**United
States**
 **Securities
and Exchange Commission**
 Washington,
D.C. 20549
 
 **FORM
10-QSB**
 
 (Mark
One)
 **[
X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
ACT OF 1934**
 
 For the
quarterly period ended March 31, 2005
 
 **[
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
ACT OF 1934**
 
 For the
transition period from_____ to _______
 
 *Commission
file number 000-27783*
 
 **NATHANIEL
ENERGY CORPORATION**
 (Name of
Small Business Issuer in its Charter)
 
 
 Delaware
      (State
      or other jurisdiction of
      Incorporation
      or organization)
    84-1572525
      (I.R.S.
      Employer
      Identification
      No.)8001
      South InterPort Blvd. Suite 260, Englewood, Colorado
      (Address
      of Principal Executive Offices)
    80112
      (Zip
      Code)
 
 (303)690-8300
 Issuer's
telephone number, including area code
 ___________________________________________________________________
 (Former
name, former address and former fiscal year, if changed since last
Report)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act 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 [ ]
 
 **Applicable
only to issuers involved in bankruptcy proceedings during the preceding five
years**
 
 Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]
 
 **Applicable
only to corporate issuers**
 
 State the
number of shares outstanding of each of the issuer's class of common equity, as
of the latest practicable date:
 May 6,
2005, 70,698,263 shares of
common stock, $.001 par value.
 
 Transitional
Small Business Disclosure Format (Check One) Yes [ ] No [X]
 
  
 **NATHANIEL
ENERGY CORPORATION**
 TABLE OF
CONTENTS
  Page**PART
      I. FINANCIAL INFORMATION**Item
      1. Financial Statements (unaudited)
    1Balance
      Sheet as of March 31, 2005 and December 31, 2004
    1Statements
      of Operations for the Three Months ended March 31, 2005 and
      2004
    2Statements
      of Cash Flows for the Three Months ended March 31, 2005 and
      2004
    3Notes
      to Financial Statements
    4Item
      2. Management's Discussion and Analysis on Plan of
    Operation
    8Item
      3. Controls and Procedures
    11**PART
      II. OTHER INFORMATION**Item
      1. Legal Proceedings
    12Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
    12Item
      3. Defaults Upon Senior Securities
    12Item
      4. Submission of Matters to a Vote of Security Holders
    12Item
      5. Other Information
    12Item
      6. Exhibits
    12Signatures
 
  **Nathaniel
Energy Corporation**
 **Consolidated
Balance Sheets**
 
 March
      31,
      2005
      (unaudited)
    
    
    December
      31,
      2004AssetsCurrent
      assets:Cash
    
    $
    657,442
    
    $
    568,151Accounts receivable
    
    
    1,421,967
    
    
    1,340,229Inventory
    
    
    623,087
    
    
    1,019,028Prepaid expenses
    
    
    70,221
    
    
    136,022Advances receivable
    
    
    300
    
    
    529Total
      current assets
    
    
    2,773,017
    
    
    3,063,959Property,
      plant and equipment, net of accumulated
      depreciation
    
    
    10,156,350
    
    
    10,304,828Intangible
      assets, net
    
    
    573,953
    
    
    597,014Restricted
      cash
    
    
    
    
    
    237,000Deposits
    
    
    90,270
    
    
    85,477TotalAssets
    
    $
    13,593,590
    
    $
    14,288,278Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts payable
    
    $
    1,952,054
    
    $
    2,686,524Accrued compensation and payroll liabilities
    
    
    108,168
    
    
    97,300Accrued interest
    
    
    772,634
    
    
    640,033Accrued property tax
    
    
    68,857
    
    
    37,080Accrued income tax
    
    
    164,736
    
    
    23,584Other accrued expenses
    
    
    38,074
    
    
    41,520Notes payable, current portion
    
    
    536,913
    
    
    536,135Notes payable - stockholder, current portion
    
    
    --
    
    
    1,080,000Total
      current liabilities
    
    
    3,641,436
    
    
    5,142,176Long-term
      debt
    
    
    588,667
    
    
    728,571Long-term
      debt, stockholder
    
    
    8,892,151
    
    
    7,812,151Total
      liabilities
    
    
    13,122,254
    
    
    13,682,898Minority
      interest
    
    
    158,373
    
    
    54,626Stockholders'
      Equity:Preferred
      stock, 2,000,000 shares of $.001 par value
      authorized, none issued or outstanding
      Common
      stock, 75,000,000 shares of $.001 par value
      authorized, 70,698,263 shares and 70,198,263 shares
      issued and outstanding at March 31, 2005 and
      December
      31, 2004
    
    
    --
      
      
      70,698
    
    
    --
      
      
      
      
      
      70,198Common
      stock to be issued
    
    
    20,318
    
    
    20,318Additional
      paid-in capital
    
    
    64,938,656
    
    
    64,851,656Accumulated
      deficit
    
    
    (64,716,709
    )
    
