, accounts receivable increased.

The Company maintains a $15 million credit facility (the "Credit Facility") with Compass Bank, which is secured by a first lien deed of trust providing a security interest in the Right Hand Creek Properties. This facility expires on August 1, 2001. At June 30, 2000, the outstanding balance under the line of credit was $200,000 and the borrowing base was $200,000. Interest on the outstanding balance accrues on the first of each month at a rate per annum equal to the lesser of the (i) Highest Lawful Rate or (ii) 1% over the CBIR rate from time to time in effect, as therein defined. At July 1, 2000, this rate was 10%.

The Credit Facility requires the Company to comply with certain financial covenants such as a minimal current ratio, a minimal amount of tangible net worth, a minimal quick ratio and a maximum amount of debt to cash flow. The Credit Facility also contains a number of covenants affecting the Company's liquidity and capital resources, including restrictions on the Company's ability(i) to incur indebtedness other than (a) under the Credit Facility or (b) certain indebtedness, or (ii) to pledge assets outside of the Credit Facility, other than certain permitted liens.

Inflation and Changing Prices

The impact of inflation, as always, is difficult to assess. During 1997 and 1998, the oil and gas industry remained depressed; however as of December 31, 1999, oil prices had made a rebound and were consistently improving. This improvement has continued and actually increased in the first quarter of 2000. The general softening of the market prior to and into 1999 had reduced the cost of labor, materials, contract services, and other operating costs; therefore, the increase in oil prices could cause an increase in operating costs. The Company cannot anticipate where cost and revenue trends will head; however, a sudden increase in inflation and/or an increase in operating costs coupled with a cessation of the current improved trend of oil prices could have an adverse effect on the operations of the Company.

Part II. Other Information

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

During the second quarter of the fiscal year, no matter was submitted by the Company to a vote of its shareholders through the solicitation of proxies or otherwise.

Item 5. Other Information

During the second quarter of the fiscal year, there is no Other Information to disclose.

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits - Not applicable.
(b)	Reports on Form 8-K - No Reports on Form 8-K were filed during the last quarter of the period covered by this report.

                                                                                            SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GLADSTONE ENERGY, INC.
Date: August 14, 2000	By:          ��
	Katherine R. Murphy, Treasurer