10QSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-QSB

(Mark One)
[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended  June 30, 2002
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from [ ] to [ ]
Commission file number    000-30193 Nation Energy, Inc. (Exact name of small business issuer as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 59-2887569 (IRS Employer Identification No.) Suite 1100 - 609 West Hastings Street Vancouver, BC, Canada V6B 4W4 (Address of principal executive offices) (800) 400-3969 (Issuer's telephone number) not applicable (Former name, former address and former fiscal year, if changed since last report)

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

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

16,020,000 common shares outstanding as of August 1, 2002

Transitional Small Business Disclosure Format (Check one):  Yes [ ] No [X]

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Part I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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

DISCLOSURE

To: The Shareholders of Nation Energy, Inc.

It is the opinion of management that the interim financial statements for the quarter ended June 30, 2002 include all adjustments necessary in order to ensure that the financial statements are not misleading.

Vancouver, British Columbia
Date: August 14, 2002

“John R. Hislop”

John R Hislop, Director of Nation Energy, Inc.

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Nation Energy, Inc. Balance Sheet
June 30, 2002
(unaudited)
ASSETS
Current assets:
Cash	$     819,107
Prepaid expenses	5,087
Total current assets	824,194
Unproved oil and gas properties - full cost method	2,306,451
	$  3,130,645
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$        9,038
Accounts payable - related party	27,796
Total current liabilities	36,834
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000
shares authorized; none outstanding	-
Common stock, $.001 par value; 50,000,000
shares authorized; 16,020,000 shares issued
and outstanding	16,020
Additional paid-in capital	6,868,380
Accumulated (deficit)	(3,804,131)
	3,080,269
Other comprehensive income:
Currency translation adjustment	13,542
	3,093,811
	$  3,130,645

The accompanying notes are an integral part of these financial statements.

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Nation Energy, Inc.
Statements of Operations
(unaudited)
		For the Three
	For the Three	Months Ended
	Months Ended	June 30, 2001
	June 30, 2002	(Restated)
Revenue:	$              -	$              -
Costs and expenses:
General, selling and administrative	26,990	86,712
Total costs and expenses	26,990	86,712
Other income (expense)
Interest income	929	21,369
Net (loss)	(26,061)	(65,343)
Other comprehensive income:
Foreign currency translation adjustment	13,542	-
Comprehensive (loss)	$      (12,519)	$      (65,343)
Per share information:
Weighted average number of common
shares outstanding - basic and diluted	16,020,000	11,020,000
Net (loss) per common share - basic and diluted	$          (0.00)	$          (0.01)

The accompanying notes are an integral part of these financial statements.

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Nation Energy, Inc.
Statements of Cash Flows
(unaudited)
		For the Three
	For the Three	Months Ended
	Months Ended	June 30, 2001
	June 30, 2002	(Restated)
Cash flows from operating activities:
Net cash (used in) operations	$            (3,214)	$            (3,606)
Cash flows from investing activities:
Purchase of unproved oil and gas properties	(562,933)	-
Net cash (used in) investing activities	(562,933)	-
Cash flows from financing activities:
Net cash provided by financing activities	-	-
Net (decrease) in cash	(566,147)	(3,606)
Beginning cash	1,385,254	2,292,340
Ending cash	$          819,107	$       2,288,734
Supplemental cash flow information:
Cash paid for interest	$                  -	$                  -
Cash paid for income taxes	$                  -	$                  -

The accompanying notes are an integral part of these financial statements.

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Nation Energy, Inc.
Notes to Financial Statements
June 30, 2002
(unaudited)

Note 1.     Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information.  They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements.  Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.   For further information, refer to the financial statements and notes thereto, included in the Company’s Form 10-KSB as of and for the two years ended March 31, 2002.

Restatement

In September 2001, the Company restated its previously reported unaudited financial statements as of and for the three months ended June 30, 2001.  The carrying value of the unproved oil and gas properties changed from $2,169,353 to $1,370,678 due to an asset impairment recorded during the year ended March 31, 2001.