    (64,391,418
    )Total
      Stockholders' Equity
    
    
    312,963
    
    
    550,754Total
      Liabilities and Stockholders' Equity
    
    $
    13,593,590
    
    $
    14,288,278
 
 
 *The
accompanying notes are an integral part of the financial
statements.*
  1
  
  **Nathaniel
Energy Corporation**
 **Consolidated
Statements of Operations**
 (Unaudited)
 
 For
      the Three Months EndedMarch
      31,
      2005
    
    
    March
      31,
      2004Revenue
    
    $
    3,933,142
    
    $
    3,346,792Cost
      of revenue
    
    
    3,171,681
    
    
    2,891,376Gross
      profit
    
    
    761,461
    
    
    455,416Selling,
      general and administrative expenses
    
    
    572,703
    
    
    510,437Research
      and development expense
    
    
    117,125
    
    
    164,570Total
      operating expenses
    
    
    689,828
    
    
    675,007Income
      (loss) from operations
    
    
    71,633
    
    
    (219,591
    )Other
      income (expense)Interest
      expense
    
    
    (152,025
    )
    
    (144,582
    )Other
      income
    
    
    -
    
    
    6,000Loss
      before income taxes and minority interest
    
    
    (80,392
    )
    
    (358,173
    )Income
      tax expense
    
    
    (141,152
    )
    
    (127,411
    )Loss
      before minority interest
    
    
    (221,544
    )
    
    (485,584
    )Minority
      interest
    
    
    (103,747
    )
    
    (93,647
    )Net
      loss
    
    $
    (325,591
    )
    $
    (579,231
    )Loss
      per share, basic and diluted
    
    $
    (0.01
    )
    $
    0.01
    )Weighted
      average common shares outstanding
    
    
    70,676,041
    
    
    69,719,414
 
 *The
accompanying notes are an integral part of the financial
statements.*
  2
   **Nathaniel
Energy Corporation**
 **Consolidated
Statements of Cash Flows**
 (Unaudited)
 
 For
      the Three Months EndedMarch
      31,
      2005
    
    
    March
      31,
      2004Cash
      flows from operating activities:
      Net
      loss
    
    $
    (325,291
    )
    $
    (579,231
    )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:
      Depreciation
      and amortization
    
    
    211,687
    
    
    236,316Minority
      interest
    
    
    103,747
    
    
    93,647Changes
      in operating assets and liabilities:
      (Increase)
      decrease in:
      Inventory
    
    
    395,941
    
    
    (1,019,865
    )Accounts
      receivable
    
    
    (81,738
    )
    
    (773
    )Prepaid
      expenses
    
    
    65,801
    
    
    66,378Other
      receivable
    
    
    229
    
    
    11,038Restricted
      cash
    
    
    237,000
    
    
    669,170Related
      party receivable
    
    
    --
    
    
    19,451Other
      assets
    
    
    (4,792
    )
    
    --Increase
      in:
      Accounts
      payable and accrued expenses
    
    
    (396,403
    )
    
    672,686Net
      cash provided by operating activities
    
    
    206,181
    
    
    168,817Cash
      flows from investing activities:
      Equipment
      and intangible asset purchases
    
    
    (40,148
    )
    
    (69,034
    )Net
      cash used in investing activities
    
    
    (40,148
    )
    
    (69,034
    )Cash
      flows from financing activities:
      Payments
      on debt
    
    
    (76,742
    )
    
    (24,127
    )Proceeds
      from issuance of notes and loans
    
    
    --
    
    
    2,000,000Net
      cash provided by (used in) financing activities
    
    
    (76,742
    )
    
    1,975,873Net
      increase in cash
    
    
    89,291
    
    
    2,075,656Cash
      and cash equivalents, beginning of period
    
    
    568,151
    
    
    504,782Cash
      and cash equivalents, end of period
    
    $
    657,442
    
    $
    2,580,438Cash
      paid for interest
    
    $
    22,224
    
    $
    1,803Cash
      paid for income taxes
    
    $
    --
    
    $
    --Non
      cash financing activity
      Issuance
      of stock to settle accrued expenses
    
    $
    87,500
    
    $
    --
 
 *The
accompanying notes are an integral part of the financial
statements.*
 
 
  3
  **Nathaniel
Energy Corporation**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
31, 2005 and 2004**
 (Unaudited)
 **1.
Significant Accounting Policies and Nature of Operations:**
 
 **Condensed
footnotes:**


As
contemplated by the Securities and Exchange Commission instructions to Form
10-QSB, the following footnotes have been condensed and therefore do not contain
all disclosures required in connection with annual financial statements.
Reference should be made to the notes to Nathaniel Energy Corporation’s annual
financial statements set forth in Form 10-KSB for the year ended December 31,
2004.
 
 **Unaudited
Interim Financial Statements**
 
 The
accompanying unaudited interim financial statements, which include the Company’s
51% owned subsidiary, have been prepared by the Company in accordance with
generally accepted accounting principles pursuant to Regulation S-B of the
Securities and Exchange Commission. The financial information has not been
audited and should not be relied on to the same extent as audited financial
statements. Certain information and footnote disclosures normally included in
audited financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, these interim
financial statements should be read in conjunction with the Company's financial
statements and related notes as contained in Form 10-KSB for the year ended
December 31, 2004. In the opinion of management, the interim financial
statements reflect all adjustments, including normal recurring adjustments,
necessary for fair presentation of the interim periods presented. The results of
operations for the three months ended March 31, 2005 are not necessarily
indicative of results of operations to be expected for the full
year.
 
 **Description
of Business**
 
 Nathaniel
Energy Corporation is a renewable energy company that provides industry with an
alternative energy comparable to that of fossil fuels. Our proprietary patented
technology, the Thermal CombustorTM, is a 2-stage gasification system designed to
convert waste, biomass, tires and any other solid, hydrocarbon-based material
into inexpensive clean electrical and thermal energy, while exceeding the most
stringent EPA and European Union regulations.
 
