20-F 1 fec20f12312010.htm fec20f12312010.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

______REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934

OR

XXX   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For Fiscal Year ended December 31, 2010

OR

______TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

______ SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Date of event requiring this shell company report
For the transition period from                                                                 to

Commission file number 0-17729

FEC RESOURCES INC.
(Exact name of Registrant as specified in its charter)
 
 
Not Applicable
(Translation of Registrant’s Name into English)

                                 British Columbia, Canada                        
(Jurisdiction of incorporation or organization)

46 Royal Ridge Rise NW, Calgary, AB, T3G 4V2
(Address of principal executive offices)

Jose Ernesto Villaluna, (403) 290-1676, Fax (403) 770-8060, 46 Royal Ridge Rise NW Calgary, AB, T3G 4V2
(Name, Telephone, E-mail, and/or Facsimile number and Address of Company Contact Person

Securities registered or to be registered pursuant to Section 12 (b) of the Act:  None

Securities registered or to be registered pursuant to Section 12 (g) of the Act:
Common Stock, without par value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:  439,143,765 Common Stock.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405, of the Securities Act Yes     Noxxx 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes                           No                      xxx           

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 from their obligations under those Sections.


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 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           xxx             No                      

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes                        No                      

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or a non accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer __________                                                                                     Accelerated filer____________
Non-accelerated filer xxxx                                                      

Indicate by check mark which basis if accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP __________                                              International Financial Reporting Standards ____________    Other  xxxx 
                    as issued by the International Accounting
        Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17   xxx                        Item 18                      


If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes                           No                      xxx           

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 

 
 
1

 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Not Applicable

 
 

 

FEC RESOURCES, INC. (formerly “FORUM ENERGY CORPORATION”)
FORM 20-F ANNUAL REPORT FISCAL YEAR 2010,  ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

 
PART I
Page
     
Item 1.
Identity of Directors, Senior Management and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 4.
Information on the Company
12
Item 5.
Operating and Financial Review and Prospects
19
Item 6.
Directors Senior Management and Employees
28
Item 7.
Major Shareholders and Related Party Transactions
32
Item 8.
Financial Information
33
Item 9.
The Listing
37
Item 10.
Additional Information
38
Item 11.
Quantitative and Qualitative Disclosure About Market Risk
40
Item 12.
Description of Securities other than Equity Securities
41
     
 
PART II
 
     
Item 13.
Defaults, Dividend Arrearages and Delinquencies
41
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
41
Item 15.
Controls and Procedures
41
Item 16 A.
Audit Committee Financial Expert
41
Item 16 B.
Code of Ethics
42
Item 16 C.
Principal Accountant Fees and Services
42
Item 16 D.
Exemption from the Listing Standards for Audit Committee
43
Item 16 E.
Purchase of Equity Securities by the Issuer and Affiliated Purchaser
43
     
 
PART III
 
     
Item 17.
Financial Statements
44
Item 18.
Financial Statements
117
Item 19.
Exhibits
117
 
Signatures
118


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus contains forward-looking statements.  Forward-looking statements represent our current expectations or forecasts of future events and are based on our management's beliefs, as well as assumptions made by and information currently available to them.  You can identify these statements by the fact that they do not relate strictly to historical or current facts.  These statements may include the words "anticipate," "believe," "budget," "estimate," "expect," "intend," "objective," "plan," “probable” "possible," "potential," "project" and other words and terms of similar meaning in connection with any discussion of future operating or financial performances.

Any or all of our forward-looking statements in this Form 20-F may turn out to be incorrect.  They can be affected by inaccurate assumptions, or by known or unknown risks and uncertainties.  Many of these factors, including the risks outlined under "Risk Factors," will be important in determining our actual future results, which may differ materially from those contemplated in any forward-looking statements.  These factors include, among others, the following:

-           oil and natural gas price volatility;
 
-
uncertainties in the estimates of proved reserves, and in the projection of future rates of production and timing of development expenditures;
 
-
our ability to find and acquire additional reserves;
 
-
risks associated with acquisitions, exploration, development and production;
 
-
operating hazards attendant to the oil and natural gas business;
 
-
potential constraints on our ability to market reserves due to limited transportation space;
 
-
climatic conditions;
 
-
availability and cost of labor, material, equipment and capital;
 
-
ability to employ and retain key managerial and technical personnel;
 
-
international, national, regional or local political and economic uncertainties, including changes in energy policies, foreign exchange restrictions and currency fluctuations;
 
-
adverse regulatory or legal decisions, including those under environmental laws and regulations;
 
-
environmental risks;
 
-
the strength and financial resources of our competitors;
 
-
general economic conditions; and
 
-
our ability to continue as a “going concern”.

When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus.  Our forward-looking statements speak only as of the date made.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, they are subject to a variety of variables which could cause actual results or trends to differ materially.  We cannot guarantee future results, levels of activity, performance or achievements.  Except as otherwise required by United States securities laws, we are under no duty to update any of the forward looking statements after the date of this Form 20-F to conform them to actual results or to changes in our expectations.  All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.



 

 

ITEM  1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

Not applicable to Form 20-F filed as annual report.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

Not applicable to Form 20-F filed as annual report.

ITEM 3.  KEY INFORMATION.

The following is a summary of key information about our financial condition, capitalization and the risk factors pertaining to our business.

Currency Exchange Rates

Table No. 3(A)(1) below sets forth the rate of exchange for the Canadian Dollar at the end of each of the five (5) most recent fiscal years ended December 31, the average rates for each year, and the range of high and low rates for each year.  Table 3(A)(2) sets forth the high and low exchange rates for each month during the previous six (6) months.  The rate of exchange means the noon buying rate as posted by the Bank of Canada.  The Tables set forth the number of Canadian Dollars required under that formula to buy one (1) US Dollar.  The average rate means the average of the exchange rates on the last day of each month during the year.

          Table No. 3(A)(1)
U.S. Dollar/Canadian Dollar

            Currency Exchange Table No. 1
U.S. Dollar/Canadian Dollar
 
 
Average
High
Low
Close
Fiscal Year Ended 12/31/10
1.03
1.08
0.99
0.99
Fiscal Year Ended 12/31/09
1.14
1.30
1.03
1.05
Fiscal Year Ended 12/31/08
1.07
1.31
0.98
1.22
Fiscal Year Ended 12/31/07
1.08
1.19
0.92
0.99
Fiscal Year Ended 12/31/06
1.13
1.17
1.10
1.17


The current rate of exchange was 0.98 on June 10, 2011.

Table No. 3(A)(2)                                
U.S. Dollar/Canadian Dollar
 
12/10
01/11
02/11
03/11
04/11
05/11
High
1.02
1.00
1.00
0,99
0.97
0.98
Low
0.99
0.99
0.97
0.97
0.95
0.95






 

 

A.  Selected Financial Data

The tables below present selected financial information.  Our financial statements are stated in Canadian Dollars and were prepared in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”).  Table 3(A)(3) presents selected financial information under Canadian GAAP and Table 3(A)(4) presents the same information assuming we had reported under United States Generally Accepted Accounting Principles (“US GAAP”) (see below). These tables should be read in conjunction with the financial statements and notes thereto and Management’s Discussion and Analysis included elsewhere in this annual report.  All dollar amounts in this report are expressed in Canadian dollars unless otherwise stated.