Note 2:  Earnings Per Share

The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods presented, common stock equivalents were not considered, as their effect would be anti-dilutive.

Note 3.  Comprehensive Income

The Company follows SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements.

Note 4.  Foreign Currency Translation

The Company has one Canadian Dollar bank account.  The cash account and related expenses are translated using the exchange rate in effect at the balance sheet date. Income and expenses are translated at the average exchange rate for the year. Translation adjustments are reported as a separate component of stockholders’ equity as comprehensive income.

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Item 2. Management's Discussion and Analysis or Plan of Operation.

FORWARD-LOOKING STATEMENTS

This quarterly 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", "will", "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 m aterially 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 quarterly 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.

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly 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 quarterly report, particularly in the section entitled "Risk Factors".

Business of Nation Energy, Inc.

We are an oil and gas exploration stage company with interests in properties located in Alberta, Canada.  Nation Energy is a Delaware 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.  Though we reviewed potential participation in several oil and gas projects in the Rocky Mountain region, we have entered into only one agreement as of this date for the exploration of oil and gas properties in that region.  This agreement was the Joint Operating Agreement with Saurus Resources, Inc., dated December 1, 1999, which was attached as an exhibit to our Form 10-SB filed with the Securities and Exchange Commission on March 31, 2000 and was described in detail in that filing.

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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.  To date, 24 test wells have been drilled and completed under the Joint Operating Agreement.  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 difficul ties include mineral precipitation in the well bore, which inhibits production.  The wells drilled to date have been perforated and hydraulically fractured; these geophysical traits make extraction of gas much more complicated and expensive than anticipated.  Poor weather and lack of available crews have also contributed to operational difficulties and greater expenses.  Despite the significantly greater exploration expenditures, there are no strong indications to date that the test wells or other potential wells within the interests held by us will produce sufficient gas to enable us to recover the exploration costs expended to date, let alone be profitable.

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 $2,165,780 in cash from VRD, Inc. 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 we received 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 it 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.

Our Current Business

On November 21, 2001, we entered into a Farm-in Agreement with Olympia Energy Inc. (the "Farm-in Agreement") 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 (the "Bolton Prospect").  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 Bolton Prospect and will earn a 15% interest after payout in the Bolton Prospect.  Drilling costs for the Bolton Prospect are estimated to be CDN$11,000,000.  Drilling on an initial well at 09-09-59-02-W6M began on November 13, 2001 and was expected to take approximately 120 days.  The well was drilled to a total depth of 4830 meters in March 2002, and has been logged.  The well is currently undergoing completion and testing.

Management is of the view that the Bolton Prospect has a very good potential for substantial recoverable gas.  The Smoky area has existing infrastructure facilities and pipelines and there is currently production within 5 miles of the Bolton Prospect area.

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Our primary objective over the 12 months ending June 30, 2003, will be to continue to participate in the Farm-in Agreement with Olympia Energy Inc. We intend to participate in and develop further wells on the Bolton Prospect if warranted, based upon the results that we receive from the initial well.

We have not had any operating revenues from the date of our formation in April 18, 1988 to the present.  We anticipate that we have enough cash to meet our expenses and capital commitments during the next twelve months.

Results of Operations

Quarter Ended June 30, 2002 Compared to Quarter Ended June 30, 2001

We incurred a net operating loss of $(26,061), foreign currency translation created comprehensive income of $13,542 resulting in a net comprehensive loss of $(12,519) for the three months ended June 30, 2002, compared to a net loss of $(65,343) for the three months ended June 30, 2001.  The net loss per common share for the three months ended June 30, 2002 was $0.00, compared to a net loss per common share of $0.01 for the three months ended June 30, 2001.  The decreased loss is due primarily to a decrease in legal fees incurred for the period ending June 30, 2002 over the same period in the prior year.

Discussion and analysis related to significant operating activities undertaken during the three months ended June 30, 2002 is set out below.

Lack of Revenues

We have not generated any material revenues to date from operations.  At this time, our ability to generate any revenues continues to be uncertain. 