 We have
been in the fuel processing business, including used tire recycling and
collection services, since 1997. We have operated a 27 acre tire fuel processing
facility in Hutchins, Texas since 1999 and have operated a helium and gas
processing facility in Keyes, Oklahoma since April 2003. During the three months
ended March 31, 2005, our helium and gas processing facility, and our tire fuel
processing business, have generated 95% and 3% of our total revenue,
respectively.
 
 We plan
to focus our patented technology, the Thermal CombustorTM in three main areas;
licensing, creating energy infrastructures and building, owning and operating
small power plants.
 
 We plan
to license the Thermal CombustorTM technology to qualified companies, joint
venture partners, and distributorships. We plan to build energy infrastructures
for certain industries that have a need to dispose of hydrocarbon based
materials and seek an independent source of energy in the form of heat, steam or
electricity. These energy infrastructures would be built on the businesses'
premises ("inside the fence") and can reduce the dependence a business has on
fossil fuels and power from the local utility. In some cases, the energy
infrastructures can become a business' self sustaining utility. We plan to
identify new and existing sites where we can build, own and operate small power
plants through our own resources or in conjunction with joint venture
partners.
 
 Our short
term objective is to complete the start up and testing of our two Thermal
CombustorsTM recently constructed in Cologna Veneta, Italy. We plan to utilize
the operating Thermal CombustorTM units in Italy in our sales, marketing and
research efforts during 2005. Upon completion and acceptance of the second of
two Thermal CombustorsTM and payment by our customer in Italy, we will recognize
revenue on those units. We have recognized no revenue from the sale or delivery
of our Thermal CombustorTM through the period ended March 31, 2005. During the
first quarter of 2005, we formed a Delaware corporation as a wholly owned
subsidiary for purposes of advancing our business for the commercialization of
our Thermal CombustorTM technology. The subsidiary is named Cleanergy, Inc.
Cleanergy, Inc. had no financial activity.
  4
   **Nathaniel
Energy Corporation**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**
 **MARCH
31, 2005 and 2004**
 (Unaudited)
 
 **Critical
Accounting Policies**
 
 The
financial statements include the accounts of Nathaniel Energy Corporation and
its subsidiaries. All material inter-company accounts and transactions have been
eliminated in consolidation. Certain prior period amounts have been reclassified
to conform to the current period.
 
 ***Inventory***
 
 Tire
shred inventory is valued at its cost to produce a salable product using the
first-in first-out method, but in an amount not to exceed realizable value,
determined with respect to existing contractual sales prices, less costs to
complete the tire processing. The tire shred inventory value at March 31, 2005
is zero. The gas processing facility has crude helium inventory in process
stored in the BLM (Bureau of Land Management) facility in Texas; this inventory
is based on the first-in-first-out method. There is a contract with the BLM
which encompasses activity fees, compression fees, storage fees and an annual
fee to the BLM. The BLM fees are expensed as incurred. We are
also completing the start-up and testing of two Thermal CombustorsTM in Italy,
under a contract for resale to a customer, which have been installed with the
first of the two units operating in start up phase. The Thermal CombustorsTM are
valued at that portion of the contract price we reasonably expect to receive
upon completion and acceptance by our customer, reduced by our contractual
exposure to penalties contained in the contract which could be incurred if our
Thermal CombustorsTM do not produce the volume of steam specified in the contract
and payments received. We are
reimbursed for our out of pocket expenses incurred during this start up phase
and we record those expenses and the reimbursement of those expenses in cost of
revenue and revenue, respectively.
  Components
of inventory at March 31, 2005 are as follows:
 Helium
      inventory, valued by first-in, first-out method
    
    $
    228,422Construction
      in progress, valued by first-in, first-out method
    
    
    394,665$
    623,087
 ***Research
and Development***
 
 Research
and development expenditures, all of which relate directly to the design and
development of our Thermal Combustor TM technology, are expensed as incurred. For
the three months ended March 31, 2005 and 2004, we incurred costs for outside
resources and expensed $117,125 and $164,570, respectively, as research and
development expense.
  ***Property,
Plant and Equipment and Related Depreciation***
 
 Property,
plant and equipment purchased or constructed is recorded at cost. Direct costs,
such as labor and materials, and indirect costs, such as overhead used during
construction are capitalized. Major units of property replacements or
improvements are capitalized and minor items are expensed. Gain or loss is
recorded in income for the difference between the net book value relative to
proceeds received, if any, when the asset is sold or retired. Depreciation is
provided for using straight-line and accelerated methods. Estimated useful lives
of the assets used in the computation of depreciation are as follows:
  Machinery
      and equipment
    5 -
      20 yearsBuildings
    25
      yearsVehicles
    5
      yearsGathering
      pipeline
    20
      years
 5
  
 **Nathaniel
Energy Corporation**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**
 **MARCH
31, 2005 and 2004**
 (Unaudited)
 
 ***Long
Lived Assets***
 
 In
accordance with the Financial Accounting Standards Board's ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the Company reviews its long-lived assets,
including intangible assets, for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
Recovery of assets to be held and used is measured by a comparison of the
carrying amount of the assets to the future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less the cost
to sell. The impairment review performed for fiscal year 2004 indicated an
impairment of long-lived assets at the Hutchins, TX tire processing facility. At
the time of the impairment review, net realizable value for these assets was
determined to be $300,000, resulting in a net impairment adjustment of
$1,403,046. Management uses significant judgments, assumptions and estimates to
calculate future cash flows expected to be generated by the assets under
impairment review.
 
