**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-KSB**

(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------------|

For the fiscal year ended  **March 31, 2005**
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from [  

] to [  

]

 
Commission file number  **000-30193**

**NATION ENERGY INC.******

(Name of small business issuer in its charter)

 

**Wyoming******

 

**59-2887569******

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

**Suite 1100****609 West Hastings Street****Vancouver British Columbia******

 

**V6B 4W4******

(Address of principal executive offices)

 

(Zip Code)

Issuer's telephone number  **(800) 400-3969**

Securities registered pursuant to Section 12(b) of the Act:

Title of each class**Nil**

 

Name of each exchange on which registered**Nil**

Securities registered pursuant to Section 12(g) of the Act:

**Common Stock, $0.001 par value per share******

(Title of class)****

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 [  

]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [   ]

State issuer's revenues for its most recent fiscal year.  $343,530

 

 

2

 

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days.  (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

4,935,000 common shares @ $0.20 (1) = $987,000 

(1) Average of bid and ask closing prices on June 28, 2005.

Note:  If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

**(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)**

Check whether the issuer has 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 REGISTRANTS)**

State the number of shares outstanding of each of the issuer's classes of equity stock, as of the latest practicable date.

**16,020,000 common shares issued and outstanding as of June 30, 2005.**

**DOCUMENTS INCORPORATED BY REFERENCE**

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Format (Check one):  

Yes [  

];  

No x.

 

 

3

 

 

**PART I**

**Item 1.**

**Description of Business.**

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this annual report, the terms "we", "us", "our", and "Nation Energy" mean Nation Energy Inc., unless otherwise indicated.

All dollar amounts refer to US dollars unless otherwise indicated.

*Business of the Company*

We are an oil and gas exploration stage company with interests in properties located in Alberta, Canada.  Nation Energy is a Wyoming corporation with its business offices located at Suite 1100, 609 West Hastings Street, Vancouver, British Columbia.  Our telephone number is (800) 400-3969. 

*Corporate History*

We were formed under the laws of the State of Florida on April 19, 1988 under the name Excalibur Contracting, Inc. and from that date until September 1998, we conducted no business and existed as a shell corporation.  Since the restatement of our Articles of Incorporation on September 16, 1998, our main focus has been the procurement of mineral leasehold interests, primarily for oil and gas exploitation rights.  We reincorporated as a Delaware corporation on February 2, 2000 and changed our name to Nation Energy, Inc. on February 15, 2000.   Following the change in our focus, we commenced corporate strategic development and have explored potential oil and gas projects.  On June 13, 2003 we merged from the State of Delaware with Nation Energy Inc., a corporation organized and existing under the laws of the State of Wyoming, which we incorporated for the purposes of the merger, pursuantto which we have changed our domicile to the State of Wyoming.

We held interests in 28 oil and gas leases located in the Great Trona Area prospect, located in and around Sweetwater County, Wyoming.  These leases cover approximately 22,000 acres.  Under the Joint Operating Agreement, Saurus Resources was the operator of oil and gas exploration on the property covered by these leases and has certain rights and duties as the operator.  Our only material activities until recently had been related to our participation in exploration conducted under the Joint Operating Agreement with Saurus Resources.   We advanced a total of approximately $2,167,000 under our agreement with Saurus Resources.  Operational difficulties in developing the test wells are largely responsible for greater than anticipated operating costs.  These difficulties include mineral precipitation in the well bore, which inhibits production.  The wells drilled to date havebeen perforated and hydraulically fractured; these geophysical traits make extraction of gas much more complicated and expensive than anticipated.  

 

 

4

 

 

Because of the poor operating results under the Joint Operating Agreement, we began to explore other alternatives to this arrangement.  On February 28, 2001 we entered into a Purchase and Sale Agreement with VRD, Inc., an affiliate of Saurus Resources, under which we agreed to sell to VRD, Inc. all of our interest in our oil and gas leases in the Greater Trona Area, all right, title and interest in and to all of the personal property, fixtures and improvements appurtenant to the such leases, and all of our rights under the Joint Operating Agreement with Saurus Resources.  The rights that were to be sold included the right to participate in the drilling, completion, tie-in and production of wells within the contract area.  In consideration for the sale, we were to receive from VRD, Inc. $2,165,780 in cash and we were to retain certain royalty interests.

We attempted to obtain the approval of our shareholders of the transactions contemplated in the Purchase and Sale Agreement with VRD, Inc.  The details of this transaction and the reasons for the sale were described in detail in Our Consent Solicitation Statement on Schedule 14A, which was filed on April 26, 2001 and subsequently amended by a filing made June 28, 2001.  We obtained clearance from the SEC to distribute the Schedule 14A to our shareholders on September 26, 2001.  However, by the time of the SEC clearance, the Purchase and Sale Agreement had expired in accordance with its terms and VRD, Inc. was unwilling to proceed with the transaction.

We entered into a Quitclaim, Release and Assumption Agreement, dated December 6, 2001, with VRD, Inc. and Saurus Resources, pursuant to which we disposed of any and all interests that we held in the oil and gas leases located in the Greater Trona Area of Sweetwater County, Wyoming.  We felt that this was in the best interests of our company given our potential liability under the oil and gas leases and the fact that it was unlikely that the properties in question had any realizable value.  We wrote off the remaining value of the properties.

Due to our current operations and their location in Alberta, Canada, we registered as an extra-provincial company in the province of Alberta on June 3, 2003.

*Our Current Business*

On November 21, 2001 we entered into a farm-in agreement with Olympia Energy Inc. under which we agreed to share the development costs and revenues for a natural gas project in the Smoky area near Grande Prairie, Alberta, Canada.  Under the terms of the farm-in agreement, we will fund 25% of the cost to drill and complete a 4,800 meter well in the Boltan prospect and will earn a 15% interest after payout in the Boltan prospect.  Drilling costs for the Boltan prospect are estimated to be CDN$11,000,000.  An initial well at 09-09-59-02-W6M was drilled to a total depth of 4830 meters in March of 2002 and has been logged.   A completion program was attempted on the well, and the well flowed small amounts of gas and large amounts of salt water. 

Olympia Energy, the operator of the well, presented the partners, including Nation Energy Inc., with a proposed program including further logging of the Leduc formation in the well and, if warranted, further production testing.  The estimated cost of the logging program was $133,580 and the estimated cost of the production testing was $454,840.  We participated in the program.  The logging and testing program began in February 2003.  Testing has shown the Leduc formation to be non-productive, and the zone has been plugged and abandoned.  

In March 2003, we participated in a testing program in wellbore 09-09-59-02-W6M on the shallower Gething formation and at March 31, 2003, the Gething was producing gas on test.  The operator shut-in the well for spring break-up. The operator returned to wellbore 09-09-59-02-W6M in July 2003 and in August 2003 tested an additional zone up hole from the Gething formation and was able to produce gas on flow test. 