Investment

As at June 30, 2002, we have invested a total of $2,306,451 under the Farm-in Agreement with Olympia Energy Inc. towards the drilling and development costs of the initial well at the Bolton Prospect.

Liquidity and Capital Resources

We currently rely on our existing cash reserves to fund our continuing operating expenses and to fund the identification and evaluation of a suitable business opportunity or business combination.  As of June 30, 2002 and June 30, 2001, our cash and cash equivalent balances were $819,107 and $2,288,734, respectively.  We anticipate that we will not require any 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 Olympia Energy for the development of the Bolton Prospect.

We have no 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.

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Plan of Operation

Our primary objective over the twelve months ending June 30, 2003, will be to continue to participate in the Farm-in Agreement with Olympia Energy Inc. with respect to the development of the Bolton Prospect.

Cash Requirements

We anticipate that we may require financing from unrelated third parties in order to continue our operations and fund our capital commitments under the Farm-in Agreement.  At this time, we anticipate that we will have sufficient capital to fund our ongoing operations and capital expenditure commitments to June 30, 2003.  However, we may be required to raise additional financing for a particular business opportunity.  We would likely seek to secure any additional financing necessary through a private placement of our common stock.

Product Research and Development

We do not anticipate that we will expend any significant monies on research and development over the twelve months ending June 30, 2003.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment over the twelve months ending June 30, 2003.

Employees

Over the twelve months ending June 30, 2003, we do not anticipate an increase in the number of employees that we may retain.  We currently have no employees other than our directors and officers.

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.

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Likelihood of Profit

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.

Lack of Financial Resources

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 on our ability to sell our common shares, primarily on a private placement basis, in order to raise any necessary additional financing.  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 will result 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.

Financial Considerations

A decision as to whether our properties contain commercial oil and gas deposits and should be brought into production will require substantial funds and depends 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.

Property Defects

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.

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Currency Fluctuations

We maintain our accounts in US and Canadian currencies and are therefore subject to currency fluctuations.  Such fluctuations may materially affect our financial position and results. We do not engage in currency hedging activities.  During the three months ended June 30, 2002 the Company recorded comprehensive income of $13,542 resulting from foreign currency translation.

Need to Manage Growth

In the event that 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.

Dependence on Key Personnel/Employees

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.

Dependence on Meota Resources Corp.

Under the Farm-in Agreement, Meota Resources Corp. will act as operator for the purposes of carrying out the work necessary to obtain our right to earn an interest in the Smoky area under the Farm-in Agreement.  We are therefore dependent upon the expertise of Meota Resources Corp. in the area of oil and gas exploration.

Conflicts of Interest

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 our company and management of our company might arise.

"Penny Stock" Rules May Restrict the Market for Our Shares

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 the 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.  T hese rules could also hamper our ability to raise funds in the primary market for our shares of common stock.

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Possible Volatility of Share Prices

Our shares of common stock are currently publicly traded on the Over-the-Counter 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 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.

Phase Out of the OTC Bulletin Board (OTCBB)

Nasdaq has proposed phasing out the OTCBB and replacing it with the BBX Exchange.  The BBX Exchange will have qualitative listing requirements and we will be required to file a listing application in order to have our shares of common stock listed for trading on the BBX Exchange.  If we are unable to obtain a listing on the BBX Exchange and the OTCBB is phased out as planned, there may be no market for our common stock and you may have difficulty reselling any shares of our common stock that you may own.

Indemnification of Directors, Officers and Others

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 Delaware 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 Delaware law or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Future Dilution

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.

Anti-Takeover Provisions

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.

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Risks Relating to the Industry

Oil and Gas Exploration

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.

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 that 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.

Competitiveness of Oil and Gas Industry

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.

Fluctuating Price and Demand

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 our company not receiving an adequate return on invested capital to be profitable or viable.

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Comprehensive Regulation of Oil and Gas Industry

Oil and gas operations are subject to federal, state, 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 dela ys or require capital outlays in excess of those anticipated, thus having 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.