 ***Revenue
Recognition***
 
 The
Company's tire fuel processing facility recognizes revenue in several ways.
First when waste tires are accepted at the facility ("tipping fees") and
secondly from the sale of processed tire shreds. The revenues from tipping fees
are fully earned when the waste tires are accepted at the facility and the
processed tire shred revenues are recognized when the shreds are delivered to
the end user. Internal quality controls are in place to ensure that shreds meet
the standards required in contracts for the delivery of shreds. This quality
control reduces the risk of significant returns and allowances of tire shreds
sold. Sales returns are reprocessed and added back to the existing tire shreds.
Sales returns are booked based on the Company’s historical
experience.
  
 The
Company's helium, natural gas liquids and natural gas revenues are recognized in
the period of delivery. The revenues are fully earned when recognized. The
processing plant has various types of quality control equipment in place to
ensure that the processed gases meet the requirements of the Bureau of Land
Management ("BLM"), the natural gas pipeline operators and its wholesale gas
customers. The Company has a month-to-month contract in place with a natural gas
marketing firm for the natural gas delivered to the pipeline and a contract for
the helium processed. The natural gas liquids processed are currently sold as
produced under a month to month agreement.
  We
recognize revenue from the sale of our Thermal CombustorsTM upon completion,
delivery and acceptance by the customer, using the completed contract method of
accounting.
 
  ***Net
Income (Loss) Per Common Share***
 
 SFAS No.
128, "Earnings Per Share" requires presentation of basic (loss) or earnings per
share ("Basic EPS") and diluted (loss) or earnings per share ("Diluted EPS").
 
 The
computation of basic loss per share is computed by dividing loss available to
common stockholders by the weighted average number of outstanding common shares
during the period. Diluted loss per share gives effect to all dilutive potential
common shares outstanding during the period. The computation of diluted EPS does
not assume conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on earnings. During the periods presented, the
Company had no potentially dilutive securities outstanding.
 
 ***Use
of Estimates***
 
 The
preparation of our financial statements in conformity with generally accepted
accounting principles requires our management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
  6
  
 **Nathaniel
Energy Corporation**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**
 **MARCH
31, 2005 and 2004**
 (Unaudited)
 **2.
Notes Payable**
 
 On March
17, 2004 we borrowed $2,000,000 from Richard Strain, a related party, bringing
our total indebtedness to Mr. Strain to $8,892,151 at March 31, 2005 and
December 31, 2004. Our Promissory Note II to Mr. Strain relating to the
$2,000,000 loan provides a fixed effective interest rate of 3.49% and is payable
in equal installments of $540,000 due on October 1, 2005, January 1, 2006, April
1, 2006 and July 1, 2006. Mr. Strain has the right, at any time, to convert all
or any portion of the outstanding indebtedness of $8,892,151 into shares of our
common stock. The conversion price is equal to 103% of the average closing price
of our common stock for the five trading days prior to March 17, 2004, which was
$0.78 per share. The conversion price exceeded the market value of the stock on
March 17, 2004. See Note 5 - “Subsequent Events”.
  **3.
Economic Dependency - Major Customer**
 
 Approximately
42% and 38% of our total revenue for the three months ended March 31, 2005 and
2004, respectively is from helium sales to Air Products and Chemicals, Inc.
(“Air Products”) from the Keyes Helium and the Sturgis gas processing plant and
compressor station and Keyes gathering system. Although we generate additional
sales of natural gas liquids and market our natural gas through Tenaska Energy
Marketing which reduces our dependency on any one customer, Air Products
purchases all of our helium produced under a long-term take or pay contract that
continues through 2021. Our contract with Air Products is, subject to early
termination in 2008 and 2015 if either party requests a price determination that
is not agreed to by the other party. If the contract is not terminated by either
party in 2021, it will continue unless until terminated by either party
providing two years' advance notice of their intent to terminate. Should Air
Products terminate this contract, we believe we would be able to sell the helium
produced to other major companies which have previously stated an interest in
purchasing the helium.
 **4.
Related Party Transactions**
 On
October 1, 2004, the Company entered into a consulting agreement with CJM Group,
Inc., a company affiliated with Corey Morrison, to provide senior
management and consulting services, contract negotiation and deal structure
services, and business and planning services . The
agreement has a term of 24 months, unless terminated by either party, and
provides that the consultant receive a consulting fee of $12,500 monthly for
services provided. During the three months ended March 31, 2005, the Company
paid CJM Group, Inc. $37,500.
 
 As of and
for the year ended December 31, 2004, an additional $250,000 in marketing and
communication related expenses was accrued to Strong Wilken, Inc., an entity
affiliated with Corey Morrison, for corporate marketing and communication
services, which was paid during January 2005.
 
 On April
12, 2005 the Company terminated its October 1, 2004 Consulting Agreement with
CJM Group, Inc. and its relationship with Strong Wilken, Inc.
 
 See Note
2 - “Notes Payable” relating to a $2,000,000 loan from Richard Strain to the
Company.
 
 **5.
Subsequent Events**
 
 On April
14, 2005, Mr. Strain agreed to restructure payment terms on the outstanding debt
and accrued interest due from us so that no payments will be required during our
fiscal year ending 2005 and that we would revise the debt repayment schedule to
allow us to satisfy those payments from either operating cash flows or other
financing activities. The terms and conditions of the debt restructuring have
not yet been completed; however, we believe these terms and conditions will be
favorable to us. The $8,892,151 due Mr. Strain is presented as long term debt on
our balance sheet as the debt is expected to be refinanced.
 
