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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended JUNE 30, 2000
[ ] Transition report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
________________
NATION ENERGY, INC.
(Exact name of small business issuer as specified in its charter)
Commission file number: 0-30193
DELAWARE 59-2887569
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
SUITE 1100 - 609 WEST HASTINGS STREET
VANCOUVER BC CANADA V6B 4W4
(Address of principal executive offices)
(800) 400 - 3969
(Issuer's telephone number)
-------------------
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 [ ]
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.001 par value
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Not applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2000, the Registrant
had 7,170,000 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ] No [X]
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NATION ENERGY, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Index Page Number
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Balance Sheet as of June 30, 2000. 4
Consolidated Statements of Operations for the three months
ended June 30, 1999 and 2000 5
Consolidated Statements of Cash Flows for the three months ended
June 30, 1999 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached hereto and made a part of this filing is the unaudited
consolidated balance sheet at June 30, 2000, consolidated statement of
operations for the three months ended June 30, 1999 and 2000, consolidated
statement of cash flows for the three months ended June 30, 1999 and 2000, and
notes to the consolidated financial statements.
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NATION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2000
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash $ 3,179,143
Prepaid expenses 102,946
-----------
Total current assets 3,282,089
Oil and gas properties - full cost method 775,251
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Total assets $ 4,057,340
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,598
Stockholders' equity:
Common stock, $.001 par value; 50,000,000
shares authorized; 7,170,000 shares issued
and outstanding 7,170
Additional paid-in capital 742,230
Common stock subscriptions 3,385,000
Deficit accumulated during the
development stage (81,658)
-----------
Total stockholders' equity 4,052,742
-----------
Total liabilities and stockholders' equity $ 4,057,340
===========
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NATION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE FOR THE THREE APRIL 19, 1988
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------ ------------ --------------
<S> <C> <C> <C>
Revenue: $ - $ - $ -
----------- ----------- -----------
Costs and expenses:
General, selling and administrative 1,877 8,914 81,658
----------- ----------- -----------
Total costs and expenses 1,877 8,914 81,658
----------- ----------- -----------
Net (loss) $ (1,877) $ (8,914) $ (81,658)
=========== =========== ===========
Per share information:
Weighted average number of common
shares outstanding - basic and diluted 7,137,033 7,170,000 866,185
=========== =========== ===========
Net (loss) per common share - basic and diluted $ (0.00) $ (0.00) $ (0.09)
=========== =========== ===========
</TABLE>
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NATION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE FOR THE THREE APRIL 19, 1988
MONTHS ENDED MONTHS ENDED (INCEPTION) TO
JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 2000
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,877) $ (8,914) $ (81,658)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Common stock issued for services 20,000 - 20,000
(Increase) in prepaid expenses - (2,314) (102,946)
Increase (decrease) in accounts payable (20,000) (4,605) 5,598
----------- ----------- -----------
Net cash (used in) operating activities (1,877) (15,833) (159,006)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of oil and gas properties - (584,373) (775,251)
----------- ----------- -----------
Net cash (used in) investing activities - (584,373) (775,251)
Cash flows from financing activities:
Payments for withdrawn subscriptions - (500,000) (500,000)
Proceeds from common stock issued and subscribed - 385,000 4,613,400
----------- ----------- -----------
Net cash provided by (used in) financing activities - (115,000) 4,113,400
----------- ----------- -----------
Net increase (decrease) in cash (1,877) (715,206) 3,179,143
Beginning cash 728,205 3,894,349 -
----------- ----------- -----------
Ending cash $ 726,328 $ 3,179,143 $ 3,179,143
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ - $ - $ -
=========== =========== ===========
Cash paid for income taxes $ - $ - $ -
=========== =========== ===========
</TABLE>
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NATION ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles 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 for the year
ended March 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
NATION ENERGY, INC.
STATEMENT OF FORWARD-LOOKING INFORMATION
Statements contained herein that are not based on historical fact,
including without limitation statements containing the words "believes," "may,"
"will," "estimate," "continue," "anticipates," "intends," "expects" and words of
similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, events or developments to be materially different
from any future results, events or developments expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and in the regions in
which the Company operates; technology changes; competition; changes in business
strategy or development plans; the ability to attract and retain qualified
personnel; liability and other claims asserted against the Company; and other
factors referenced in the Company's filings with the Securities and Exchange
Commission. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future results, events or developments.