In April 2003, we participated, as to our 15% interest, in the purchase of additional petroleum and natural gas rights underlying five sections of land in the Boltan area.  We and our partners commenced a re-entry and completion of a shallow formation that was thought to be productive in these lands in wellbore 08-09-59-02-W6M in August 2003. The program was completed in late August 2003 and the zone as tested was not deemed commercially productive.  In October 2003, we and our partners reentered wellbore 08-09-59-02-W6M to test an additional zone. The zone of interest has been perforated and has been monitored with pressure recorders.  No further work is planned with respect to the zones as tested.

 

 

5

 

 

In January  and February 2004, we participated, as to our 25% before payout working interest, in a 4.5 mile pipeline installation program designed to connect  09-09-59-02-W6M to market pipeline infrastructure in order enable production from the Gething gas bearing zone and the additional up hole zone in the wellbore.  Concurrent with the pipeline installation program the 09-09-59-02-W6M wellbore was reentered to facilitate tubing installation and production optimization.  Attempts to flow test the up hole zone in the well bore were unsuccessful and tubing was set below the up hole zone down to the Gething gas bearing zone which was successfully flow tested.  The Gething zone was expected to produce at an initial rate of 750 thousand cubic feet per day with first production scheduled for June 2004.  Accrete Energy Inc. assumed Olympia Energy’s interests and became operator of the Boltan prospect in placeof Olympia Energy.  

The 09-09-59-02-W6M well was turned to sales June 2004 and produced approximately 35.4 million cubic feet of gas in its first month of production (an average of 1,178 thousand cubic feet of gas per day) exceeding original expectations; our share of production before royalties is 25%.  In December 2004 the well produced approximately 28.9 million cubic feet of gas (an average rate of 934 thousand cubic feet per day). Since January 2005 the Boltan 09-09-59-02 W6M has produced on a restricted and interrupted basis due to facilities constraints.   

On January 10, 2005 we entered into a farm-in agreement with Netco Energy Inc. as to certain interests in two sections at Boltan.  Under the terms of the agreement, Netco Energy Inc. will earn 60% of our 15% working interest by paying for 100% of costs related to our interests in the drilling and development of Accrete Energy Inc. operated exploratory well Boltan 14-10-59-2W6, a location offsetting the Boltan 09-09-59-02-W6M wellbore.  Gross drilling and casing costs were projected at $2,000,000. Netco Energy Inc. will earn a 9% interest, after payout, in the test well and well spacing unit and one additional section of land.  Our interests in the two sections of land and Boltan 14-10-59-2W6 wellbore after payout will be 6%. The Boltan 14-10-59-2W6 well has been drilled and successfully completed.  As of March 31, 2005 a gathering line has been laid. Due to facilities constraints the operator recommendsinstalling compression facilities, that if installed, would enable the well to flow to sales on an uninterrupted basis. Based on initial production tests the well is forecast to produce at a gross raw gas rate of two million cubic feet per day. The compression facilities, if installed, will also enable the Boltan 09-09-59-02W6M wellbore to flow on an unrestricted and uninterrupted basis.  

Our primary objective over the 12 months ending March 31, 2006, will be to continue to participate in the farm-in agreement relating to the Boltan prospect.  We intend to participate in and develop further wells on the Boltan prospect if warranted.  Prior to the revenues obtained from Boltan 09-09-59-02 W6M wellbore production we have not received any operating revenues from the date of our formation on April 18, 1988.  We anticipate that we have enough cash to meet our expenses and capital commitments during the next twelve months, as described under Liquidity and Capital Resources below.

*Geology and Reserve Summaries*

Gilbert Laustsen Jung Associates, Inc. (“GLJ”) independent geological and petroleum engineering consultants of Calgary, Alberta, have prepared a report utilizing constant cost and price assumptions effective March 31, 2005, evaluated as of July 2005, for the crude oil and natural gas reserves attributable to the Boltan prospect (the “GLJ Report”).  The GLJ Report is summarized in the table below.

 

Summary of Reserves and Values

 

 

Proved

Producing

Total 

Proved

Proved 

Plus

Probable

Producing

Total

Proved 

Plus

Probable

MARKETABLE RESERVES

 

 

 

 

Gas (MMcf)

 

 

 

 

Gross Lease

2,397

6,121

4,223

11,268

Total Company Interest

429

588

702

1,098

Net After Royalty

328

436

517

792

Natural Gas Liquids (Mbbl)

 

 

 

 

 

 

 

6

 

 

 

Gross Lease

18.6

46.1

32.8

84.9

Total Company Interest

3.3

4.5

5.5

8.4

Net After Royalty

2.4

3.1

3.7

5.5

Oil Equivalent (Mbbl)

6 mcf : 1 bbl oil ; 1bbl NGL: 1 bbl oil

 

 

 

 

Gross Lease

418

1,066

737

1,963

Total Company Interest

75

103

123

191

Net After Royalty

57

76

90

137

 

 

 

 

 

BEFORE TAX PRESENT VALUE

(thousand $Canadian)

 

 

 

 

0%

2,045

2,765

3,231

4,972

5%

1,498

2,039

1,922

2,956

8%

1,296

1,760

1,572

2,376

10%

1,192

1,614

1,412

2,106

12%

1,105

1,490

1,286

1,893

15%

998

1,337

1,141

1,648

20%

864

1,142

969

1,360

 

The GLJ Report contains an evaluation prior to provision for income taxes, interest, and site restoration costs and general and administrative costs, after deduction of royalties and estimated future capital.  It should not be assumed that the discounted net present value estimated by GLJ represents the fair market value of the reserves.  Where the present value is based on escalating or constant price and cost assumptions, there is no assurance that such price and cost assumptions will be attained and variances could be material.  

We are subject to laws and regulations that control the discharge of materials into the environment, require removal and cleanup in certain circumstances, require the proper handling and disposal of waste materials or otherwise relate to the protection of the environment.  In operating and owning petroleum interests, we may be liable for damages and the costs of removing hydrocarbon spills for which we are held responsible.  Laws relating to the protection of the environment have in many jurisdictions become more stringent in recent years and may, in certain circumstances, impose strict liability, rendering our company liable for environmental damage without regard to actual negligence or fault.  Such laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts of our company.  We believe that we have complied in all material respects withapplicable environmental laws and regulations.

 

**RISK FACTORS**

Much of the information included in this registration statement includes or is based upon estimates, projections or other "forward looking statements".  Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations.  While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgement regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below.  We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".

Our shares of common stock are considered speculative while we proceed with our commitments in connection with the Smoky project or while we continue our search for a new business opportunity.  Prospective investors should consider carefully the risk factors set out below.

 

 

7

 

 

*Because of the early stage of development and the nature of our business, our securities are considered highly speculative.*

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of its development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas.   Accordingly, we have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the short term.  Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein.

*A portion of our interest in our properties may be lost if we are unable to obtain significant additional financing.*

Our ability to continue exploration and, if warranted, development of our properties will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, a portion of our interest in our properties may be lost to exploration partners or our properties may be lost entirely.  We have limited financial resources and limited cash flow from operations and we are dependent for funds on our ability to sell our common shares, primarily on a private placement basis.  There can be no assurance that we will be able to obtain financing on that basis in light of factors such as the market demand for our securities, the state of financial markets generally and other relevant factors.  The method of financing employed by us to date results in increased dilution to the existing shareholders each time a private placement is conducted.