 **Business
Segments**
 
 The
Company conducts business in three separate facilities presently managed as
three energy operating business segments, helium and gas processing, tire fuel
processing and alternate energy. The location and use of our facilities are
shown as follows:
 
 7
 
 - the
tire fuel processing operation in Hutchins, Texas,
 -the
natural gas processing, natural gas liquids and helium production in Keyes,
Oklahoma, and
 - the
alternate energy engineering and corporate offices in Englewood,
Colorado.
 
 **Item
2. Management's Discussion and Analysis of Results of Operations.**
 
  **FORWARD
LOOKING STATEMENTS**
 
 Certain
information contained in this report may include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
is subject to the safe harbor created by that act. The safe harbor created by
the Securities Litigation Reform Act will not apply to certain “forward looking
statements” because we issued “penny stock” (as defined in Section 3(a)(51) of
the Securities Exchange Act of 1934 and Rule 3a51-1 under the Exchange Act)
during the three year period preceding the date(s) on which those forward
looking statements were first made, except to the extent otherwise specifically
provided by rule, regulation or order of the Securities and Exchange Commission.
We caution readers that certain important factors may affect our actual results
and could cause such results to differ materially from any forward-looking
statements which may be deemed to have been made in this Report or which are
otherwise made by or on behalf of us. For this purpose, any statements contained
in this report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "explore", "consider",
"anticipate", "intend", "could", "estimate", "plan", or "continue" or the
negative variations of those words or comparable terminology are intended to
identify forward-looking statements. Factors that may affect our results
include, but are not limited to, the risks and uncertainties associated with:
 
 o Our
ability to raise capital necessary to implement our business plan.
 o Our
ability to finance and complete planned projects and facilities upgrades.
 o Our
ability to execute our business plan and commercialize the Thermal CombustorTM
technology, including building Thermal CombustorsTM that meet customers'
specifications and that meet local regulatory environmental and permit
requirements.
 o Risks
related to dependency on a small number of customers.
 o Our
ability to satisfy our customers' expectations.
 o Our
ability to employ and retain qualified management and employees.
 o Changes
in government regulations which are applicable to our business.
 o The
availability of a consistent, economically viable, and sustainable waste stream
supply to fuel the Thermal CombustorTM operations.
 o Changes
in the demand for our products and services, including the impact from changes
in governmental regulation and funding for alternative energy.
 o The
degree and nature of our competition, including the reliability and pricing of
traditional energy sources, economic viability of other alternative energy
sources such as wind and solar power.
 o Our
ability to pay debt service on loans as they come due.
 o Our
ability to generate sufficient cash to pay our creditors.
 o
Disruption in the economic and financial conditions primarily from the impact of
terrorist attacks in the United States and overseas, threats of future attacks,
police and military activities and other disruptive worldwide political events.
 
 We are
also subject to other risks detailed from time to time in other Securities and
Exchange Commission filings and elsewhere in this report. Any one or more of
these uncertainties, risks and other influences could materially affect our
results of operations and whether forward-looking statements made by us
ultimately prove to be accurate. Our actual results, performance and
achievements could differ materially from those expressed or implied in these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether from new information, future
events or otherwise.
  8
 **Copany
Overview**
 Our
mission is to provide an economically cost effective, clean dependable energy
alternative to fossil fuels worldwide. Our operational plan focuses on three
major business models in the commercialization of our Thermal CombustorTM
technology: licensing, creating energy infrastructures and building, owning and
operating small power plants. Revenue generated by our largest business, the
helium and gas processing business, provides operating capital funds for our
tire fuel processing and further commercialization of our Thermal CombustorsTM.
Our helium and gas processing business, generated 95% and 96% of our revenue, or
$3,722,778 and $3,218,656 during the three months ended March 31, 2005 and 2004,
respectively. The tire fuel processing operation generated 3% and 4% of the
revenue, or $130,364 and $128,136 during the three months ended March 31, 2005
and 2004, respectively. We have recognized no revenue from our Thermal
CombustorTM business segment during to date, however, we have recognized $80,000
of revenue (or 2% of our revenue) during the three months ended March 31, 2005
related to consulting services provided our customer related to the start-up of
the Thermal Combustors TM built in Cologna Veneta, Italy.
 
 Our long
term goal is to produce the majority of our revenue and cash flow from the
commercialization of our Thermal CombustorTM technology. During first quarter
2005, we formed a Delaware corporation as a wholly owned subsidiary of the
Company for purposes of advancing our business plan for the commercialization of
our Thermal CombustorTM technology. The subsidiary is named Cleanergy, Inc. The
majority of our resources are focused on this business operation.
 
 Historically,
we have not had difficulty finding potential project opportunities. Worldwide,
industries and municipalities seek lower cost and clean energy alternatives to
fossil fuels. Demand for these energy alternatives is expected to grow. A key to
our success will be wisely choosing among project opportunities and focusing
resources on projects with the greatest chance of success and returns for
stockholders.
 
 Once we
have obtained final acceptance for the two Thermal CombustorTM units in Cologna
Veneta, Italy, we will have access to a commercial operating facility to use for
marketing, testing and additional research and development efforts. Our 2005
mission is to develop a sales pipeline of qualified waste-to-energy projects,
contract for one or more of those projects and initiate implementation as a
partner or joint venture member at least one commercial operation utilizing our
Thermal CombustorTM technology.
 