               Table No. 3(A)(3)
                    Selected Financial Data Canadian GAAP
                   (CDN $ in thousands, except Earnings Per Share)

 
Year
Ended
12/31/10
Year
Ended
12/31/09
Year
Ended
12/31/08
Year
Ended
12/31/07
 
Year
Ended
12/31/06
 
Revenue
$       -
$       -
$       -
$       -
$       -
Income (loss) Before Non-controlling Interest
$(3,249)
$(1,202)
$(4,237)
$(3,666)
$(3,375)
Net Income (loss)
$(3,249)
$(1,202)
$(4,237)
$(3,666)
$(3,375)
Net Income (loss) Per Share
$(0.01)
$(0.00)
$(0.01)
$(0.02)
$(0.02)
Diluted  Net Income (loss) Per Share
$(0.01)
$(0.00)
$(0.01)
$(0.02)
$(0.02)
Dividends Per Share
$0.00
$0.00
$0.00
$0.00
$0.00
Weighted  Avg. Shares O/S (‘000)
437,555
434,144
434,144
239,623
195,610
Working Capital(deficiency)
$1,683
$(298)
$165
$706
$(3,153)
Resource Properties (1)
    $      -
    $      -
$     -
$     -
$     -
Long-Term Debt
    $      -
    $      -
$     -
$     -
$     -
Shareholders’ Equity/ (deficiency)
$2,202
$3,374
$6,562
$7,579
$8,671
Capital Stock Shares  (‘000)
439,144
434,144
434,144
434,144
234,144
Total Assets
$2,588
$3,732
$6,690
$11,124
$11,587

(1)  
Resource properties comprise all costs of acquisition of, exploration for, and development of petroleum and natural gas reserves (net of government incentives) less depletion and write downs.

Table No. 3(A)(4)
             Selected Financial Data US GAAP
                   (CDN $ in thousands, except Earnings Per Share)

 
Year
Ended
12/31/10
Year
Ended
12/31/09
Year
Ended
12/31/08
Year
Ended
12/31/07
 
Year
Ended
12/31/06
 
Revenue
$     -
$     -
$     -
$     -
$     -
Income (Loss) Before Non-controlling interest
$(2,020)
$(1,300)
$(4,974)
$(4,131)
$(4,030)
Net Income (loss)
$(2,020)
$(1,300)
$(4,974)
$(4,131)
$(4,030)
Net Income (loss) Per Share
$(0.00)
$(0.00)
$(0.01)
$(0.03)
$(0.02)
Fully Diluted Net Income (loss) Per Share
$(0.00)
$(0.00)
$(0.01)
$(0.03)
$(0.02)
Dividends Per Share
$0.00
$0.00
$0.00
$0.00
$0.00
Wgt. Avg. Shares O/S (‘000)
437,555
434,144
404,144
209,623
195,610
Working Capital (deficiency)
$1,683
$(298)
$165
$706
$(3,153)
Resource Properties
    $     -
    $     -
$     -
$     -
$     -
Long-Term Debt
    $     -
    $     -
$     -
$     -
$     -
Shareholders’ Equity/(deficiency)
$2,202
$2,145
$5,432
$7,186
$8,216
Capital Stock Shares (‘000)
439,144
434,144
434,144
234,144
178,161
Total Assets
$2,588
$2,503
$10,730
$12,110
$27,030
 

 
 
6

 
B.  Risk Factors

General Business Risks

We Have a History of Operating Losses Which May Affect Our Ability to Continue Operations.

We sustained net losses for each of the fiscal years ended December 31, 2010, 2009 and 2008 of $3,248,783, $1,201,745, and  $4,237,263, respectively.  We also anticipate sustaining a loss from operations for the fiscal year ended December 31, 2011.

 Our Ability to Continue Operations as a Going Concern in the Future is Dependent on the Success of Our Investments and Our Ability to Discover Economically Recoverable Reserves
 
Our business success is dependent upon the success of our investments and our ability to indirectly or directly discover economically recoverable reserves, and to bring such reserves into profitable production, and is subject to a number of risks, including environmental risks, contractual risks, legal and political risks, fluctuations in the price of oil and gas, and other factors beyond our control.
 
The consolidated Financial Statements included herein have been prepared by management on the basis of accounting principles applicable to a “going concern”.  Management believes the “going concern” basis, which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future, is appropriate.  We have experienced significant operating losses and cash outflows from operations in the years ended December 31, 2010, 2009 and 2008, and have no producing properties.  Our ability to continue as a “going concern” is dependent on achieving profitable operations and upon obtaining additional financing.  The outcome of these matters cannot be predicted at this time.


Although We Believe We Have the Sufficient Working Capital as of June 30, 2011 to Support Our Business in 2011, We May Need Additional Funds in Order to Implement Our Intended Projects and There is No Assurance that Such Funds Will Be Available As, If, and When, Needed.

 
Funds used in operations for the fiscal years ended December 31, 2010, 2009, and 2008 were $492,465 $(440,688), and $(1,480,714), respectively.  We have been dependent upon the proceeds of equity and debt financing in addition to the disposition of assets to fund operations.  No assurances can be given that our actual cash requirements will not exceed our budget, that anticipated revenues will be realized, that, when needed, lines of credit will be available if necessary or that additional capital will be available to us.  There is no assurance that we will be able to obtain such additional funds on terms and conditions we may deem acceptable.  Failure to obtain such additional funds may materially and adversely affect our ability to acquire interests directly or indirectly in producing oil and gas and mineral properties.


 
 
7

 
We Do Not Intend to Pay Dividends In the Foreseeable Future, and thus, You Should Not Expect to Receive Dividends.

 
We have paid no dividends on our common shares since inception, and do not plan to pay dividends in the foreseeable future. See "Description of Common Shares."

The Market Price of Our Common Shares Has Been, and Will Likely Continue to Be, Volatile.

 
The market price of our common shares has fluctuated over a wide range, and it is likely that the price of our common shares will fluctuate in the future.  Further, announcements regarding acquisitions, the status of corporate collaborations, regulatory approvals or other developments by us or our competitors could have a significant impact on the market price of our common shares.

The Value and Transferability of Our Shares May Be Adversely Impacted By the Limited Trading Market For Our Shares and the Penny Stock Rules.

There is only a limited trading market for our shares on the Over the Counter Bulletin Board Exchange (“OTCBB”).  There can be no assurance that this market will be sustained, or that we will be able to satisfy any future trading criteria that may be imposed by the Financial Industry Regulatory Authority (“FINRA”).

In addition, holders of our common shares may experience substantial difficulty in selling their securities as a result of the “penny stock rules” which apply to  our common shares.  Under the penny stock rules, the Securities and Exchange Commission imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, a broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale.  Consequently, the rules may affect the ability of broker-dealers to sell our securities, and also may affect the ability of purchasers of our stock to sell their shares in the secondary market.  It may also cause fewer broker-dealers to make a market in our common shares.

The Large Number of Shares Eligible For Future Sale By Existing Shareholders May Adversely Affect the Market Price For Our Common Shares.

 
Future sales of substantial amounts of common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our common shares.  At June 10, 2011, we had 439,143,765 common shares outstanding.  . We currently have 270,307,423 shares available to be sold pursuant to Rule 144. We intend to include these common shares in a future Registration Statement to be filed with the United States Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, registering the common shares for sale.

 

 



No prediction can be made as to the effect, if any, that sales of shares of common shares or the availability of such shares for sale will have on the market prices of our common shares prevailing from time to time.  The possibility that substantial amounts of our common shares may be sold under SEC Rule 144 into the public market may adversely affect prevailing market prices for our common shares and could impair our ability to raise capital in the future through the sale of equity securities.  A total of 270,307,423 are currently able to be resold under Rule 144.

Your vote may not affect the outcome of any shareholder vote since our principal stockholder currently retains approximately 51% of our outstanding stock.