There can be no assurance that additional funding will be available to us for exploration and development of our projects or to fulfil our obligations under any applicable agreements.  Although historically we have announced additional financings to proceed with the development of some of our previous properties, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable.  Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.

*We will require substantial funds to enable us to decide whether our properties contain commercial oil and gas deposits and whether they should be brought into production, and if we cannot raise the necessary funds we may never be able to realize the potential of our properties.*

Our decision as to whether our properties contain commercial oil and gas deposits and should be brought into production will require substantial funds and depend upon the results of exploration programs and feasibility studies and the recommendations of duly qualified engineers, geologists, or both.  This decision will involve consideration and evaluation of several significant factors including but not limited to: (1) costs of bringing a property into production, including exploration and development work, preparation of production feasibility studies, and construction of production facilities; (2) availability and costs of financing; (3) ongoing costs of production; (4) market prices for the oil and gas to be produced; (5) environmental compliance regulations and restraints; and (6) political climate, governmental regulation and control.

*We have obtained title reports, but these reports do not guarantee title against all possible claims.  Our properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected, resulting in a possible claim against any future revenues generated by such properties.*

We have obtained title reports with respect to our oil and gas properties and believe our interests are valid and enforceable; however, these reports do not guarantee title against all possible claims.  The properties may be subject to prior unregistered agreements, native land claims or transfers which have not been recorded or detected through title research.  Additionally, the land upon which we hold oil and gas leases may not have been surveyed; therefore, the precise area and location of such interests may be subject to challenge.

 

 

8

 

 

*Our accounts are subject to currency fluctuations which may materially affect our financial position and results.*

We maintain our accounts in US and Canadian currencies and are therefore subject to currency fluctuations and such fluctuations may materially affect our financial position and results. We do not engage in currency hedging activities.

*We may not be able to manage the significant strains that future growth may place on our administration infrastructure, systems and controls.*

In the event our properties commence production, we could experience rapid growth in revenues, personnel, complexity of administration and in other areas.  There can be no assurance that we will be able to manage the significant strains that future growth may place on our administrative infrastructure, systems, and controls.  If we are unable to manage future growth effectively, our business, operating results and financial condition may be materially adversely affected.

*The loss of John Hislop would have an adverse impact on future development and could impair our ability to succeed.*

We are dependent on our ability to hire and retain highly skilled and qualified personnel. We face competition for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain qualified personnel on acceptable terms. We do not have key man insurance on any of our employees. The loss of service of any of our key personnel could have a material adverse effect on our operations or financial condition.

*We are dependent upon Accrete Energy Inc.’s expertise in the area of oil and gas exploration.*

Under the farm-in agreement, Olympia Energy Inc. and now Accrete Energy Inc, as successor, will act as operator for the purposes of carrying out the work necessary at Bolton and we are therefore dependent upon Accrete Energy Inc.’s expertise in the area of oil and gas exploration.

*Our management currently engages in other oil and gas businesses and, as a result, conflicts could arise.*

In addition to their interest in our company, our management currently engages, and intends to engage in the future, in the oil and gas business independently of our company. As a result, conflicts of interest between us and management of our company might arise.

*Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.*

Our shares of common stock are subject to rules promulgated by the Securities and Exchange Commission relating to "penny stocks," which apply to companies whose shares are not traded on a national stock exchange or on the NASDAQ system, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission.  These rules require brokers who sell "penny stocks" to persons other than established customers and "accredited investors" to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks.  These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock.  These rules could also hamper our ability to raise fundsin the primary market for our shares of common stock.

*Since our shares are thinly traded, and trading on the OTC Bulletin Board may be sporadic because it is not an exchange, stockholders may have difficulty reselling their shares.*

Our shares of common stock are currently publicly traded on the OTC Bulletin Board service of the National Association of Securities Dealers, Inc.  The trading price of our shares of common stock has been subject to wide fluctuations.  Trading prices of our shares of common stock may fluctuate in response to a number of factors, many 

 

 

9

 

 

of which will be beyond our control.  The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation.  There can be no assurance that trading prices and price earnings ratios previously experienced by our shares of common stock will be matched or maintained.  These broad market and industry factors may adversely affect the market price of our shares of common stock, regardless of our operating performance.

In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted.  Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources.

*Our By-laws contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.*

Our by-laws contain provisions with respect to the indemnification of our officers and directors against all expenses (including, without limitation, attorneys' fees, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that the person is one of our officers or directors) incurred by an officer or director in defending any such proceeding to the maximum extent permitted by Wyoming law.

Insofar as indemnification for liabilities arising under the *Securities Act of 1933* may be permitted to directors, officers and controlling persons of our company under Wyoming law or otherwise, we have been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the *Securities Act of 1933* and is, therefore, unenforceable.

*Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.*

Our constating documents authorize the issuance of 50,000,000 shares of common stock, each with a par value of $0.001.  In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors' interests in our company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold.  If we issue any such additional shares, such issuances also will cause a reduction in the proportionate ownership and voting power of all other shareholders.  Further, any such issuance may result in a change in our control.

*Our by-laws do not contain anti-takeover provisions which could result in a change of our management and directors if there is a take-over of our company.*

We do not currently have a shareholder rights plan or any anti-takeover provisions in our By-laws.  Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.

**Risks Relating to the Industry**

*As our properties are in the exploration and development stage there can be no assurance that we will establish commercial discoveries on our properties.*

Exploration for economic reserves of oil and gas is subject to a number of risk factors.  While the rewards to an investor can be substantial if an economically viable discovery is made, few of the properties that are explored are ultimately developed into producing oil and/or gas wells. Our properties are in the exploration and development stage only and are without proven reserves of oil and gas.  There can be no assurance that we will establish commercial discoveries on any of our properties.

 

 

10

 

 

*The potential profitability of oil and gas ventures depends upon factors beyond the control of our company.*

The potential profitability of oil and gas properties is dependent upon many factors beyond our control.  For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments.  Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project.  These changes and events may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations.  A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well.  In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances.  The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control.  These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. The extent of these factors cannot be accurately predicted but the combination of these factors may result in our company not receiving an adequate return on invested capital.

*Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring desirable oil and gas leases.*

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs.  Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds.  There can be no assurance that the necessary funds can be raised or that any projected work will be completed.

*The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.*

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control.  

These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

*Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.*

Oil and gas operations are subject to federal, provincial, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.  Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment.  Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received.  No assurance can be given that environmental standards imposed by federal, provincial, or local authorities will not be changed or that any such changes would not have material adverse effects on our activities.  Moreover, compliance with such laws may cause substantial delays or requirecapital outlays in excess of those anticipated, thus causing an adverse effect on us.  Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons.

 

 

11

 

 

*Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.*

In general, our exploration and production activities are subject to certain federal, provincial and local laws and regulations relating to environmental quality and pollution control.  Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation.  Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date.  Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes.  In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities.  However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

We believe that our operations comply, in all material respects, with all applicable environmental regulations.

Our operating partners maintain insurance coverage customary to the industry; however, it is not fully insured against all environmental risks.

*Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.*

Drilling operations generally involve a high degree of risk.  Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure.  Incurring any such liability may have a material adverse effect on our financial position and operations.

*Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.*

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency will not be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on our company.  Any or all of these situations may have a negative impact on our ability to operate and/or become profitable.

**Item 2.**

**Description of Property.**

We own various non-operated working interests in the Boltan prospect, an oil and gas property located in the Smoky area near Grande Prairie, Alberta, Canada.  Currently two wells capable of production exist on the property. The legal description of the Boltan prospect is TWP 59, Rge 2 W6M.  The Boltan  prospect includes petroleum and natural gas leases encompassing 5,760 total acres.  Our principal executive office is located at Suite 1100, 609 West Hastings Street, Vancouver, British Columbia  V6B 4W4.  We occupy the Vancouver premises on a proportional cost basis for office rent and administration services and expenses, month to month.

**Item 3.**

**Legal Proceedings.**

We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation.  There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholders are an adverse party or has a material interest adverse to us.

 

 

12

 

 

 

**Item 4.**

**Submissions of Matters to a Vote of Security Holders.**

There were no matters submitted to a vote of our security holders either through solicitation of proxies or otherwise in the fourth quarter of the fiscal year ended March 31, 2005.

**PART II**

**Item 5.**

**Market for Common Equity and Related Stockholder Matters.**

Our common stock is quoted on the OTC Bulletin Board under the symbol "NEGY".  Prior to March 13, 2000, our common stock traded on the OTC Bulletin Board under the symbol "XCNT", which was a result of a change in our name from Excalibur Contracting, Inc. to our current name.  The following quotations reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  The high and low prices of our common stock (obtained from yahoo.com) for the periods indicated below are as follows:

**Quarter Ended**

**High**

**Low**

September 30, 2003

$0.19

$0.10

December 31, 2003

$0.25

$0.14

March 31, 2004

$0.17

$0.13

June 30, 2004

$0.13

$0.08

September 30, 2004

$0.12

$0.08

December 31, 2004

$0.10

$0.08

March 31, 2005

$0.35

$0.08

 

Our shares of common stock are issued in registered form. Interwest Transfer Co., Inc., of 1981 East 4800 South, Suite 100, Salt Lake City, UT 84117 (Telephone: 801.272.9294, facsimile: 801.277.3147) is the registrar and transfer agent for our shares of common stock.

As of June 13, 2005, we had 16,020,000 shares of common stock outstanding and approximately 20 stockholders of record.  This number of stockholders does not include stockholders who hold our securities in street name.  

*Dividend Policy*

We have not declared or paid any cash dividends since inception.  We intend to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to pay any cash dividends in the foreseeable future.  There are no restrictions that limit our ability to pay dividends on our shares of common stock.

*Securities Authorized for Issuance under Equity Compensation Plans*

We adopted our current stock option plan, entitled the 1999 Stock Option and Incentive Plan, on May 6, 1999 which was subsequently approved by over 50% of the shares of common stock held by stockholders of our company.  The following table provides a summary of the number of options granted under our stock option plan, the weighted average exercise price and the number of options remaining available for issuance all as at March 31, 2005.

 

 

 

13

 

 

 

Number of Common Shares to be issued upon exercise of outstanding options

Weighted-Average exercise price of outstanding options

Number of options remaining available for further issuance

75,000

$1.00

2,425,000

 

*Recent Sales of Unregistered Securities*

We did not issue any shares during the three fiscal years ended March 31, 2005, 2004 and 2003.

**Item 6.**

**Management's Discussion and Analysis or Plan of Operation.**

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results could differ materially from those discussed in the forward looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" found under "Item 1.  Description of Business".

**Results of Operations**

*Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004*

We incurred net earnings of $38,533 for the fiscal year ended March 31, 2005 compared to a net loss of $125,921 for the year ended March 31, 2004.  The net loss per common share for the fiscal year ended March 31, 2005 was $0.00, compared to a net loss per common share of $0.01 for the year ended March 31, 2004.  The earnings are primarily due to production and revenues received in the fiscal year ended March 31, 2005.  Discussion and analysis related to significant operating activities undertaken during the years is set out below.

*Investment*

As at March 31, 2005, we have invested a total of $3,634,925 under the farm-in agreement with Accrete Energy Inc. towards the drilling and development costs of the initial well at the Bolton prospect.  However, given the results that we had received on the Bolton prospect to date, we recorded a $2,370,902 impairment on the Bolton prospect during the fiscal year ended March 31, 2003.  To date this property has had limited operations.  

**Liquidity and Capital Resources**

These financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  Our company has suffered recurring losses and has not generated profitable operations since inception.  

We are currently relying on our existing cash reserves to fund our continuing operating expenses and to fund the identification and evaluation of further oil and gas properties.  As of March 31, 2005 and March 31, 2004, our cash and cash equivalent balances were $47,676 and $18,410, respectively.  We currently rely on our existing cash reserves to fund our continuing operating expenses and to fund our ongoing participation in the Bolton prospect.   On August 1, 2003 we entered into a bridge loan agreement with a related party.  The loan bears interest at 15% per annum and is payable quarterly.  Any principal amount outstanding under the loan is payable upon demand.  As at the date of this annual report we have borrowed $371,974 under the loan, which amount remains outstanding under the terms of the loan. On January 16, 2004 we entered into a bridge loan agreement with a related party.  The loanbears interest at 15% per annum and is payable quarterly.  Any principal amount outstanding under the loan is payable upon demand.  As at the date of this annual report we have borrowed $150,784 under the loan, which amount remains outstanding under the terms of the loan.  Given our cash balance, we anticipate that we will require 

 

 

14

 

 

additional financing in order to fund our obligations under the farm-in agreement.   Should we require additional financing, we would likely seek to secure same through a private placement of our shares of common stock. Our material commitments for capital expenditures are limited to the farm-in agreement with Accrete Energy for the development of the Bolton prospect.

We have limited  operating history.  We can only estimate the future needs for capital based on the current status of our operations, our current plans and current economic condition.  Due to the uncertainties regarding our future activities, we are unable to predict precisely what amount will be used for any particular purpose, other than the funds which we will be required to expend under the farm-in agreement.

*Plan of Operation*

Our primary objectives over the 12 months ending March 31, 2006, will be to continue to participate in the Farm-in agreement with Accrete Energy Inc. in regards to the development of the shallow formation in the Bolton Prospect and continue to investigate other potential oil and gas property acquisitions.

*Cash Requirements*

Over the next twelve months we intend to use funds to continue our participation in the Bolton prospect and to investigate further acquisitions, as follows:

Estimated Funding Required During the Next Twelve Months  

General and Administrative

$120,000

 

 

Operations

 

 

Farm-in contributions

$400,000

 

 

 

Working Capital

$50,000

 

 

**Total******

**$570,000******

We have suffered recurring losses from operations.  The continuation of our company as a going concern is dependent upon our company attaining and maintaining profitable operations and raising additional capital. Management's plan in this regard is to raise additional capital through a debt or an equity offering.  The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our company discontinue operations.