 At the
same time, we are developing the infrastructure and business development
activities to support our energy infrastructure and small power plant
opportunities utilizing our Thermal CombustorTM technology. Additionally, we will
seek project funding that will be based on the size, configuration and business
structure of the project. We anticipate that the timeframe from identification
of a project to completion will be 12 to 24 months, provided we obtain the
requisite project financing.
 
 We also
plan to improve operations at our tire fuel processing facility in Hutchins,
Texas during 2005. The tire fuel processing facility is currently the only
storage and processing facility licensed by the State of Texas to operate in the
Dallas Metro area. If we successfully obtain funding for our planned capital
improvements and once these capital improvements are in place, the facility will
be able to increase the number of waste tires it accepts, increasing tipping fee
revenue, and increasing revenue from the sale of tire shreds it produces. The
tire fuel processing facility’s ability to increase revenue and generate
operating cash flows has been hindered by the general poor quality of the
existing equipment, which requires constant repair and maintenance due to the
age of the equipment and the resulting reduced pricing on the lower quality tire
shreds it produces. The addition of new equipment combined with existing
equipment and certain facility improvements provides an opportunity to sign new
contracts for the acceptance and disposal of waste tires. The new contracts are
expected to increase the tipping fee revenues. We believe that the new equipment
would improve the quality of the tire shreds providing increased pricing for the
higher quality tire shreds. Furthermore, we believe that facility improvements
would allow us to increase the volume of the tire shreds produced with the
associated increase in revenues
 
 **Results
of Operations**
 
 For the
three months ended March 31, 2005 revenue increased by $586,350 to $3,933,142
from $3,346,792 during the same period in 2004. The revenues and expenses of our
51% owned subsidiary, Nathaniel Energy Oklahoma Holdings, which operates the
Keyes Helium plant, the Sturgis gas plant and the Keyes gathering system are
consolidated within total operations. Revenue from the helium and gas processing
operations were $3,722,778 during the three months ended March 31, 2005, an
increase of $504,122 or 16% over revenue of $3,218,656 for the three months
ended March 31, 2004. This increase is due primarily to increases in helium
production and related revenue resulting from equipment improvements made after
the first quarter of 2004. These equipment improvements have continued to
increase the amount of helium we recover from our helium processing operation.
Revenue from tire fuel processing operations increased marginally by $2,228 from
$128,136 for the three months ended March 31, 2004 to $130,364 for the three
months ended March 31, 2005. In addition,
  9
 we
recognized $80,000 of revenue for start-up consulting services provided to our
customer for the Thermal Combustor TM built in Cologna Veneta, Italy during the
three months ended March 31, 2005 with no such revenue recognized during the
comparable period in the prior year.
 
 Gross
profit for the three months ended March 31, 2005 was $761,461, an increase of
$306,045 or 67% compared to gross profit of $455,416 for the three months ended
March 31, 2004. In the first quarter of 2005, the helium and gas processing
operation gross profit was $777,225, an increase of $231,200 over gross profit
of $546,025 for the first quarter of 2004, due primarily to increased helium
revenue and related gross profit on those revenues. Gross loss from our tire
fuel processing operation decreased by $34,459 from $90,609 for the three months
ended March 31, 2004 to $56,150 for the three months ended March 31, 2005 due
primarily to a reduction in depreciation expense. Depreciation expense for our
tire fuel processing operation for the three months ended March 31, 2005
decreased as a result of an asset impairment during the second quarter 2004,
which reduced the carrying value of those assets and the related depreciation
expense for all periods subsequent to that impairment. In addition, we
recognized gross profit of $40,386 for consulting services related to the
start-up of the two Thermal Combustors TM we built for our customer in Cologna
Veneta, Italy. In January 2004 Nathaniel Energy entered into a contract with
Nexus Energy Company to receive additional gas through its existing pipeline for
processing at the company's facilities. According to the contract, Nathaniel
Energy will extract helium and natural gas liquids from this gas stream. The
contract and equipment upgrades substantially completed during the first quarter
of 2004 have enabled the company to increase gas volumes and production at the
processing plant.
 
 Total
selling, general and administrative expenses increased by $62,266 or 12% from
$510,437 for the three months ended March 31, 2004 to $572,703 for the three
months ended March 31, 2005. The increase in selling, general and administrative
expenses is due primarily to a decrease in payroll and related employee expenses
of approximately $34,000 resulting from a reduction in headcount, offset by an
increase in legal and consulting expenses of approximately $93,000. The increase
in legal and consulting expenses includes $37,500 for services provided by CJM
Group, Inc., a related party, for senior management and consulting services,
contract negotiation and deal structure services, and business and planning
services and an increase in legal costs of approximately $55,500 due primarily
to the renegotiation and favorable resolution of certain contract terms with our
customer related to the performance of the Thermal Combustors TM built in Cologna
Veneta, Italy.
 
 Research
and development costs which include only third party engineering and related out
of pocket expenses, decreased by $47,445 from $164,570 for the three months
ended March 31, 2004 to $117,125 for the three months ended March 31, 2005 due
primarily to a decrease in outside professional engineering design and support
service requirements for the Thermal Combustors TM built in Cologna Veneta,
Italy.
 