For instance, Philex Mining Corporation may be able to control the outcome of all stockholder votes, including votes concerning director elections, charter and by-law amendments and possible mergers, corporate control contests and other significant corporate transactions which may not be in the interests of all shareholders.

Foreign Laws, Rules and Environmental Regulations to Which We Are Subject May Adversely Affect Our Business Operations As Well As the Market Price For Our Stock.

 
The production of oil and gas and the extraction of minerals by companies we invest in or by ourselves is generally subject to extensive laws, rules, orders and regulations governing a wide variety of matters, including the drilling and spacing of wells, allowable rates of production, prevention of waste and pollution and protection of the environment.  In addition to the direct costs borne in complying with such regulations, operations and revenues may be impacted to the extent that certain regulations limit oil and gas and mineral production to below economic levels.  Although the particular regulations applicable in each jurisdiction in which operations are conducted vary, such regulations are generally designed to ensure that oil and gas operations are carried out in a safe and efficient manner, and to ensure that similarly-situated operators are provided with reasonable opportunities to produce their respective fair share of available crude oil, natural gas, and mineral reserves.  However, since these regulations generally apply to all oil and gas producers, we believe that these regulations should not put us at a material disadvantage to other oil, gas and mineral producers.

Operating Risks - Oil and Gas Exploration Activities

We Do Not Currently Directly Own Properties With Oil or Gas or Mineral Reserves.  Our Failure to Find or Acquire Available Reserves May Adversely Impact Our Business Operations.
 
We do not own any properties or investments  with oil, natural gas or mineral reserves.  Our future oil, natural gas, or mineral reserves, production, and therefore, cash flow and income, as well as our success are highly dependent on success in finding or acquiring recoverable reserves by ourselves or through our investments.  We cannot assure shareholders that we will be able to develop, exploit, find or acquire reserves to replace future production, if any.

Exploring For and Producing Oil and Natural Gas and Minerals Are High-Risk Activities With Many Uncertainties That Could Adversely Affect Our Business, Financial Condition or Results of Operations.
 
 
9

 
 
 
Exploration and development of oil and gas and mineral resources involve a high degree of risk, and few properties which are explored are ultimately developed into producing properties.  There is no assurance that our exploration and development activities or those of companies that we invest in will result in any discoveries of commercial bodies of oil, gas or minerals.  The long-term profitability of our operations will be, in part, directly related to the cost and success of our exploration programs or those of companies we invest in which may be affected by a number of factors.  Substantial expenditures are required to establish reserves through drilling, to develop processes to extract the resources, and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at any site chosen for extraction.  Although substantial benefits may be derived from the discovery of a major deposit of oil, gas or minerals, no assurance can be given that natural resources will be discovered in sufficient quantities to justify commercial operations or that the funds required for development can be obtained on a timely basis.

If We Or Companies We Invest In Are Unable to Continue to Identify, Explore and Develop New Properties, Our Business Operations May Be Adversely Affected.

 
We expect that to be successful in our oil and gas and mineral exploration activities, we must continually acquire or explore for and develop new oil and gas reserves to replace those, if any, being depleted by production by ourselves or by companies we invest in.  Without successful drilling or acquisition ventures, our direct and indirect oil and gas assets, mineral assets and, properties and the revenues derived there from, if any, will decline over time.  To the extent we engage in drilling activities directly or indirectly, such activities carry the risk that no commercially viable oil or gas production or mineral extraction will be obtained.  The cost of drilling, completing and operating oil and gas wells is often uncertain.  Moreover, drilling for oil and gas and minerals may be curtailed, delayed or cancelled as a result of many factors, including shortage of available working capital, title problems, weather conditions, environmental concerns, government prohibitions, shortages of or delays in delivery of equipment, as well as the financial instability of well operators, major working interest owners, and drilling and well servicing companies.  The availability of a ready market for oil and gas and minerals will depend on numerous factors beyond our control, including the demand for and supply of oil and gas and minerals, the proximity of natural gas reserves to pipelines, the capacity of such pipelines, the proximity of any smelting facilities in relation to any minerals found, fluctuations in seasonal demand, the effects of inclement weather, and government regulation.  New gas wells may be “shut-in” for lack of a market until a gas pipeline or gathering system with available capacity is extended into an area.

The Exploration and Development of Oil and Gas and Mineral Properties are Subject to Operating Hazards and Risks for Which We Will Be Uninsured.

 
Exploration for natural resources involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome.  Operations in which we expect to acquire an interest will be subject to all the hazards and risks normally incidental to exploration, development and production of resources, any of which could result in work stoppages, damage to persons or property and possible environmental damage.  These include the possibility of fires, earthquake activity, coastal erosion, explosions, blowouts, oil spills or seepage, gas leaks, discharge of toxic gas, over-pressurized formations, unusual or unexpected geological conditions and the absence of economically viable reserves.  These hazards may result in cost overruns, substantial losses, and/or exposure to substantial environmental and other liabilities.

Fluctuating Resource Prices May Adversely Impact Our Operations and Activities.                                                                                                                                                
 

 
 
10

 
The price of natural resources has traditionally been subject to wide fluctuations, particularly in recent years, and is affected by numerous factors beyond our control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods.  The effect of these factors on the price of oil and gas and minerals, and therefore, the economic viability of any of our exploration projects or those of our investments, cannot accurately be predicted.

If We Fail to Fulfill Our Obligations Under Our Purchase Option and Joint Venture Agreements, Not Only Will Our Operations Be Adversely Affected, But We May Lose Our Interest In the Property in Question.

 
We may, in the future, be unable to meet our share of costs incurred under joint venture agreements or other option or joint venture agreements to which we are, or may become a party, and we may have our interest in properties, in which we may acquire interests subject to such agreements, reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, we may be unable to finance the cost required to complete recommended programs.

It Is Possible that Our Title for the Claims in Which We Have an Interest Will Be Challenged By Third Parties.

 
Although we will attempt to ascertain the status of the title for any projects in which we have or will acquire a material interest, there is no guarantee that title to such concessions will not be challenged or impugned.  In some countries, the system for recording title to the rights to explore, develop, and mine natural resources is such that a title opinion provides only minimal comfort that the holder has title.  Also, in many countries, claims have been made and new claims are being made by aboriginal peoples that call into question the property rights granted by the governments of those countries.

Reserve Estimates for Resources That May Be Reported By Us Are Dependent On Many Assumptions that May Ultimately Turn Out to Be Inaccurate.

 
Reserve estimates are imprecise and may be expected to change as additional information becomes available.  Furthermore, estimates of reserves of natural resources, of necessity, are projections based on engineering data and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures.  Reserve engineering is a subjective process of estimating underground accumulations of oil, gas and minerals that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data of engineering and geological interpretation and judgment.  Accordingly, there can be no assurance that the information regarding reserves of natural resources, if any, set forth herein will ultimately be produced.

Any Resource Production That We May Undertake and Marketing or That of Companies That we Have Invested In May Be Adversely Affected By Factors Beyond Our Control.

 
 
The production and marketing of resources are affected by a number of competitive factors which are beyond our control and the effect of which cannot be accurately predicted.  These factors include crude oil and mineral imports, actions by foreign oil-producing nations and other mineral producers, the availability of adequate pipeline and other transportation facilities, the availability of equipment and personnel, the marketing of competitive fuels and minerals, the effect of governmental regulations, and other matters affecting the availability of a ready market such as fluctuating supply and demand.

 
11 

 


Our Operations Will Be Subject to Numerous Environmental Risks If We Are Successful In Obtaining Properties That Have Proven Resources Or If We Undertake Exploration Activities Ourselves.