Environmental Regulations

In general, our exploration and production activities are subject to certain federal, state 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, our operating partners are not fully insured against all environmental risks.

Risks Associated with Drilling

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.

Government Regulation/Administrative Practices

There is no assurance that the laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, 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.

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Part II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Changes in Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

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

On June 19, 2002 we filed a preliminary information statement on Schedule 14C, as amended, in regards to our proposed merger and re-domicile to Wyoming.  Please refer to the Schedule 14C information statement for further information. Copies of this document, and all of our other SEC filings, are available on the SEC's EDGAR database at www.sec.gov  or by calling our secretary at 800.400.3969.

Item 5. Other Information.

None.

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

Reports of Form 8-K

None.

Financial Statements Filed as a Part of the Quarterly Report

Our unaudited interim financial statements include:

Balance Sheets

Statements of Operations

Statements of Cash Flows

Notes to the Financial Statements

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Exhibits Required by Item 601 of Regulation S-B

(2)

Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession

2.1 Purchase and Sale Agreement dated February 28, 2001 (incorporated by reference from our Consent Solicitation Statement on Schedule 14A, filed on April 26, 2001)

(3)

Articles of Incorporation and By-laws

3.1 Certificate of Incorporation (incorporated by reference from our Registration Statement on Form 10-SB, filed 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 on March 31, 2000)

3.3 Bylaws (incorporated by reference from our Registration Statement on Form 10-SB, filed on March 31, 2000)

(10)

Material Contracts

10.1         Joint Operating Agreement with Saurus Resources, Inc. dated December 1, 1999 (incorporated by reference from our Registration Statement on Form 10-SB filed with the SEC on March 31, 2000)

10.2         1999 Stock Option Plan (incorporated by reference from our Registration Statement on Form 10-SB filed with the SEC on March 31, 2000)

10.3         Quitclaim Release and Assumption Agreement with Saurus Resources, Inc. and VRD, Inc., dated December 6, 2001 (incorporated by reference from our Quarterly Report on Form 10-QSB filed with the SEC on  February 14, 2002).

10.4         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 SEC on February 14, 2002).

10.5         Management Services Agreement with D. Sharpe Management Inc., dated July 1, 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NATION ENERGY, INC.

By: “Donald Sharpe”
Donald Sharpe, President and Chief Executive Officer /Director
Date: August 9, 2002

By: “John R Hislop”
John Hislop, Chairman of the Board and Chief Financial Officer/Director
Date: August 14, 2002

EX-10.5

THIS AGREEMENT is made as of the 1st day of July, 2002.

BETWEEN:

NATION ENERGY INC., a Delaware company with an office at #1100 – 609 West Hastings Street, Vancouver, British Columbia, V6B 4W4

(hereinafter referred to as the "Company")

OF THE FIRST PART

AND:

D. SHARPE MANAGEMENT INC., a British Columbia company with an office at #1320 – 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2

(hereinafter referred to as the "Contractor")

OF THE SECOND PART

WHEREAS the Company desires to retain the Contractor to provide certain management services on behalf of the Company and the Contractor has agreed to so assist the Company on the terms and conditions of this Agreement.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each, the parties hereto agree as follows:

ARTICLE 1
APPOINTMENT AND AUTHORITY OF CONTRACTOR

1.1

Appointment of Contractor

The Company hereby appoints the Contractor to perform certain management services for the benefit of the Company as hereinafter set forth, and the Company hereby authorizes the Contractor to exercise such powers as provided under this Agreement.  The Contractor accepts such appointment on the terms and conditions herein set forth.

1.2

Delivery of Services

The Contractor shall provide the services of Donald Sharpe, who shall fulfil the role of President of the Company and in this regard the Contractor shall devote such time as shall be needed to ensure the performance of its obligations hereunder.

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1.3

Authority of Contractor

The Contractor shall have no right or authority, express or implied, to commit or otherwise obligate the Company in any manner whatsoever except to the extent specifically provided herein or specifically authorized in writing by the Company.