 Interest
expense increased by $7,443 from $144,582 for the three months ended March 31,
2004 to $152,025 for the three months ended March 31, 2005 due primarily to an
increase in vendor provided interest bearing promissory notes in the fourth
quarter of 2004 related to the design, construction and start-up of the Thermal
Combustors TM built in Cologna Veneta, Italy.
 
 **Liquidity
and Capital Resources**
 
 As of
March 31, 2005 we owed $436,992 to financial institutions under installment
notes with an average interest rate of 6.4%, which were secured by equipment.
 
 In
addition, we have $8,892,151 in secured loans from Richard Strain with an
average interest rate of 6.0%. During March 2004, we borrowed $2,000,000 of this
total with and principal and interest payable in four quarterly payments of
$540,000 each on October 1, 2005, and January 1, April 1, and July 1, 2006 with
an effective interest rate of 3.5%. The remaining amount due Mr. Strain of
$6,892,151 is due in quarterly principal and interest payments of $572,876 from
March 2007 through December 31, 2009. All loan amounts from Mr. Strain may be
converted, at Mr. Strain's option, into shares of our common stock at a
conversion rate equal to 103% of the average closing price on the five trading
days prior to March 17, 2004.  On April 14, 2005, Mr. Strain agreed to
restructure payment terms on the outstanding debt and accrued interest due from
us so that no payments will be required during our fiscal year ending 2005 and
that we would revise the debt repayment schedule to allow us to satisfy those
payments from either operating cash flows or other financing activities. The
terms and conditions of the debt restructuring have not yet been completed;
however, we believe these terms and conditions will be favorable to
us.
 As of
March 31, 2005, we have $728,637 of unsecured notes due Merrick and Company, a
vendor, for services they provided us designing, installing and starting-up our
Thermal Combustors TM in Italy bearing interest of 6.5%. As of May 6, 2005,
Merrick and Company sent us a letter ostensibly serving as notice to us that we
are in default on those unsecured notes for two monthly payments. We maintain,
among other things, that the vendor failed to fully and/or properly perform
under the contract for its services and that the vendor engaged in other
wrongful conduct. Accordingly, Nathaniel disputes liability arising from the
promissory notes, the related contract and invoices rendered under that
contract. We have not reached an agreement with the vendor on the disputed
amounts. We believe that we have meritorious claims, remedies and defenses
against the vendor. We may be required to pursue legal remedies to obtain a
settlement or resolution on the disputed amounts due and our claims against the
vendor. We are unable to predict the outcome in the event any legal action is
pursued by us or the vendor with respect to this matter.
 
 10
 The
remaining indebtedness consists of miscellaneous notes to unaffiliated third
parties of $23,667.
 
 The
following is a summary of Nathaniel Energy's cash flows sources (uses) from
operating, investing, and financing activities during the periods indicated:
 
 
 Period
      ended March 31,2005
    
    
    2004Operating
      activities
    
    $
    206,181
    
    $
    168,817Investing
      activities
    
    
    (40,148
    )
    
    (69,034
    )Financing
      activities
    
    
    (76,742
    )
    
    1,975,873Net
      effect on cash
    
    $
    89,291
    
    $
    2,075,656
 
 For the
period ended March 31, 2005, the net cash provided by operating activities of
$206,181is due to a net loss for the quarter of $325,291 and a reduction in
accounts payable and accrued expenses of $396,403 offset by non-cash operating
expenses including depreciation and amortization of $211,687 and minority
interest of $103,747 in addition to a reduction in inventory of $395,941 and a
reduction in restricted cash of $237,000.
 
 The
change in net cash used in investing activities of $40,148 is due to the
purchase of equipment during the three months ended March 31, 2005.
 
 The
change in net cash used in financing activities of $76,742 is due to repayments
of debt.
 
 For the
period ended March 31, 2004, the net cash used in operating activities is due to
a net loss for the quarter of $579,231 and an increase in inventory of
$1,019,865 offset by an increase in accounts payable and accrued expenses of
$672,686 and a reduction in restricted cash of $669,170. During the quarter
$669,170 of the restricted cash balance was used to construct two Thermal
Combustors TM in Cologna Venetta, Italy which significantly increased inventory
balances.
 
 The
change in net cash used in investing activities of $69,034 is due to the
purchase of equipment during the three months ended March 31, 2004.
 
 The
change in net cash provided by financing activities of $1,975,873 is due to a
$2,000,000 debt issuance, offset by debt repayments of $24,127 during the three
months ended March 31, 2004.
 
 Nathaniel
Energy had cash of $657,442 at March 31, 2005 which will be used to fund the
Company's operations, pay current debts, partially fund the execution of our
Thermal CombustorTM business plan and make improvements at our tire fuel
processing operation in Hutchins, Texas. We expect that we will need to obtain
additional funds to complete the improvements at the tire fuel processing
operation and we are in the process of obtaining short term financing for those
improvements. We plan to complete these improvements during third quarter 2005,
at which time we expect the tire fuel processing operation to generate positive
net cash flows from operating activities, which will be sufficient to repay all
short term financing and provide additional funding for our corporate overhead
expenses and execution of our Thermal Combustor TM business plan. In addition, we
expect positive cash flows provided by operating activities from our helium and
gas processing operations in Keyes, Oklahoma to be sufficient to make certain
scheduled maintenance and improvements to equipment at that location during the
second quarter of 2005.
 