 
Our resource operations and those of companies we invest in, if any will be subject to compliance with applicable federal, state, and local laws and regulations controlling the discharge of materials into the environment, or otherwise relating to the protection of the environment.  We believe that there is a trend toward stricter standards of environmental regulation which will in all probability continue.  Compliance with such laws and standards may cause substantial delays and require capital outlays in excess of those anticipated, thereby adversely affecting our earnings and competitive position in the future.

Since We May Acquire Holdings In Properties In Less Developed Countries and Have Indirectly Acquired Holdings in Properties In Less Developed Countries, Our Operations May Be Adversely Affected By Risks Associated With the Political, Economic and Social Climate of the Countries In Which We Will Operate or Have Indirect Holdings .

 
Since our direct and indirect exploration and development activities will occur primarily in countries other than Canada and the United States, we may be affected by possible political or economic instability in those countries.  The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates, and high rates of inflation.  Changes in resource development or investment policies or shifts in political attitude in these countries may adversely affect our business. Operations may be effected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The effect of these factors cannot be accurately predicted.  Exploration and production activities in areas outside of the United States and Canada are also subject to the risks inherent in foreign operations, including loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection and other political risks.

We Face Competition From Larger and Better Financed Companies Seeking to Acquire Properties In Our Sphere of Operation.

 
The resource industry is highly competitive, and our business could be harmed by competition from other companies.  Because resources are fungible commodities, the principal form of competition is price competition.  We will strive to maintain the lowest exploration and production costs possible to maximize profits and insure that any companies in which we invest do the same.  In addition, as an independent resource company, we frequently compete for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with financial and other resources substantially larger than we possess.  Many of our competitors have established strategic long term positions and maintain strong governmental relationships in countries in which we  may seek entry.

We  Currently Do Not Maintain Insurance Against Potential Losses and Unexpected Liabilities.

 
As previously stated herein, exploration for and production of resources can be hazardous, involving natural disasters and other unforeseen occurrences such as “blowouts”, “cratering”, fires and loss of well control, which can damage or destroy wells or production facilities, injure or kill people, and damage property and the environment.  Although we intend to maintain insurance against many potential losses or liabilities arising from our operations in accordance with customary industry practices and in amounts that we believe to be prudent, we do not presently have such insurance coverage; and, even if we were to obtain such insurance coverage, there is no assurance that it will be adequate to protect against all operational risks, or subject to defenses or exclusions against insurance coverage.
 
 
12

 
We Are Dependent On Retaining Our Senior Management and Key Personnel.

To a large extent, we depend on the services of our senior management personnel.  These individuals have critical and unique knowledge of the areas of operations that facilitate the evaluation and acquisition of potential properties in our intended sphere of operations.  The loss of these experienced personnel, if that were to occur, could have a material adverse impact on our ability to compete in this region of the world.  We do not maintain any insurance against the loss of any management personnel.

Our Directors May Face Conflicts of Interest In Connection With Our Participation In Certain Ventures Because They Are Directors of Other Resource Companies.

Some of our directors participate in other resource companies and to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  It is possible that due to our directors’ conflicting interests, we may be precluded from participating in certain projects that we might otherwise have participated in or we may obtain less favorable terms on certain projects than we might have obtained if our directors were not also the directors of other participating mineral resource companies.  In their effort to balance their conflicting interests, our directors may approve terms that are equally favorable to all of their companies as opposed to negotiating terms that may be more favorable to us, but adverse to their other companies.  Additionally, it is possible that we may not be afforded certain opportunities to participate in particular projects because such projects are assigned to our directors’ other companies for which the directors may deem the projects to have a greater benefit.

Our security holders may not be able to enforce U.S. civil liabilities claims thereby limiting their ability to collect on claims against us.

We are incorporated in Canada and the majority of our directors and officers are nationals and/or residents of countries other than the United States.  All or a substantial portion of the assets of these persons are located outside the United States.  As a result, it may be difficult for you to effect service of process within the United States upon these persons.  In addition, there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in these countries against us or such persons predicated upon the securities laws of the United States or any state thereof.

ITEM  4.  INFORMATION ON THE COMPANY

A.  Our Corporate History and Development.

 
 
13

 
We were incorporated on February 8, 1982 in British Columbia, Canada under the name Tylox Corporation.  Our continuance under the Canada Business Corporation Act resulted in, among other things, our name change, first in December 1991, to Tracer Petroleum Corporation, followed in July 2003, to Forum Energy Corporation.  On May 18, 2005, we changed our name to FEC Resources, Inc.  We have no subsidiaries.  Prior to May 18, 2005, we owned 66 2/3% of Forum Exploration, Inc. (“FEI”) a Philippine-based oil and gas company with rights to develop certain concession areas as more fully described later in this document.  On May 18, 2005, we sold our interest in FEI to Forum Energy Plc (“FEP”) for shares of FEP and cash as more fully described later in this document.  We currently hold 25.63% of the issued and outstanding capital of FEP, and in addition we hold a 35% interest in Metalore Mining Corporation (“MMC”), a Philippine-based company that holds the rights to a 64 hectare license  which has been abandoned.  We also own a 40% interest in MPSA 148, a gold exploration project, through Lascogon Mining Corporation in the Philippines.

We are engaged in the acquisition, exploration, and, when warranted, development of natural resource and mineral properties.  Although we currently are not the operator with respect to interests we hold, we are actively seeking projects where our involvement would be more than management and advisory.  We are currently focused on the development of one (1) mineral license in the Philippines.  The license is held by Lascogon Mining Corporation (“Lascogon Mining”) which was acquired from Philex Gold Philippines Inc., a subsidiary of Philex Mining Corporation, our largest shareholder.

Our head office is located at 46 Royal Ridge Rise NW, Calgary, Alberta T3G 4V2.  Our phone number is (403) 290-1676.

B.  Business Overview

At this time, we do not have any significant revenue-generating assets, and as a result, rely upon equity and/or debt financing to fund ongoing operations.  We have experienced large operating losses and cash outflows and, as such, our ability to continue as a “going concern” is dependant upon achieving profitable operations and upon obtaining additional financing.  The outcome of these matters cannot be predicted at this time.  MMC had begun producing nominal quantities of iron ore which were expected to provide cash flow to us, but operations were shut down in 2006 for environmental and political reasons.  After  elections were completed, we filed for a mineral production and sharing agreement (“MPSA”) covering the current and surrounding area which we believed would be granted and would have allowed production to resume.  To date the MPSA has not been granted and the operations of MMC are still dormant and have been abandoned.
 

Recent Developments

In April 2009, we signed a loan agreement with our parent company,  Philex Mining Corporation.  The US$273,000  loan bears interest at the Libor rate  plus three percent and is repayable by 31 December 2010, though extendable upon agreement.  Interest is payable every six months.

In April 2010, we completed a private placement with Philex Mining Corporation of 5,000,000 shares at US$0.50 per share.

On December 31, 2010, we determined that the results from the exploration program on MPSA 148 would no longer support its carrying value and therefore we recorded an impairment of the entire investment.

The Philippines

 
14

 
We are currently pursuing exploration and development opportunities for oil, natural gas, iron ore, gold, and coal in the Philippines through various companies that we hold interests in.  FEP, in which we own a 25.63% equity interest. The principal asset of FEP is the oil and gas rights over a 8,800 square-kilometer block located in the South China Sea. In addition FEP holds interests in various other concessions located in the Philippines..

In addition, we are involved in the exploration for gold through our interest in Lascogon Mining Corporation.