1.4

Independent Contractor

In performing its services hereunder, the Contractor shall be an independent contractor and not an employee or agent of the Company, except that the Contractor shall be the agent of the Company solely in circumstances where the Contractor must be the agent to carry out its obligations as set forth in this Agreement.  Nothing in this Agreement shall be deemed to require the Contractor to provide its services exclusively to the Company and the Contractor hereby acknowledges that the Company is not required and shall not be required to make any remittances and payments required of employers by statute on the Contractor's behalf and the Contractor shall not be entitled to the fringe benefits provided by the Company to its employees.

ARTICLE 2
CONTRACTOR'S AGREEMENTS

2.1

General

The Contractor shall provide such services as the Company may reasonably request from time to time as shall be in keeping with satisfying the management duties in assisting the Company, and the Contractor shall at all times be subject to the direction of the Company and shall keep the Company informed as to all matters concerning the Contractor's activities.

ARTICLE 3
COMPANY'S AGREEMENTS

3.1

Compensation of Contractor

As compensation for the services rendered by the Contractor pursuant to this Agreement, and as full and final satisfaction of the Company’s obligations to the Contractor hereunder, the Company shall pay to the Contractor the sum of CDN$2,000 per month payable monthly in arrears.

3.2

Indemnity by Company

The Company hereby agrees to indemnify, defend and hold harmless the Contractor, from and against any and all claims, demands, losses, actions, lawsuits and other proceedings, judgments and awards, and costs and expenses (including reasonable legal fees), arising directly or indirectly, in whole or in part, out of any matter related to any action taken by the Contractor within the scope of its duties or authority hereunder, excluding only such of the foregoing as arise from the fraudulent, gross negligence, reckless or wilful act or omission of the Contractor or as arise in respect of the Contractor's office overhead or the Contractor's general administrative expenses, and the provisions of this Section 3.3 shall survive termination of this Agreement.

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ARTICLE 4
DURATION, TERMINATION AND DEFAULT

4.1

Effective Date

This Agreement shall be deemed to have become effective as at March 1, 2002 (the “Effective Date”) and shall continue for a term of one year from the Effective Date. The agreement will be automatically renewed for a further one-year term unless terminated as per Clause 4.2 herein.

4.2

Termination

This Agreement may be terminated as follows:

(a)

by either party upon giving 90 days notice of termination to the other; or

(b)

by the Company at any time in circumstances where the Contractor is in breach of its obligations hereunder.

4.3

Duties Upon Termination

Upon termination of this Agreement for any reason, the Contractor shall upon receipt of all sums due and owing, promptly deliver the following in accordance with the directions of the Company all documents pertaining to the Company or this Agreement, including but not limited to, all books of account, correspondence and contracts, provided that the Contractor shall be entitled thereafter to inspect, examine and copy all of the documents which it delivers in accordance with this provision at all reasonable times upon three (3) days' notice to the Company.

4.4

Compensation of Contractor on Termination

Upon termination of this Agreement, the Contractor shall be entitled to receive as its full and sole compensation in discharge of obligations of the Company to the Contractor under this Agreement, all sums due and payable under this Agreement to the date of termination and the Contractor shall have no right to receive any further payments; provided, however, that the Company shall have the right to offset against any payment owing to the Contractor under this Agreement any damages, liabilities, costs or expenses suffered by the Company by reason of the fraud, negligence or wilful act of the Contractor, to the extent such right has not been waived by the Company.

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ARTICLE 5
CONFIDENTIALITY

5.1

Ownership of Work Product

All reports, documents, concepts, products and processes together with any marketing schemes, business or sales contracts, or any business opportunities prepared, produced, developed, or acquired, by or at the direction of the Contractor, directly or indirectly, in connection with or otherwise developed or first reduced to practice by the Contractor performing the services (collectively, the "Work Product") shall belong exclusively to the Company which shall be entitled to all right, interest, profits or benefits in respect thereof.  No copies, summaries or other reproductions of any Work Product shall be made by the Contractor or any of its agents or employees without the express permission of the Company, provided that the Contractor is hereby given permission to maintain one copy of the Work Product for its own use.