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above, in their report on the annual financial statements for the year ended March 31, 2005, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, a successful program of acquisition and exploration, and, finally, achieving a profitable level of operations.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations.  We are pursuing various financing alternatives to meet our immediate and long-term financial requirements.  There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.  If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due.  In such event, we will be forced to scale down or perhaps even cease our operations.

 

 

15

 

 

*Product Research and Development*

We do not anticipate that we will expend any significant monies on research over the next twelve months.  We anticipate expenses for the development of the Bolton prospect as set out above under our “Plan of Operations”.

*Purchase of Significant Equipment*

We do not intend to purchase any significant equipment through March 31, 2006.

*Employees*

Over the twelve months ending March 31, 2006, we do not anticipate an increase in the number of employees that we may retain.  We currently have no employees other than our director and officer.  

*****New Accounting Pronouncements*

 

In December 2003, the Financial Accounting Standards Board issued FASB Interpretation Number 46-R "Consolidation of Variable Interest Entities."  FIN 46-R, which modifies certain provisions and effective dates of FIN 46, sets forth the criteria to be used in determining whether an investment is a variable interest entity that should be consolidated.  These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity.  The Company believes that currently, it does not have any material arrangements that meet the definition of a variable interest entity, which would require consolidation.

 

In November 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB 43, Chapter 4, previously stated that “...under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges....” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costsincurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS 151 to have a material impact on the Company’s financial statements.

 

In December 2004, the FASB issued SFAS 152, “Accounting for Real Estate Time-Sharing Transactions.” The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS 66, “Accounting for Sales of Real Estate,” for real estate time-sharing transactions. SFAS 152 amends Statement  66 to reference the guidance provided in SOP 04-2. SFAS 152 also amends SFAS 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations andcosts related to the sale of real estate time-sharing transactions. SFAS 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. Management does not expect adoption of SFAS 152 to have a material impact on the Company’s financial statements.

 

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.” Statement 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in 

 

 

16

 

 

periods beginning after December 16, 2004. Management does not expect adoption of SFAS 153 to have a material impact on the Company’s financial statements.

 

In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective (1)for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal  year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company’s financial statements.

**Cash and Cash Equivalents**

We consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

**Estimates**

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

**Fair Value of Financial Instruments**

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2005. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, and accounts payable – related party. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand. 

**Net (Loss) per Common Share**

We follow Statement of Financial Accounting Standards (SFAS) 128, “Earnings Per Share.” Basic earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.

**Impairment of Long-Lived Assets**

We periodically review the carrying amount of our unproved oil and gas properties to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. 

 

 

17

 

 

**Unproved Oil and Gas Properties**

We follow the full cost method of accounting for oil and gas operations whereby all costs associated with the exploration for and development of oil and gas reserves, whether productive or unproductive, are capitalized. Such expenditures include land acquisition costs, drilling, exploratory dry holes, geological and geophysical costs not associated with a specific unevaluated property, completion and costs of well equipment. Internal costs are capitalized only if they can be directly identified with acquisition, exploration, or development activities. As of March 31, 2005, we have not capitalized any internal costs.

Expenditures that are considered unlikely to be recovered are written off. On a quarterly basis our board of directors assesses whether or not there is an asset impairment. The current oil and gas exploration and development activities are considered to be in the pre-production stage.

**Segment Reporting**

We follow SFAS 131, “Disclosure about Segments of an Enterprise and Related Information.” Certain information is disclosed, per SFAS 131, based on the way management organizes financial information for making operating decisions and assessing performance.  We currently operate in one business segment and will evaluate additional segment disclosure requirements as we expand operations.

**Stock-Based Compensation**

We account for stock based compensation in accordance with SFAS 123, "Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed.  We elected to continue to apply APB 25 in accounting for our stock option incentive plans.

We have issued our common stock as compensation to non-employees.  We measure the amount of stock-based compensation as of the earlier of (1) the date at which an agreement is reached with the non-employee as to the number of shares to be issued for performance, or (2) the date at which the non-employees performance is complete.

**Item 7.**

**Financial Statements.**

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following consolidated financial statements are filed as part of this annual report:

Report of Independent Public Accounting Firm, dated July 15, 2005.

Balance Sheet as at March 31, 2005 

Statements of Operations for the year ended March 31, 2005 and March 31, 2004

Statements of Changes in Stockholders' Equity for the year ended March 31, 2005and March 31, 2004 

Statements of Cash Flows for the year ended March 31, 2005and March 31, 2004 

Notes to the Financial Statements

 

 

 

 

REPORT OF REGISTERED INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Shareholders and Board of Directors

Nation Energy, Inc.

 

We have audited the accompanying consolidated balance sheet of Nation Energy, Inc. as of March 31, 2005, and the related statements of operations, changes in stockholders' equity, and cash flows for the years ended March 31, 2005 and 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations, has no current source of operating revenues, and needs to secure financing to remain a going concern. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nation Energy, Inc. as of March 31, 2005, and the results of its operations, and its cash flows for the years ended March 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Stark Winter Schenkein & Co., LLP

 

Denver, Colorado

July 15, 2005

 

 

 

 

19

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 23 -

 

 

NATION ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

**Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Organization**

The Company was incorporated on April 19, 1988, in the State of Florida as Excalibur Contracting, Inc.  The Company was reincorporated as a Delaware corporation and changed its name to Nation Energy, Inc. in February 2000. On June 13, 2003, the Company reincorporated as a Wyoming corporation.  The Company is an oil and gas drilling company with properties located in Alberta Canada.  

**Cash and Cash Equivalents**

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

**Estimates**

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.  Actual results could differ from those estimates.

**Fair Value of Financial Instruments**

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2005.  The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values.  These financial instruments include cash, accounts receivable, accounts payable, loans payable, and accounts payable – related party.  Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. 

**Net (Loss) per Common Share**

the Company follows Statement of Financial Accounting Standards (SFAS) 128, “Earnings Per Share.”  Basic earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year.  Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding.  During the periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.

**Impairment of Long-Lived Assets**

The Company periodically reviews the carrying amount of its unproved oil and gas properties to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates.  Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.  

 

 

- 24 -

 

 

NATION ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

**Oil and Gas Properties**

The Company follows the full cost method of accounting for oil and gas operations whereby all costs associated with the exploration for and development of oil and gas reserves, whether productive or unproductive, are capitalized.  Such expenditures include land acquisition costs, drilling, exploratory dry holes, geological and geophysical costs not associated with a specific unevaluated property, completion and costs of well equipment.  Internal costs are capitalized only if they can be directly identified with acquisition, exploration, or development activities.  As of March 31, 2005, the Company has not capitalized any internal costs.

Expenditures that are considered unlikely to be recovered are written off.  On a quarterly basis the Board of Directors assesses whether or not there is an asset impairment.  The current oil and gas exploration and development activities are considered to be in the production stage. 

The costs of unproved leases, which become productive, are reclassified to proved properties when proved reserves are discovered in the property. Unproved oil and gas interests are carried at original acquisition costs including filing and title fees.  The properties that are currently producing revenue have not yet qualified for reclassification to proved properties.  Depreciation and depletion of the capitalized costs for producing oil and gas properties will be provided by the unit-of-production method based on proved oil and gas reserves. 