Forum Energy Plc.

We currently own 25.63% of FEP.

FEP was established through the consolidation in 2005 of the Philippine assets of FEC Resources, Inc. of Canada, and Sterling Energy Plc of the UK, into one corporate entity.  The current holdings of FEP are based mainly in the Philippines and include:

·  
70% interest in Service Contract 72 (SC 72), an offshore license which contains the Sampaguita Gas Field as well as several additional oil and gas leads;
 


 
·  
66.7% interest in SC 40 (Cebu), a service contract which contains the onshore Libertad Gas Field and Maya discovery and several other prospects;  and
 
 
·  
100% interest in Forum Energy Philippines Corporation (formerly known as Basic Petroleum and Minerals Inc.), a company with varying interests in nine (9) offshore fields west of the Philippines including a 2.27% interest in the producing Galoc Field.
 


SC 72 (Reed Bank) formerly GSEC101

The SC72 concession (Reed Bank), is located in the South China Sea west of Palawan Island.

The license was awarded to Sterling Energy Plc in June 2002. Exploration in the area began in 1970 and in 1976 gas was discovered following the drilling of a well.  In total, four (4) wells have been drilled to date, all located at the south west end of the license.  Two (2) of the wells tested gas at rates of 3.6 mmcf/d and 3.2 mmcf/d.
 
In 2003, Sterling reprocessed 250 km of 2D seismic and completed a feasibility study on a GTL  (gas-to-liquid) development scenario for the gas field.  The seismic work and the GTL study fulfilled the initial work commitments on the concession and Sterling was granted a twelve (12) month extension in June 2004.  In 2005, Forum acquired new 250 square kilometers of new 3D seismic data over the license area fulfilling its work commitments required under the twelve (12) month extension.
 
In September 2006, results of the interpretation of the 3D seismic program at the Sampaguita gas discovery indicated a significant gas accumulation.
 

In 2008,  FEP finalized farm-out of a 30% interest in the license to a local partner Monte Oro Resources & Energy, Inc. (Monte Oro) in which FEP benefited from an immediate cash payment of US$1.7million, securing Monte Oro’s involvement and thereby qualifying the Joint Venture for the Filipino Participation Incentive Allowance (FPIA) which entitles the Company to 7.5% of gross revenues, prior to sharing revenues with the government
On 15 February 2010, SC72 was awarded to Forum Energy in respect
On 15 February 2010, the full service contract over the area was granted to  Forum.

 
15

 
During the first quarter of 2011, FEP completed  550 Km2 of 3D seismic and 2,200 line-Km of high resolution 2D seismic over the block.   The seismic data is currently being analyzed.

SC 40 (Cebu)

 
The SC 40 (Cebu) contract area is located in the Visayan Basin in the central part of the Philippines archipelago.  The license area covers the northern area of Cebu Island and the adjacent offshore areas in the Central Tañon Strait and Visayan Sea.  Since 1994, a total of fifteen (15) wells have been drilled offshore in the Visayan Basin, thirteen (13) of these on the acreage covered by SC 40 (Cebu).  Forum Pacific International (“FPI”) acquired an interest in GSEC 69, covering the acreage, in 1994.  The concession was subsequently converted to a service contract, SC 40 (Cebu) in 1995.
 
 
In September 1997, FPI transferred its interest in SC 40 (Cebu) to Forum Energy International (“FEI”), at that time a wholly owned subsidiary of FPI.  SC 40 (Cebu) is now held 100% by FEI.  The original term of the service contract was for seven (7) years from 1995.  In September 2003, FEI extended the contract for an additional three (3) years, with the following work program commitments:
 


 
·  
Drill one (1) well and acquire a minimum of 250 kilometers of seismic in year 8;
 
 
·  
Drill two (2) wells in year 9; and
 
 
·  
Drill two (2) wells in year 10.
 


 
The requirement to acquire the seismic data was deferred by one (1) year by the Philippines Department of Energy (“DOE”) to not later than the end of September 2005, the end of year 9.  FEI has the option to declare a field within the contract area commercial, and thus, relinquish 87.5% of the license area and convert the license into a development contract for a minimum twenty-five (25) year period.  There are also two (2) production bonuses to pay to the DOE as follows:
 


 
·  
US$1,000,000 upon production reaching 25,000 bopd;
 
 
·  
US$2,000,000 upon production reaching 50,000 bopd; and
 
 
·  
US$3,000,000 upon production reaching 75,000 bopd.
 


 
In any year, FEI can recover all recoverable costs from the gross income received under SC 40 (Cebu), provided that the amount does not exceed 70% of total gross income in any year.  Operating expenses exceeding 70% of gross income, including years with no income, can be recovered in subsequent years.
 
 
In years where operating expenses are below 70%, it is possible to allocate the difference between the actual operating expenses and 70% against the recoverable costs.  FEI is required to remit to the DOE an amount equal to 60% of the remaining gross income less FPIA of 7.5%.  The remaining net income is subject to Philippine income tax, which is to be paid by the DOE out of its receipt of funds as detailed above.
 


 
SC 40 contains a number of prospects and leads including Libertad and Maya.  Other prospects and leads within the SC 40 (Cebu) acreage include West Malapascua, South Guintacan, West Toledo, Agojo and North Bantayan.
 

 
16

 

2D Seismic Survey

FEP completed an offshore 2D seismic acquisition program in the Tañon Straits, west of Cebu Island, Philippines in June 2005.  The survey acquired 310 kilometers of new 2D data in license Service Contract 40 (“SC40”), where FEP holds a 66.7% interest.  Independent consultants, PGS Reservoir Ltd., estimate that structures already identified within the survey area could have 350 millions of barrels of oil equivalent.

The survey was conducted to improve the mapping of the central Tañon and Jibitnil Island prospects.  The new lines acquired between Jibitnil and Cebu Islands will help define more precisely the Jibitnil Island structure, which is cut by several faults.  In addition to seismic data, the survey included the acquisition of marine gravity and magnetic data.

Libertad Gas-To-Electricity (“GTE”) Project

The Libertad Gas Field is situated in northern Cebu, north of Cebu City.  The field was discovered in the late 1950's, but was not developed.  In 1993, a testing program was carried out on two (2) wells and during 1994 and 1995, five (5) additional wells were drilled on Libertad.  One of these wells tested gas and subsequently was completed as a gas producer.
 
In 2004, Forum Energy carried out a feasibility study to determine the most commercially viable option for the development of the Libertad Gas Field.  The results of this work recommended a development plan using three (3) GTE generators, with a maximum of 3.0 MW.
 

During December 2005, the DOE formally granted a Declaration of Commerciality for the development of the onshore Libertad Gas Field within SC40.  This represents the first Declaration of Commerciality within the Philippines since Shell’s Malampaya offshore gas field development, which came onstream in 2001.  The Declaration of Commerciality also allowed the retention of the portion of SC40 which contains all the currently identified prospects and discoveries.

The Libertad Gas Field will be developed as a GTE project and is expected to generate 1.7 mW of power. The field is progressing towards development, with commercial negotiation of the electricity contract underway.  Once completed and equipment requirements are known, full scale development will commence.
 
 
During 2009 the Department of Energy approved the Gas Sale & Purchase Agreement in respect of the development of the Libertad Gas Field, thus enabling DESCO to proceed with plans for power generation, and production is anticipated by the third quarter of 2011.


Maya

The Maya area is located on the north eastern tip of Cebu Island.  In October 2000, exploration well MST 11A was drilled.
 