5.2

Confidentiality

The Contractor shall not, except as authorized or required by its duties, reveal or divulge to any person or companies any of the trade secrets, secret or confidential operations, processes or dealings or any information concerning the organization, business, finances, transactions or other affairs of the Company, which may come to its knowledge during the term of this Agreement and shall keep in complete secrecy all confidential information entrusted to it and shall not use or attempt to use any such information in any manner which may injure or cause loss, either directly or indirectly, to the Company's business or may be likely so to do.  This restriction shall continue to apply after the termination of this Agreement without limit in point of time but shall cease to apply to information or knowledge which may come into the public domain.  The Contractor sh all comply with such directions as the Company shall make to ensure the safeguarding or confidentiality of all such information.

5.3

Devotion to Contract

During the term of this Agreement, the Contractor shall devote such time, attention and ability to the business of the Company to the extent required to satisfy the obligations of the Contractor hereunder.  During the term of this Agreement, the Contractor shall:

(a)

at all times perform his services faithfully, diligently, to the best of his abilities and in the best interests of the Company; and

(b)

refrain from acting in any manner contrary to the best interests of the Company or contrary to the duties of the Contractor as contemplated herein.

5.4

Other Activities

The Contractor shall not be precluded from acting in a function similar to that contemplated under this Agreement for any other person, firm or company without the consent of the Company.

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ARTICLE 6
MISCELLANEOUS

6.1

Waiver; Consents

No consent, approval or waiver, express or implied, by either party hereto, to or of any breach of default by the other party in the performance by the other party of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligations of such other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a general waiver by such party of its rights under this Agreement, and the granting of any consent or approval in any one instance by or on behalf of the Company shall not be construed to waiver or limit the need for such consent in any other or subsequent instance.

6.2

Governing Law

This Agreement and all matters arising thereunder shall be governed by the laws of the Province of British Columbia.

6.3

Successors, etc.

This Agreement shall enure to the benefit of and be binding upon each of the parties hereto and their respective heirs, successors and permitted assigns.

6.4

Assignment

This Agreement may not be assigned by any party except with the written consent of the other party hereto.

6.5

Entire Agreement and Modification

This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements and undertakings, whether oral or written, relative to the subject matter hereof.  To be effective any modification of this Agreement must be in writing and signed by the party to be charged thereby.

6.6

Headings

The headings of the Sections and Articles of this Agreement are inserted for convenience of reference only and shall not in any manner affect the construction or meaning of anything herein contained or govern the rights or liabilities of the parties hereto.

- 6 -

6.7

Notices

All notices, requests and communications required or permitted hereunder shall be in writing and shall be sufficiently given and deemed to have been received upon personal delivery or, if mailed, upon the first to occur of actual receipt or forty-eight (48) hours after being placed in the mail, postage prepaid, registered or certified mail, return receipt requested, respectively addressed to the Company or the Contractor as follows:

The Company:

Attention:  John Hislop

#1100 – 609 West Hastings Street,
Vancouver, British Columbia, V6B 4W4

The Contractor:

Attention: Donald Sharpe

#1320 – 925 West Georgia Street,
Vancouver, British Columbia, V6C 3L2

or such other address as may be specified in writing to the other party, but notice of a change of address shall be effective only upon the actual receipt.

6.8

Time of the Essence

Time is of the essence of this Agreement.

6.9

Further Assurances

The parties hereto agree from time to time after the execution hereof to make, do, execute or cause or permit to be made, done or executed all such further and other lawful acts, deeds, things, devices and assurances in law whatsoever as may be required to carry out the true intention and to give full force and effect to this Agreement.

6.10

Counterparts

This Agreement may be executed in several counter-parts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

NATION ENERGY INC.

Per:       "John R. Hislop"         

Authorized Signatory

D. SHARPE MANAGEMENT INC.

Per:       "Donald A. Sharpe"         

Authorized Signatory