**Segment Reporting**

The Company follows SFAS 131, “Disclosure about Segments of an Enterprise and Related Information”.  Certain information is disclosed, per SFAS 131, based on the way management organizes financial information for making operating decisions and assessing performance.  The Company currently operates in one business segment and will evaluate additional segment disclosure requirements as it expands operations.

**Stock-Based Compensation**

The Company accounts for stock based compensation in accordance with SFAS 123, "Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans.

The Company has issued its common stock as compensation to non-employees.  The Company measures the amount of stock-based compensation as of the earlier of (1) the date at which an agreement is reached with the non-employee as to the number of shares to be issued for performance, or (2) the date at which the non-employees performance is complete. 

**Accounts Receivable**

The Company uses the direct write off method for bad debts. This method expenses uncollectible accounts when they become unrealizable.  Any difference between this method and the allowance method is not material.

**Revenue Recognition**

Revenues from the sale of oil and gas production are recognized when title passes, generally in the month of production.  

 

 

- 25 -

 

 

NATION ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

**Recent Pronouncements**

In December 2003, the Financial Accounting Standards Board issued FASB Interpretation Number 46-R "Consolidation of Variable Interest Entities."  FIN 46-R, which modifies certain provisions and effective dates of FIN 46, sets forth the criteria to be used in determining whether an investment is a variable interest entity that should be consolidated.  These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity.  The Company believes that currently, it does not have any material arrangements that meet the definition of a variable interest entity, which would require consolidation.

In November 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB 43, Chapter 4, previously stated that “...under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges....” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costsincurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS 151 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 152, “Accounting for Real Estate Time-Sharing Transactions.” The FASB issued this Statement as a result of the guidance provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” SOP 04-2 applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance on the recording of credit losses and the treatment of selling costs, but does not change the revenue recognition guidance in SFAS 66, “Accounting for Sales of Real Estate,” for real estate time-sharing transactions. SFAS 152 amends Statement  66 to reference the guidance provided in SOP 04-2. SFAS 152 also amends SFAS 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that SOP 04-2 provides the relevant guidance on accounting for incidental operations andcosts related to the sale of real estate time-sharing transactions. SFAS 152 is effective for years beginning after June 15, 2005, with restatements of previously issued financial statements prohibited. Management does not expect adoption of SFAS 152 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.” Statement 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchangesoccurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS 153 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective(1) for public companies 

 

 

- 26 -

 

 

NATION ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal  year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company’s financial statements.

**Note 2.  GOING CONCERN**

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern.  The Company has incurred losses since inception of $6,347,677, has committed up to $400,000 to complete drilling on the Bolton Prospect (See Note 3), and is reliant on raising capital to initiate its business plan.

The Company’s ability to continue as a going concern is contingent upon being able to secure financing and attain profitable operations.  The Company is pursuing financing for its operations and is in the process of determining whether the Bolton Prospect has sufficient reserves to justify additional drilling.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

**Note 3.  UNPROVED OIL AND GAS PROPERTIES**

On November 21, 2001, the Company entered into a farm-in agreement with Olympia Energy Inc. (the Farm-in) under which the Company will share the development costs and revenues for a natural gas project in the Smoky area near Grande Prairie, Alberta, Canada (the Bolton Prospect), which encompasses 5,760 acres.  Under the terms of the Farm-in, the Company will fund 25% of the cost to drill and complete a 4,800 meter well in the Bolton Prospect and will earn a 15% interest after payout in the Bolton Prospect.  Following is a summary of the costs incurred on unproved oil and gas properties as of March 31, 2005:

Exploration costs

$      2,124,728

Development costs

1,510,197

Less: Asset impairment

(2,370,902)

 

$    1,264,023

 

In January and February 2004, the Company participated in a 4.5 mile pipeline installation program designed to enable production from the Gething gas bearing zone.  The Gething zone began production during the year ended March 31, 2005.  The Company received oil and gas sales revenue of $343,530 during the fiscal year ended March 31, 2005.  

As of March 31, 2005, the Company had advanced a total of $3,634,925 under the Farm-in agreement with Olympia Energy, Inc. towards the drilling and development costs at the Bolton Prospect.  

On January 27, 2005, the Company entered into a farm-in agreement with Netco Energy Inc. (“Netco”) under which Netco will pay 100% of the costs related to the Company’s 15% working interest in the drilling and development of exploratory well Bolton 14-10-59-2W6, a 3500 meter test well operated by Accrete Energy Inc., to earn 60% of the Company’s interest in two sections of land in the Bolton area of Alberta.  Netco will earn a 9% interest, after payout, in the well and the well spacing unit and one additional section of land.  Estimated gross drilling and casting costs are approximately $2,000,000.

 

 

- 27 -

 

 

NATION ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

**Note 4.  STOCKHOLDERS’ EQUITY**

**Stock Options**

The Company has a compensatory stock option plan. Under the plan, the Company may grant options for up to 2,500,000 shares of common stock. The exercise price of each option shall be determined by the Compensation Committee or by the CEO with reference to factors such as current fair market value of the common stock, net book value per share, regular or other remuneration already being received by the optionee. The maximum term of the options is five years and they vest on the date granted.

Summarized information relative to the Company’s stock option plan is as follows:

 

 

Number of Shares

 

Weighted Average  Exercise Price

 

 

 

 

Outstanding at March 31, 2003

225,000

 

$1.00

Terminated

150,000

 

1.00

Outstanding at March 31, 2005 and 2004

75,000

 

$1.00

 

The options for 75,000 shares of common stock expire in 2006.

**Note 5.  INCOME TAXES**

The Company accounts for income taxes under SFAS 109, "Accounting for Income Taxes", which requires use of the liability method.  SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.  Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

The types of temporary differences between the tax basis of assets and their financial reporting amounts that give rise to a significant portion of the deferred tax asset are as follows:

 

Reconciling Item

 

Tax Effect

Net operating loss carryforward 

$5,072,000

$1,725,000

 

The net operating loss carryforward will expire through 2024.  The deferred tax asset has been fully reserved at March 31, 2005.  The change in the valuation allowance during the year ended March 31, 2005 was $17,000. 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% to income before income taxes due to the effect of the net operating loss.  The net operating loss negates any provision for income taxes.

**Note 6. RELATED PARTY TRANSACTIONS**

During March 2002, the Company entered into a verbal agreement with a related party in which the related party will provide management services on a month-to-month basis.  Total expenses recognized under this agreement for the years ended March 31, 2005 and 2004 were $38,520 for each year.

NATION ENERGY, INC.

 

 

- 28 -

 

 

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005

On July 1, 2002 the Company entered into an agreement with a related party in which the related party will provide management services for a monthly fee of $1,250.  The agreement was retroactive to April 1, 2002.  The agreement terminated during the fiscal year ended March 31, 2004.  Total expenses recognized under this agreement for the years ended March 31, 2005 and 2004 were $nil and  $14,000 respectively .