Although the well encountered oil shows, it was terminated due to mechanical problems.  A further three (3) wells were drilled in 2003, one of which, Forum 2-X (“F2X”), encountered multiple oil and gas bearing zones, but due to mechanical problems was suspended without proper testing.
 

FEP is considering further options in respect to Maya.


 
17

 
Coal Operating Contracts (“COCs”)

FEI, which is owned by FEP, was awarded two (2) coal operating contracts on Cebu Island by the DOE on February 23, 2005, located at Balamban-Naga (Central Cebu) and Dalaguete (South Cebu).

During 2008 and 2009 the COCs were divested for a combined gross consideration of US$4.5m in two independent transactions

Basic Petroleum & Minerals Inc. (“BPMI”)

In May 2005, FEP entered into an agreement with Philippines-based Basic Consolidated Inc. (“BCI”), whereby the parties agreed to work under an exclusivity period towards finalizing the purchase by FEP of BCI’s petroleum interests in the Philippines, held through a wholly-owned subsidiary, BPMI. This culminated in February 2006 with the signing of a Share Purchase Agreement whereby FEP agreed to acquire 100% of BPMI in exchange for 933,759 shares of FEP and deferred consideration.

The acquisition was approved by BCI shareholders at the company’s Annual General Meeting on March 29, 2006.

BPMI assets included interests in nine (9) Philippine offshore fields, specifically the Galoc Field (2.27% participating interest) which commenced production in Q4 2008 and is currently in Galoc is now in full production with 2.5 million barrels gross produced in 2009, and 2.69 million barrels gross in 2010. FEP received net revenues of US$0.8 million in 2009 and 2010.

FEP also had nominal production from the SC6/14 Nido/Matinloc fields, which are contained within this block.

Previously, FEP also reported that its interest in the West Linepacan oil discovery was farmed-out for a 2.275% interest carried through development.

On May 10 2011, Forum announced that it had come to a settlement with Basic Energy Corporation ("BEC") in relation to certain of its service contracts in the NW Palawan area, offshore Philippines.

In the course of an arbitration process, on 10 May 2011, BEC and Forum signed a settlement agreement (the "Agreement") in relation to disputes relating to BEC's share in the historical cost recoveries arising from Service Contract 14 A and B (Nido-Matinloc Blocks), Service Contract 14-C (Galoc Block), and other blocks of Service Contract 14 and Service Contract 6, pursuant to the Sale and Purchase Agreement executed by BEC and Forum on 3 April 2006 (the "SPA").

If the terms and conditions of the Agreement are met, Forum will make a cash payment to BEC of US$650,000, and cause the conveyance of (i) 50% of Forum Energy Philippines Corporation's (a wholly owned subsidiary of FEP) ("FEPC") participating interests in the foregoing service contracts, and (ii) 50% of the related recoverable costs, subject to the approval of the Department of Energy.

 
18

 
Upon fulfillment of certain pre-conditions, the parties will submit the Agreement to an arbitration tribunal for the rendition of a final consent award and accordingly FEPC's minority participating interests in its producing fields will be reduced, and consequently Forum 's group revenues and its gross profits will be reduced accordingly, as follows:

·    Galoc (SC14C-1): participating interest will fall by 50% to 1.137875%

.  Galoc produced 2.69 million barrels in 2010 (gross) with an estimated 1.76 million barrels expected to be produced in 2011 (gross)

·    Nido (SC14A): participating interest will fall by 50% to 4.234%. Nido produced 86,626 barrels in 2010 (gross) with an estimated 65,000 barrels expected to be produced in 2011 (gross)  

·    Matinloc (SC14B) and North Matinloc (SC14B-1): participating interests will fall by 50% to 6.203% and 9.7315%, respectively.  Matinloc and North Matinloc had a combined production of 88,237 barrels in 2010 (gross) with an estimated 91,680 barrels expected to be produced in 2011 (gross).


If the terms and conditions of the Agreement are met:

·   Forum will no longer be liable to pay potential additional consideration of up to US$ 9.03 million on the acquisition of FEPC (formerly Basic Petroleum & Minerals Inc), as was disclosed in the audited results for the year ended 31 December 2010, as announced on 8 March 2011; and

·           the Directors believe that no further liabilities in respect of BEC's arbitration claims and other issues arising from the SPA will exist in relation to the service contracts included in the Agreement.


Metalore Mining Corp.

MMC commenced preliminary mining operations at the beginning of October 2005, with iron ore extraction mainly being recovered as strewn boulders and debris recovered from routing of the mine access roads leading to the main iron ore body.  As of March, 2006, Metalore had successfully completed and shipped its first iron ore contract.  Difficulties were encountered prior to this with overburdens of pyrites, where iron ore had been anticipated, and with environmental compliance.
 
 
Mining operations were suspended in September 2006 because of problems caused by six (6) typhoons which hit the area in a three (3) month period and due to intervention by the local government of the Province of Bulacan who are in dispute with the central government (DENR) about who has jurisdiction over the mining operations.
 

 
 
19

 
Metalore also decided to suspend mining operations under the Small Scale Mining Permits because of the limitations on equipment, namely the maximum of two (2) heavy excavators/bulldozers per 20 hectares.
Metalore has filed an application for an Exploration Permit over a total of 841 hectares which includes the small scale mining areas in which we were previously operating.  Metalore management  believed this would be approved after the May 2007 political elections and an MPSA would be granted, which is the relevant permit for large scale mining.  To date there has been no further developments and Metalore operations continue to be abandoned.

MPSA148 (Philex Gold Joint Venture)

The surface investigation and limited diamond drilling that started in mid-2005 have identified gold-bearing jasperoid horizons in two (2) prospects, Lascogon and Danao, Philippines.

Starting in July 2006, some 3,000 meters of reverse circulation (RC) drilling over a 30 hectare (approx. 75 acres) area was done covering four (4) prospects.  To date, we have spent in excess of $1,000,000 evaluating the property.  Most of the effort has focused on the southern portion of the holding and has encountered numerous positive shows of gold and copper, but not in sufficient quantities to warrant entering commercial production.

In 2007, further trenching, drilling, sampling and assays were conducted  on MPSA 148. These were done initially on the Lascogan and Danua areas, then later, surveying, drilling and sampling on the Nabago prospective area.



Exploration during fiscal 2009 on the Lascogon Project was limited to trenching activities as recommended by project consultant IRES to provide additional basis for resource estimation. Limited work was completed on the property during fiscal 2010.

We recently received a technical report in respect of the Lascogon Project prepared by Mr. Dexter S. Ferriera (a senior geostatistician and mining engineer at Independent Resource Estimation or IRES) in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects. We evaluated the technical report and determined that the work completed on the Lascogon Project to date did not determine an economically viable gold reserve. Accordingly, we have fully written down our investment in Lascogon.

We still have unfunded cash calls which remain outstanding and to date, our stake in Lascogon has not yet been diluted by PGPI and this still remains an open item.

C.  Organizational Structure

We have no subsidiaries.

ITEM  4A.  UNRESOLVED STAFF COMMENTS

N/A
 
20

 
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

We have experienced significant operating losses and fund outflows from operations over the last few years, and as a result, our ability to continue as a “going concern” is dependent on achieving profitable operations and/or upon obtaining additional financing.

Our audited financial statements were prepared in accordance with Canadian GAAP, which are  different from US GAAP (refer to the Auditors’ Report dated April 28, 2011).

The Company is exposed to foreign currency fluctuations for transactions denominated in U.S. dollars; however this risk is partially mitigated as the majority of the Company’s cash is kept in U.S. dollars. As at December 31, 2010, the Company held $2,043,652 (US$2,054,748) (2009 - $36,524 (US$34,752)) of cash denominated in U.S. dollars subject to exchange rate fluctuations between the Canadian dollars and the U.S. dollars.