RESULTS OF OPERATIONS
The Company believes that at least ten wells will need to be drilled and
tested for gas production before the Greater Trona Project can be properly
evaluated. On June 2, 2000 the Company and it's partner in the Greater Trona
Project, Saurus Resources, Inc., commenced drilling the first well of a
scheduled ten well drilling program in the Trona Project. The Company intends to
review the results of this ten well program before proceeding with further
drilling or land acquisitions in the Trona area. As of June 30, 2000 the Company
had drilled the first three wells in the initial ten well program. None of the
first three wells had yet been tested for gas productivity as of June 30, 2000.
REVENUES
The Company has had no revenues from the date of its formation in April
18, 1988 to the present.
PLAN OF OPERATION
The Company has conducted no significant operations. Though the Company
has reviewed its potential participation in several oil and gas projects in the
Rocky Mountain region it has entered into only one agreement as of this date
with Saurus Resources Inc., described
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below in "--Initial Focus," for the exploration of properties and has purchased
two leases totaling 560 acres in the Greater Trona Area, Wyoming, under this
agreement. During the next twelve months the Company plans to focus its
resources on exploring this region and evaluating additional opportunities for
developing oil and gas projects.
During the next twelve months the Company's proposed plans call for it
analyze additional regions for acquisition of oil and gas leases based on
several factors. The Company considers those regions in which it's industry
contacts have the most experience in order to benefit from such experience. The
Company will determine which leases it is interested in exploring based upon the
analysis of technical and production data, financial analysis based on such
production analysis, on site verification of well equipment and production
capability, and verification of ownership of leasehold rights.
INITIAL FOCUS
The principal activity for the Company in the next twelve months and
beyond will be the securing of oil and gas exploration contracts and joint
ventures in the Greater Trona Area, Wyoming. On August 11, 1999, the Company
signed a letter of intent with Saurus Resources Inc., giving the Company the
option to enter into a joint venture with Saurus under which the Company may
acquire up to 50% of the profits resulting from oil and gas development by the
venture in the Greater Trona Area prospect, located in southwest Wyoming. Saurus
currently has an interest in 11,960 acres and is negotiating to acquire an
interest in an additional 10,155 acres in the Greater Trona Area prospect. Under
the terms of the letter, the Company paid for a study reporting on the economic
and geologic merits of the Trona venture and had until September 15, 1999, to
enter into a joint venture with Saurus. On October 1, 1999, the Company elected
to proceed with the joint venture, and has advanced the initial payment of
$202,131 U.S.
Under the arrangement with Saurus, Saurus and the Company will each pay
50% of the costs of obtaining the necessary rights and drilling exploratory
wells in the Greater Trona prospect. The Company expects to spend $525,000 US on
drilling and completing approximately 10 wells to a minimum depth of 1,200 feet.
If the cost of drilling and completing these wells is less than $525,000 US, the
Company will spend the difference on preparing the wells for production and
connecting the wells to a sales line. After spending the $525,000 US, the
Company will be deemed to have the right to 50% of the profits of the Greater
Trona Area joint venture.
If additional lands become available for purchase and the Company is
successful in leasing such additional lands, Saurus shall have the option to
defer its 50% share of the cost of the first 100,000 acres of such additional
land that the Company may purchase. Saurus will have this option for a period of
six months from the date of the completion of the last of the ten initial wells
discussed above. At this time the Company has not identified any additional
lands for purchase.
To date, the Company has purchased one State of Wyoming lease totaling 320 acres
and one federal lease totaling 240 acres. The Wyoming lease has a term of five
years and carries a
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one-sixth royalty and the federal lease has a term of ten-year term with a
one-eighth royalty. Both leases are in the first year of their term.
The Company does not foresee hiring any additional employees in the next
twelve months.
Capital acquisitions over the next twelve months are expected to total
$200,000. These capital acquisitions will consist of wellhead, tie-in and
compression equipment needed to produce gas in the event the Company's
exploration wells are successful. The Company has enough cash to meet its
obligations in the Greater Trona joint venture.