 **Item
3. Controls and Procedures**
 
 Our Chief
Operating Officer, Principal Executive Officer and Principal Accounting Officer
conducted an evaluation of the effectiveness of our disclosure controls and
procedures. Based on this evaluation, our Chief Operating Officer, Principal
Executive Officer and Principal Accounting Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2005 in alerting him in a
timely manner to material information required to be included in our SEC
reports. In addition, no change in our internal control over financial reporting
occurred during the fiscal quarter ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
  11
   PART 2: OTHER INFORMATION
  **Item
1.**  **Legal
Proceedings.**
 
 The
Company is subject to a variety of litigation and claims relating to past due
payments for goods and services. The Company is in the process of negotiating
settlement arrangements for these items, and the estimated settlement amounts
are recorded on the books in accounts payable.
 
 **Item
2.**  **Unregistered
Sales of Equity Securities and Use of Proceeds.**
 
 On
January 5, 2005, Nathaniel Energy issued 500,000 shares of common stock, valued
at $87,500, to Robert Barnett for legal services. This issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933. We did not
use an underwriter or placement agent in this transaction, nor did we pay any
compensation to anyone in connection with this issuance.
 
 **Item
3.**  **Defaults
Upon Senior Securities.**
 
 Not
Applicable
 
 **Item
4.**  **Submission
of Matters to a Vote of Security Holders.**
 
 Not
Applicable
 
 **Item
5.**  **Other
Information.**
 
 On or
about May 6, 2005, Merrick & Company sent a letter to Nathaniel Energy
ostensibly serving as a notice of default regarding two promissory notes, one in
the principal amount of $325,780.26, and the other in the principal amount of
$461,135.35 (collectively “Notes”).
 The Notes
were issued in payment of certain invoices under an Agreement For Professional
Services between Nathaniel Energy and Merrick, memorializing, among other
things, Merrick’s agreement to provide professional services to Nathaniel Energy
relating to its waste to energy project in Cologna Veneta, Italy. Nathaniel
maintains, without limitation, that Merrick failed to fully and/or properly
perform under the contract, and further maintains Merrick engaged in other
wrongful conduct. Accordingly, Nathaniel disputes liability arising from or
relating to the contract, the Notes, and the invoices under the contract. The
terms of each Note provides for payment of principal and interest at the annual
rate of 6.5% in 24 installments of $14,512.29 and $20,541.85 each, respectively.
The Notes provide for earlier payment of amounts to be determined by Nathaniel
Energy if it raises capital or receives payments from its contract to provide
two Thermal CombustorsTM for the project in Cologna, Veneta, Italy. The Notes
provide that Nathaniel Energy has 20 days to cure any default following notice
of a default. The Notes further provide that if a default is not timely cured,
the payee may declare that interest on the unpaid principal sum will accrue at
5% above the prime rate of interest. Merrick contends the Notes contain a
provision entitling Merrick to accelerate the principal amount of the Notes if
payment is not timely made by Nathaniel. Merrick claims that Nathaniel Energy
has not paid approximately $105,162.42 under the Notes. A balance of
approximately $740,000, which includes principal and accrued interest remains
unpaid under the Notes at the date of this report.
 Nathaniel
believes that it has meritorious claims, defenses, and remedies against Merrick
which it intends to pursue vigorously if this matter is not settled. In the
event that legal action is instituted by us or Merrick to resolve this matter,
we are unable to predict the outcome of that legal action.
 Except as
otherwise disclosed in this Item, Nathaniel Energy is currently unaware of any
material obligation of Nathaniel Energy that may arise, increase, be
accelerated, or become direct financial obligations as a result of the
triggering event disclosed above. The disclosure in this item is intended to
comply with the disclosure required to be filed under Item 2.04 on a Current
Report on Form 8-K.
 
 **Item
6. Exhibits.**
 
 3(i).1
    Certificate
      of Incorporation*3(i).2
    Articles
      of Amendment to Articles of Incorporation, as amended on August 6,
      1999*3(i).3
    Certificate
      of Amendment of Certificate of Incorporation, as amended on April 24,
      2002*3(ii).1
    Amended
      and Restated By-Laws**10.1
    Contract
      dated January 12, 2005 among EcoIdea s.r.l., Electronic Solar s.r.l.,
      European Waste Solutions, Ltd., L&R Energy, LLC and Nathaniel Energy
      Corporation (collectively, the Italy Project
Parties)***10.2
    Contract
      dated February 22, 2005 among the Italy Project
  Parties***31
    Certification
      of Chief Executive Officer and Principal Accounting Officer pursuant to
      Rule 13a-14(a)or Rule 15d-14(a) as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232
    Certification
      of Chief Executive Officer and Principal Accounting Officer pursuant to 18
      U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
  *Denotes
document filed as an exhibit to our Current Report on Form 8-K for an event
dated December 31, 2002 and incorporated herein by reference.
 
 **Denotes
document filed as an exhibit to our Annual Report on Form 10-KSB for the year
ended December 31, 2003 and incorporated herein by reference.
 
 ***Denotes
document filed as an exhibit to our Annual Report on Form 10-KSB for the year
ended December 31, 2004 and incorporated herein by reference.
 
  12
    **SIGNATURES**
 
 In
accordance with the requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 Date:
      May 16, 2005**NATHANIEL
      ENERGY CORPORATION**
      (Registrant)
      
      By: /s/  George A. Cretecos
      George
      A. Cretecos, Chief Operating Officer
      (Principal
      Executive Officer and
      Principal
      Accounting
Officer)