The following discussion and analysis of financial results should be read in conjunction with our Audited Financial Statements for the year ended December 31, 2010, together with the notes related thereto.  The discussion contains forward-looking statements that involve risks and uncertainties.  Such information, although considered reasonable by our management at the time of preparation, may prove to be inaccurate and actual results may differ materially from those anticipated in the statements made.

Fiscal Year Ended December 31, 2010 versus Fiscal Year Ended December 31, 2009 (in 000’s)

We hold 8,550,200 shares (25.63%) of the capital of Forum Energy, an AIM listed company which has a participating interest in 11 service contracts in the Philippines, three of which are in  production, one of which is in the development stage and seven of which are in the exploration and appraisal stage. Forum Energy and ourselves are both subsidiaries of Philex Petroleum Corporation and are therefore affiliates of each other. We advise that: (i) the sole nature of our oil and gas activities is as a holder of 25.63% of the shares of Forum Energy; and (ii) outside of information publicly made available by Forum Energy, we are not privy to information of the status of Forum Energy’s oil and gas activities on any of its projects

Forum Energy’s principal asset is the recently converted Service Contract 72 (“SC72”) (previously referred to as GSEC101), a petroleum license located offshore West of Palawan Island, Philippines. Forum Energy has completed a work program for the first sub-phase of SC72. The work program was designed to provide a more comprehensive valuation of the contract area and identify potential sites for appraisal wells.  The work program included 3D seismic work over an area of up to 550 km2 over and around the Sampaguita gas discovery, and 2,200 km of high resolution 2D over existing leads within the 8,800 km2 contract area. The seismic data is now under technical analysis. Forum Energy’s share of the first sub-phase work program is estimated to cost up to approximately US $7.4 million, and will be funded
through a US $10 million facility agreement with Forum Energy’s principal shareholder, Philex Mining
Corporation (“Philex Mining”).

Lascogon Mining Corporation (“Lascogon”)
We  hold a 40% interest in Lascogon, which is a party to Mineral Production Sharing Agreement No. 148 with the Government of the Philippines (“MPSA 148”) which covers an area of 2,306 hectares (the “Lascogon Project”).  The Lascogon Project has not been a core project of either us or our joint venture partner and the operator of the Lascogon Project, Philex Gold Philippines Inc. (“PGPI”), an affiliate of the ours, and therefore very little activity was undertaken on the project from December 31, 2009 to December 31, 2010.

 
21

 
Exploration during fiscal 2009 on the Lascogon Project was limited to trenching activities as recommended by project consultant IRES to provide additional basis for resource estimation. Limited work was completed on the property during fiscal 2010. We  recently received a technical report in respect of the Lascogon Project prepared by Mr. Dexter S. Ferriera (a senior geostatistician and mining engineer at Independent Resource Estimation or IRES) in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects. Our board of directors  evaluated the technical report and determined that the work completed on the Lascogon Project to date did not determine an economically viable gold reserve. Accordingly, we have fully written down our investment in Lascogon.

We still have unfunded cash calls which remain outstanding and to date, our stake in Lascogon has not yet been diluted by PGPI and this still remains an open item.

Metalore Mining Corporation (“Metalore”)

We continue to hold shares of the project joint venture company, MMC, but we have effectively abandoned the property that was previously held by the joint venture company.

Fiscal Year Ended December 31, 2010 versus Fiscal Year Ended December 31, 2009 (in 000’s)

Our consolidated accounts show a loss for the year ended December 31, 2010 of $3,248 or $(0.01) per
share, versus a loss of $1,202  or $Nil per share for the year ended December 31, 2009. General and Administration expense were $527 for the year ended December 31, 2010 versus $456 for the same period in 2009. We recorded amortization of $1.5 for the year ended December 31, 2010 versus $2.2 for the same period in 2009. Interest expense for the year ended December 31, 2010 was $11.3 versus 8.0 for the same period in the previous year. The difference was because of the interest on the outstanding advance from Philex Mining. Overall expenses were similar to those experienced in the previous year. For the year ended December 31, 2010 foreign exchange loss was $59.8 versus a gain of $2.3 for the year ended December 31, 2009.

Equity in loss of investments in Lascogon, Metalore and Forum Energy was $56 for the year ended
December 31, 2010 versus $1,046 for the previous year as under the equity method of accounting the
Corporation is required to report its share of net income or net loss in its statement of operations and reduce or increase its investment by the same amount. Our share of Forum Energy’s loss was a large
part of the equity in loss of investments however was significantly reduced for the year ended December 31, 2010 due to revenues that were earned by Forum Energy that offset a large part of their expenses.

No shares of Forum Energy were sold to fund operations during the year.

Interest income was $2.2 for the year ended December 31, 2010 versus $0.18 for the previous year. The
difference was a result of the interest earned on the higher cash balance in 2010.

Balance Sheet
Our current assets were $2,070 at December 31, 2010 versus $60 for the year ended December 31, 2009. The difference is mainly a result of the higher cash balance on December 31, 2010. Our assets reflect the value of Forum Energy and Lascogon on an equity basis.

Fiscal Year Ended December 31, 2009 versus Fiscal Year Ended December 31, 2008 (in 000’s)

We  hold 8,550,200 shares or 25.84% of the capital of Forum Energy PLC (FEP).

 
22

 
In 2008 a majority stake in FEP (through holdings in FEC and directly) was acquired by Philex Mining Corporation.

FEP’s main asset is the recently converted Service Contract (SC72) previously referred to as GSEC101, an offshore gas asset located in the South China Sea.

Exploration activities continued on our MPSA 148 holdings in the Philippines in which we hold a 40% interest. The work program will result in a NI43-101 compliant technical report which we believe will add value to this asset. Further work is however required before this report is finalized and this is expected to be concluded within 2010.

The consolidated accounts show a loss for the year ended December 31, 2009 of $1,202 or $(0.00) per share, versus $4,237 for the previous year.

General and Administration expense were $456 for the year ended December 31, 2009 versus $608 for the same period in 2008.   We recorded amortization of $2 for the year versus $2 for the same period in 2008.  Interest expense for the year ended December 31, 2009 was $8 versus Nil for the previous year.  The difference was because of the interest on the outstanding advance from Philex Mining Corporation.  Overall expenses were lower due to reduced general and administrative expenditures for the year ended December 31, 2009.  For the year ended December 31, 2009 foreign exchange gain was $2 versus of $55 for the year ended December 31, 2008.

Equity in loss of investments in Lascogon, Metalore, and FEP was $1,046 for the year ended December 31, 2009 versus $1,493 for the same period in the previous year as under the equity method of accounting we are required to report its share of net income or net loss in its statement of operations and reduce or increase our investment by the same amount.  The Company’s share of FEP’s loss was a large part of the equity in loss of investments.   Gain on dilution in FEP was $307 versus a loss of $239 for the year ended December 31, 2008.   Part of the gain on dilution was due to the allocation of part of the foreign exchange translation of FEP from accumulated other comprehensive income.

No shares of FEP were sold to fund operations during the year.

Interest income was $0.2 for the year ended December 31, 2009 versus 15 for the previous year.  The difference was a result of the interest earned on the higher cash balance in 2008.

Write down of investments was Nil for the year ended December 31, 2009 versus $1,964 for the year ended December 31, 2008 as in 2008 we wrote down its investment in FEP to fair value on December 31, 2008.