GEOLOGICAL AND GEOPHYSICAL TECHNIQUES
The Company may, within the next twelve months or thereafter, employ
detailed geological interpretation combined with advanced seismic exploration
techniques to identify potential ventures. Geological interpretation is based
upon data recovered from existing oil and gas wells in an area and other
sources. Such information is either purchased from the company that drilled the
wells or becomes public knowledge through state agencies after a period of
years. Through analysis of rock types, fossils and the electrical and chemical
characteristics of rocks from existing wells, the Company can construct a
picture of rock layers in the area. Further, the Company will have access to the
logs from the existing operating wells which will allow the Company to
extrapolate a decline curve and make an estimation of the number of recoverable
barrels of oil or cubic feet of gas existing beneath a particular lease. The
Company has not purchased, leased, or entered into any agreements to purchase or
lease any of the equipment necessary to conduct the geological or geophysical
testing referred to herein and will only to do so should the Board of Directors
find that the information otherwise available to the Company is insufficient to
identify potentially profitable oil and gas properties.
POSSIBLE DRILL RIG OPERATION
Management is of the opinion that one of the ways to enhance the
Company's position in the development of oil and gas may be the purchase and
operation of drilling rigs. Though no assurances can be given that the Company
will purchase drilling rigs and enter into the drilling business nor that the
Company will be successful in such an enterprise, the Company is currently
investigating the purchase of used drilling rigs and could possibly apply the
proceeds of this Offering to obtain one or more drilling rigs.
The Company would have the option to enter into different types of
drilling contracts with operators, each with varying degrees of risk and reward.
There are three basic types of contract used in the oil and gas industry:
daywork, footage, and turnkey. Pursuant to a daywork contract the rig and
necessary personnel are contracted out at a fixed day rate. Most risks and
delays to drilling are born by the entity hiring the rig. In footage contracts
wells are drilled on a dollars per foot basis to a designated depth. These
contracts are more expensive because part of the burdens for delays and the risk
of drilling are born by the drilling contractor and part by the entity hiring
the rig. A turnkey contract is a well drilled by the contractor for a fixed
price. This type of contract bears the greatest risk for the drilling
contractor, but this risk is usually reflected
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in the contract with a substantial increase in service costs or through a
substantial participation by the drilling contractor in the well if it is
successful. If and when the Company purchases drilling rigs, Management will
decide on a deal by deal basis after evaluation of the particular risks and
circumstances which type of drilling contract, in its sole discretion, will best
serve the interests of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no operating history. The Company does not expect to
generate sufficient revenues within the foreseeable future to support the
expenses of its development and marketing activities and therefore will need to
rely upon significant additional funding to implement its development plans. It
is anticipated that this funding will be accomplished through the sale of the
Company's equity securities or through borrowing. Prior to June, 2000, the
Company has sold 7,170,000 shares of its Common Stock for approximately $728,400
prior to deduction of offering expenses. The Company intends to raise future
requisite funds by subsequent offerings of its Common Stock and will not be able
to institute its full plan of operation without significant additional funding.
The Company has had pending a private placement of its Common Stock the gross
proceeds of which, should it proceed and all of the shares offered are sold,
will amount to $4,500,000 assuming that all of the shares offered for sale are
sold. See "--Private Placement," below. As of its unaudited financial statements
of June 30, 2000 the Company had assets of $4,057,340. The foregoing funds will
be and have been mainly used by the company to develop, exploit and market oil
and gas projects. $3,385,000 of such funds are cash advanced for subscriptions
for common stock in the private placement that have not yet closed. If the
private placement does not close, such funds will be returned to the
subscribers. The Company currently anticipates that, assuming that all of the
shares offered for sale are sold, this private placement will satisfy the cash
requirements of the Company for the next twelve months. If the Company does not
proceed with this private placement, the Company will need to obtain alternative
financing to pursue its plan of operations.
PRIVATE PLACEMENT
The Company has pending a private offering of up to 4,500,000 shares of
its Common Stock at an offering price of $1.00 per share. This offering has been
pending for several months and it is unclear whether or not it will ultimately
close. Net proceeds from this offering, should it proceed (after deducting
expenses of the offering estimated to be $10,000) is expected to be $4,490,000
if all of the Shares are sold. The Company intends to use all of the foregoing
amounts for working capital. Funds will be used as general working capital
including but not limited to, obtaining oil and/or gas leases, hiring executive
and support personnel, and obtaining facilities to conduct operations, and
inventory equipment. At present the Company is negotiating regarding several
projects and has entered into a joint operating agreement with Saurus Resources,
Inc. for an option on a 50% interest in a project in the Greater Trona Prospect,
located in southwest Wyoming. The Company has also purchased two oil and gas
leases totaling 560 acres. No assurance can be given that the Company will be
able to obtain such additional arrangements as will be necessary to develop and
implement its plan in a timely manner or if implemented that said enterprise
will be profitable. No assurance can be given that significant revenues will be
derived from the development and operation of it's the Company's development
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plans. Until required for specific purposes, the net proceeds of the offering
may be invested temporarily in short-term obligations such as short-term
government obligations.