**Note 7. LOANS PAYABLE – SHAREHOLDER**

On August 1, 2003 the Company entered into a bridge loan agreement with a related party.  The loan bears interest at 15% per annum and is payable quarterly.  Any principal amount outstanding under the loan is payable upon demand.  As of March 31, 2005, the Company has borrowed $458,404 under the loan.  In October 2003, the Company repaid a total of $86,430, thereby reducing the balance of the loan to $371,974.

On January 16, 2004 the Company entered into another bridge loan agreement with a related party.  The loan bears interest at 15% per annum and is payable quarterly.  Any principal amount outstanding under the loan is payable upon demand.  As of March 31, 2005, the Company has borrowed $150,784 under the loan, which amount remains outstanding under the terms of the loan.

**Note 8. SUBSEQUENT EVENTS**

Subsequent to year end, the Company was served with a writ of claim for CDN$207,591.  The Company has recorded all but a disputed amount in accounts payable.  The total recorded in accounts payable, property is CDN$172,488 or $116,087.  Currently, the Company is negotiating terms of a settlement, which has yet to be determined, and the final outcome cannot be reasonably estimated.  

Also, subsequent to year end, the Company obtained additional funds in the form of a loan from a shareholder in the amount of CDN $250,000.  The terms of the loan are being negotiated.  

 

 

 

- 29 -

 

 

 

**Item 8.**

**Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.**

Not applicable.

**Item 8A.  Controls and Procedures**

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the annual report, being March 31, 2005, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures.  This evaluation was carried out under the supervision and with the participation of our company's management, including our company's president and our company's chief financial officer.  Based upon that evaluation, our company's president and our company's chief financial officer****concluded that our company's disclosure controls and procedures are effective as at the end of the period covered by this report.  There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, orare reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our president and secretary as appropriate, to allow timely decisions regarding required disclosure.

**PART III**

**Item 9.**    **Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.**

**DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS**

*Directors and Executive Officers*

All directors of our company hold office until the next annual meeting of the shareholders or until their successors have been elected and qualified.  The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

As at June 13, 2005, our directors and executive officers, their ages, positions held, and duration of such, are as follows:

 

**Name**

**Position Held with our Company**

**Age**

**Date First****Elected or Appointed**

John R. Hislop

Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer, Secretary and Director

52

June 4, 1999

 

 

 

- 30 -

 

 

*Business Experience*

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

*John R. Hislop, chairman of the board, president, chief executive officer, chief financial officer, secretary and director*

Mr. Hislop has been the president and chief executive officer of our company since October 22, 2003 and the chairman, chief financial officer, secretary and a director of our company since June 1999.  Since 1990, Mr. Hislop has been working as an independent financial consultant and has served as an officer and director of various emerging growth companies.  He is currently a director of Q Investments Ltd. (formerly named Cubix Investments, Ltd.), a holding company for various public oil and gas and internet companies, and has been a director since February 1994 and served as president of Q Investments Ltd. (formerly Cubix Investments, Ltd.) from February 1994 to February 2001.  In the past five years Mr. Hislop has also been a director of the following companies: Gemini Energy Corp. from March 1995 to June 27, 2002 (Mr. Hislop also served as president from March 1997 to January 1998), UltraPetroleum Corp. from March 1993 to January 2001 (Mr. Hislop also served as chief financial officer from December 1994 to December 1997), Rio Amarillo Mining Ltd. prior to April 1994, Spectrum Resources, Ltd. from September 1996 to November 1997, Exxel Energy Corp. since October 15, 2001 (Mr. Hislop also served as president since October 15, 2001), Warrior Energy N.V. (formerly Luxmatic Technologies N.V.) since October 1997 (Mr. Hislop has also served as president since 1997), KinYSIS Pharmaceutical, Inc. from July 1997 to October 1997 (Mr. Hislop also served as president, secretary, chief executive officer and chief financial officer from July 1997 to August 1997), Ultra Holdings Inc. from July 1999 to November 2001 (Mr. Hislop also has served as president since July 1999), Zconnexx Corporation (formerly known as Capital Charter Corp.) from November 1998 to May 2000, Netco Energy Inc. (formerly known as Green River Holdings Inc. and Green River Petroleum, Inc.) from June 1999 to June17, 2004, and Patriot Petroleum Corp. since April 1999.  Mr. Hislop trained as a Chartered Accountant with Ernst & Young and has a bachelor of Commerce in Finance from the University of British Columbia.

*Committees of the Board*

We do not have an audit or compensation committee at this time.

*Family Relationships*

There are no family relationships between any of our directors or executive officers.

*Involvement in Certain Legal Proceedings*

Other than as discussed below, none of our directors, executive officers, promoters or control persons have been involved in any of the following events during the past five years:

- any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

- any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

- being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

 

 

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- being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

*Audit Committee Financial Expert*

Our board of directors has determined that it does not have a member of its audit committee that qualifies as an "audit committee financial expert" as defined in Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that the members of our board of directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.  In addition, we believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.

*Section 16(a) Beneficial Ownership Compliance*

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively.  Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

To the best of our knowledge, all executive officers, directors and greater than 10% shareholders filed the required reports in a timely manner.

*Code of Ethics*

Effective July 13 2004, our company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company's officers including our president (being our principal executive officer) and our company's chief financial officer (being our principal financial and accounting officer), contractors, consultants and advisors.  As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

(1)  honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

(2)  full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

(3)  compliance with applicable governmental laws, rules and regulations;

(4)  the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and

(5)  accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of our company's personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code of Business Conduct and Ethics.  Further, all of our company's personnel are to be accorded full access to our company's board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our company officers.

 

 

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In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company's president or secretary.  If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president or secretary, the incident must be reported to any member of our board of directors.  Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter.  It is against ourcompany policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics was filed with the Securities and Exchange Commission as Exhibit 14.1 to our annual report on Form 10-KSB filed on July 15, 2004.  We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request.  Requests can be sent to: Nation Energy Inc., Suite 1100 - 609 West Hastings Street, Vancouver, British Columbia, V6B 4W4.

**Item 10.**

**Executive Compensation.**

The following table summarizes the compensation paid to our president and chief executive officer during the last fiscal year.  No other officers or directors received annual compensation in excess of $100,000 during the last three complete fiscal years.

  

  

**Annual Compensation**

**Long Term****Compensation(1)**

**Pay-****outs**

**Name and Principal****Position**

**Year**

**Salary**

**Bonus**

**Other****Annual****Compen-****sation(1)**

**Securities****Under****Options/****SAR's****Granted**

**Restricted****Shares or****Restricted****Share Units**

**LTIP****Pay-****outs**

John Hislop(2)President, Chief Executive Officer, Secretary, Chief Financial Officer and Director

200520042003

NilNilNil

NilNilNil

N/AN/AN/A

NilNilNil

NilNilNil

NilNilNil

Donald Sharpe(3)former President, Chief Executive Officer and Director

200520042003

N/AN/ANil

N/AN/ANil

NilN/A$15,563(4)

N/AN/ANil

N/AN/ANil

N/AN/ANil

(1)  The value of perquisites and other personal benefits, securities and property for the named executive officers that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus is not reported herein.

(2) Mr. Hislop was appointed the president and chief executive officer of our company on October 22, 2003.

(3) Mr. Sharpe resigned as our president, chief executive officer and director of our company on October 22, 2003.

(4) On March 1, 2002, a verbal arrangement became effective with Mr. Sharpe to receive remuneration in the amount of Cdn $2,000 per month for services rendered.  This arrangement was finalized pursuant to a management agreement dated July 1, 2002 between our company and D. Sharpe Management Inc., a private management company wholly owned by Mr. Sharpe.  The management agreement terminated as of the date of Mr. Sharpe's resignation as our president, chief executive officer and director.

As of the date of this annual report, we have no compensatory plan or arrangement with respect to any officer that results or will result in the payment of compensation in any form from the resignation, retirement or any other 

 

 

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termination of employment of such officer's employment with our company, from a change in control of our company or a change in such officer's responsibilities following a change in control.

*Employment or Consulting Agreements*

We have not entered into any employment or consulting agreements with any of our current officers, directors or employees.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors.  Other than the management agreements discussed above, we do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.

*Stock Options/SAR Grants*

There were no stock options or stock appreciation rights made during the fiscal year ended March 31, 2005.

*Stock Options/SAR Exercise*

There were no stock options or stock appreciation rights exercised during the fiscal year ended March 31, 2005.

*Long-Term Incentive Plans*

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors.  We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.

*Directors Compensation*

We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director's fees or other cash compensation for services rendered as a director in the year ended March 31, 2005. 

No cash compensation was paid to any of our directors for the director's services as a director during the fiscal year ended March 31, 2005.  We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors except for the granting from time to time of incentive stock options.  The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director.  Other than indicated below, no director received and/or accrued any compensation for his services as a director, including committee participation and/or special assignments.

**Item 11.**          **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

*Principal Stockholders*

The following table sets forth, as of June 13, 2005, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common 

 

 

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stock, as well as by each of our current directors and executive officers.  Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated.  Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

 

**Name and Address of Beneficial Owner**

**Amount and Nature of****Beneficial Ownership(1)**

**Percentage****of Class(1)**

*Jeffrey L. Taylor**500 N. Rainbow Blvd., Suite 300**Las Vegas, NV* *89107*

*920,000***

*5.7%*

*Jayco Investments(2)**Palm Court, 28 Pine Road  Belleville, St, Michael**Barbados*

*11,010,000*

*68.7%*

*John Hislop**1589 Marpole Avenue**Vancouver, BC  V6J 2R9*

*75,000(3)*

**%*

*Directors and Executive Officers as a Group*

*75,000(3)***

**%*

 
*

Less than 1%

 
(1)    Based on 16,020,000 shares of common stock issued and outstanding as of June 13, 2005.  Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

(2)  Jayco Investments  is a private company, wholly-owned by John Hislop, our chairman, president, chief executive officer, chief financial officer, secretary and director.

(3)  Includes options to acquire an aggregate of 75,000 shares of common stock, exercisable within sixty days.

**Item 12.**

**Certain Relationships and Related Transactions.**

Except as otherwise indicated below, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holder, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest. We receive administrative services and back office support under an oral administrative service agreement with Caravel Management Corp., pursuant to which we are charged Cdn$3,000 per month. Caravel Management Corp. is a private management company that is wholly-owned by John Hislop, our chairman, president, chief executive officer, secretary and chief financial officer.  The agreement with Caravel Management Corp. is on a month to month basis. 

We entered into a management agreement dated July 1, 2002 with D. Sharpe Management, a company wholly-owned by Donald Sharpe, our former President and director, to which we were charged Cdn$2,000 per month for Mr. Sharpe's management services. This agreement became effective March 1, 2002 and terminated upon Mr. Sharpe's resignation on October 22, 2003.

 

 

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**Item 13.**

**Exhibits**

*Exhibits Required by Item 601 of Regulation S-B*

**Exhibit Number and Description**

**(3)**

**Articles of Incorporation/Bylaws**

3.1            Certificate of Incorporation (incorporated by reference from our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000) 

3.2            Certificate of Amendment of Certificate of Incorporation (incorporated by reference from our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000)

3.3            Bylaws (incorporated by reference from our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000)

3.4            Certificate of Merger (Delaware) effective June 12, 2003 (incorporated by reference from our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on June 30, 2003)

3.5            Certificate of Merger (Wyoming) effective June 13, 2003 (incorporated by reference from our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on June 30, 2003)

**(10)**

**Material Contracts**

10.1          1999 Stock Option Plan (incorporated by reference from our Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000)

10.2          Farm-in Agreement with Olympia Energy Inc., dated November 21, 2001 (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on February 14, 2002).

10.3          Management Agreement with D. Sharpe Management Ltd., July 1, 2002 (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on August 14, 2002).

10.4          Agreement with Netco Energy Inc. dated January 10, 2005 (incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2005).

**(14)**

**Code of Ethics**

14.1          Code of Business Conduct and Ethics (incorporated by reference from our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on July 15, 2004).

**(31)**

**Section 302 Certifications**

 
31.1*

Section 302 Certification under Sarbanes-Oxley Act of 2002

 
**(32)**

**Section 906 Certifications**

 
32.1*

Section 906 Certification under Sarbanes-Oxley Act of 2002

*Filed herewith

 

 

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**Item 14.  Principal Accountants Fees and Services**

*Audit Fees*

The aggregate fees billed by Stark Winter Schenkein & Co. LLP for professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-KSB for the fiscal years ended March 31, 2005 and for the review of quarterly financial statements included in our Quarterly Reports on Form 10-QSB for the quarters ending June 30, 2004, September 30, 2004 and December 31, 2004 were $13,350.

*Audit Related Fees*

For the fiscal years ended March 31, 2005 and 2004, the aggregate fees billed for assurance and related services by Stark Winter Schenkein & Co. LLP relating to the performance of the audit of our financial statements which are not reported under the caption "Audit Fees" above, was $nil.

*Tax Fees*

For the fiscal years ended March 31, 2005 and 2004, the aggregate fees billed by Stark Winter Schenkein & Co. LLP for other non-audit professional services, other than those services listed above, totalled $1,000.  

We do not use Stark Winter Schenkein & Co. LLP for financial information system design and implementation.  These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are provided internally or by other service providers.  We do not engage Stark Winter Schenkein & Co. LLP to provide compliance outsourcing services.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Stark Winter Schenkein & Co. LLP is engaged by us to render any auditing or permitted non-audit related service, the engagement be:      

**•**

approved by our audit committee (which consists of John Hislop); or

**•**               entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

The audit committee pre-approves all services provided by our independent auditors.  The pre-approval process has just been implemented in response to the new rules, and therefore, the audit committee does not have records of what percentage of the above fees were pre-approved.  However, all of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.

The audit committee has considered the nature and amount of fees billed by Stark Winter Schenkein & Co. LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Stark Winter Schenkein & Co. LLP's independence.

 

 

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**SIGNATURES**

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

**NATION ENERGY INC.**

 

 

By: ***/s/ John Hislop***

John Hislop, President, Chief Executive Officer, Secretary

Chairman and Chief Financial Officer 

(Principal Executive Officer, Principal Financial Officer 

and Principal Accounting Officer)

 

 

Date:  July 22, 2005

 

 

 

 

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