The Company has received advances for subscriptions totaling $3,385,000.
These subscriptions have not yet been accepted by the Company and are being held
subject to such acceptance and the final closing of the private placement. Of
the 3,385,000 shares currently subscribed for, 3,000,000 have been subscribed
for by Cubix Investments, Inc., a British Columbia, Canada, corporation whose
Common Stock is traded on the Canadian Venture Exchange. John R. Hislop, the
Company's chairman of the Board, Secretary and Vice President and Chief
Financial Officer, is the President and a director of Cubix Investments, Inc.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTION."
The Company can only estimate the future use of proceeds based on the
current status of the Company's operations, its current plans and current
economic condition. Due to the uncertainties of fund raising and negotiations,
the Company is unable to predict precisely what amount will be used for any
particular purpose. The Company will apply the proceeds of this offering in such
manner as it deems appropriate under the then existing circumstances. The
Company reserves the right to amend the use of proceeds by vote of a majority of
the Board of Directors.
Should the offering not proceed under its current terms, the Company
will be required to pursue alternative sources of capital. Without additional
capital, the Company's ability to pursue its plan of operations will be severely
curtailed.
EMPLOYEES
The Company currently has no employees other than its Officers and
Directors. Management of the Company expects to hire additional employees as
needed. Management currently estimates that the Company will not hire any
employees in the next twelve months.
INVESTMENT CONSIDERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL EVENTS OR RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET
FORTH BELOW AND ELSEWHERE IN THIS REPORT. AN INVESTMENT IN THE SECURITIES OF THE
COMPANY INVOLVES A HIGH DEGREE OF RISK. THE FOLLOWING DOES NOT PURPORT TO BE A
COMPREHENSIVE SUMMARY OF ALL THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE
COMPANY. RATHER, THE FOLLOWING ARE ONLY CERTAIN PARTICULAR RISKS TO WHICH THE
COMPANY IS SUBJECT THAT THE COMPANY WISHES TO ENCOURAGE PROSPECTIVE INVESTORS TO
DISCUSS IN DETAIL WITH THEIR PROFESSIONAL ADVISORS. PROSPECTIVE INVESTORS, PRIOR
TO MAKING AN INVESTMENT IN THE COMPANY, SHOULD CAREFULLY CONSIDER, AMONG OTHERS,
THE FOLLOWING RISK FACTORS.
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AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS AND
UNCERTAINTIES AND PEOPLE CONSIDERING SUCH AN INVESTMENT SHOULD NOT COMMIT MORE
THAN THEY CAN AFFORD TO LOSE. PLEASE REFER TO OUR ANNUAL REPORT ON FORM 10-KSB
AS FILED WITH THE SEC ON July 14, 2000 FOR A LIST OF ADDITIONAL RISK FACTORS AND
INVESTMENT CONSIDERATIONS.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, AS WELL AS
OTHER FACTORS NOT SET FORTH HEREIN, THE PURCHASE OF THE SHARES OF THE COMPANY
INVOLVES A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT IN THE
SHARES OF THE COMPANY SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN
THIS REPORT AND OUR OTHER SEC FILINGS. THE SHARES OF COMMON STOCK SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR
INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
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The following exhibits are attached to this report and are incorporated herein
by reference:
Exhibit No. Exhibit Name
3.1 Certificate of Incorporation of Company, filed December 16, 1999*
3.2 Certificate of Amendment of Certificate of Incorporation of Company,
filed February 15, 2000*
3.3 Bylaws of the Company*
10.1 Joint Operating Agreement with Saurus Resources, Inc. dated
December 1, 1999*
27.1 Financial Data Schedule
99.1 1999 Stock Option and Incentive Plan*
* Incorporated by reference from the Company's Form 10-SB filed with the
Securities and Exchange Commission March 31, 2000
(b) Reports on Form 8-K.
None.
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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.
(Registrant)
Dated: August 14, 2000 By: /s/ DONALD A. SHARPE
-----------------------------------
Donald A. Sharpe,
President and Chief Executive
Officer, Director
(Principal Executive Officer)
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