Our current assets were $60 at December 31, 2009 versus $293 for the year ended December 31, 2008. The difference is mainly a result of the higher cash balance on December 31, 2008.  Our assets of reflect the value of FEP and Lascogon on an equity basis.

Liquidity and Capital Resources (in ‘000)

Our working capital position at December 31, 2010 was $1,683 versus a working capital deficit of $298 at
December 31, 2009 and shareholders’ equity was $2,202 at December 31, 2010 (December 31, 2009 -
$3,374).

 
23

 
On April 27, 2009 we reached an agreement with Philex Mining whereby our anticipated 2009 operating budget would be covered by way of a loan from Philex Mining. Interest on the loan is at Libor plus 3%. The loan was still outstanding on December 31, 2010.

On January 7, 2010 we  raised US$2.5 million through a private placement to Philex Mining. The
private placement was for a total of 5 million shares at US$0.50 per share. The shares were issued on April 26, 2010.

If necessary, we are able to sell our Forum Energy shares to meet our working capital needs.

Cash used in operating activities for the year ended December 31, 2010 was $492 versus $441 for the same period in 2009 mainly as a result of the differences described in the results of operations above.

Cash used in investing activities was $Nil for the year ended December 31, 2010 versus $1.9 for the
previous year. The difference was not material.

Cash provided by financing activities for the year ended December 31, 2010 was $2,577 versus $295 for the previous year.

On January 7, 2010 we  received proceeds of US$2.5 million for a private placement of 5,000,000 shares at US$0.50 per share.


Capital Resources

In order to fully earn a 40% interest in the joint venture with PGPI on the Lascogon Project, we were required to fund a total of US$1 million of the work program by October, 2006 which was completed.
To maintain our 40% interest, we are required to pay for 40% of the ongoing work program or our position could be diluted. At December 31, 2010 we would have had to pay US$985 (December 31, 2009 - US$957) and have not contributed any funds to the 2010 work program. In an attempt to conserve cash resources, we are in discussions on ways to continue to hold our interest without being diluted however this matter has not been resolved at this time.

We own 35% of Metalore, 40% of Lascogon and 25.63% of Forum Energy. All but Forum Energy require us to fund our share of any work programs in order to maintain our current equity holdings in each company. If Forum Energy is required to raise additional funds through equity issuances then we would have to purchase our proportionate share of these equity issuances to maintain our current equity position.

Should we be unable to meet our share of the work programs then our holdings would be diluted down accordingly.  In 2007, we wrote off our investment in Metalore and in 2010, we wrote off our investment in Lascogon.

We  will need to continue to raise funds through either debt, equity or the sale of assets in order to increase our operations until such time as we can find economically produce able reserves.
We don’t anticipate that we will require any additional funds for working capital for the fiscal year ended December 31, 2011, as we completed a private placement of 5,000,000 shares at $0.50 per share in January 2010 which is sufficient to cover operating costs for the foreseeable future.

Off-Balance Sheet Arrangements

 
 
24

 
We have no off-balance sheet arrangements.

Contractual Obligations

We have no employment contracts with any officers, directors, or consultants.

We may still need to raise additional funds if the results of our exploration programs demonstrate that either further exploration or development of the properties we invest in is warranted.  No assurance can be given such financing will be available to us when required, or on commercially viable terms.  Currently, in order to raise capital, we have undertaken private placements and loans however we may also be forced to sell our shares of FEP.  See “RISK FACTORS.”

The following table provides information, as of the latest fiscal year, with respect to our known contractual obligations, including amounts, aggregated by contractual obligation.

   
Payments Due By Period
Contractual Obligations
Total
< 1 year
1-3 years
3-5 years
> 5 years
           
Long-Term Debt Obligations
-
-
-
-
-
Capital (Finance) Lease Obligations
-
-
-
-
-
Operating Lease Obligations
-
-
-
-
-
Purchase Obligations
-
-
-
-
-
Other Long-Term Liabilities
-
-
-
-
-
           
Total
-
-
-
-
-


Critical Accounting Policies

Our Financial Statements have been prepared in accordance with Canadian GAAP.  A summary of significant accounting policies is presented in Note 2 to our Financial Statements.  Most accounting policies are mandated under Canadian GAAP, and therefore, do not have the ability to select alternatives.  However, in accounting for oil and gas activities, companies have a choice between two acceptable accounting policies: the full-cost and the successful efforts method of accounting.


Critical Accounting Estimates

The preparation of financial statements in accordance with Canadian GAAP requires management to make certain judgments and estimates.  Changes in these judgments and estimates could have a material impact on our reported financial result and financial condition.  The required process of estimating reserves of natural resources is critical to several accounting estimates that appear in our financial disclosures.  It requires significant judgments based on available geological, geophysical, engineering and economic data.  These estimates may change substantially as data from ongoing development and production activities becomes available, and as economic conditions impacting oil and natural gas prices, operating costs, and royalty burdens change.  Reserve estimates impact net income through depletion and the application of an impairment test.  Revisions or changes in the reserve estimates can have either a positive or negative impact on net income.

 
25

 
Recent Canadian Accounting Related Pronouncements

Adoption of New Accounting Standards
In January 2009, the CICA issued Sections 1582 – Business Combinations, 1601 – Consolidated Financial Statements and 1602 – Non-controlling Interests which replaces CICA Sections 1581 – Business Combinations and 1600 – Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (“IFRS”). Section 1582 is applicable for the Company’s business combinations with acquisition dates on or after January 1, 2011. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company’s interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011.

In 2006, AcSB published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB announced that 2011 is the changeover date for publicly accountable companies to use IFRS, replacing Canadian GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2010 will require the restatement for
comparative purposes of amounts reported by the Company for the year ended December 31, 2010. Adoption of IFRS as Canadian GAAP will require the Company to make certain accounting policy choices and could materially impact our reported financial position and

Recent United States Accounting Related Pronouncements

Recent Accounting Pronouncements

Accounting Pronouncements Adopted

In April 2009, the FASB issued guidance within ASC Topic 805, “Business Combinations.” ASC Topic 805 amends the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this guidance did not have a material impact on our consolidated financial statements. During February 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-09, “Subsequent Events (Topic 855)”. The amended guidance in ASU 2010-09 states that an entity that is an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued, but is not required to disclose the date through which subsequent events have been evaluated. The adoption of the provisions of this amendment did not have a material impact on our consolidated financial statements.

During February 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-09, “Subsequent Events (Topic 855)”. The amended guidance in ASU 2010-09 states that an entity that is an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued, but is not required to disclose the date through which subsequent events have been evaluated. The adoption of the provisions of this amendment did not have a material impact on our consolidated financial statements.

 
26

 
New Accounting Pronouncements Not Yet Adopted

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable
is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its
consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact
the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.



ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
 

A.  Directors and Senior Management

The following table lists, as of the date of this report, the names, ages, functions and areas of experience in our operations of all our directors and Senior Management.  Each Director will serve until the next Annual General Meeting or until his/her successor is duly elected, unless his/her office is vacated in accordance with our charter documents.  Our executive officers serve at the pleasure of the Board of Directors.

Name
Age
Position/Area of Experience/Function
Jose Ernesto Villaluna (2) (3)
 
Andrew Mullins (1)
Edward Tortorici (2)
Carlo Pablo (1) (3)
Barry Stansfield
Riaz Sumar (3)
Renato Migrino (1) (2)
 
71
 
30
71
48
61
41
61
Director since February 2009, President and CEO since August 2009.
Executive Director since August 2009
Director since June 1, 2010
Director since June 1, 2010
Director since April 2003, Chairman effective May 2005
Director, CFO, Secretary since May, 2005
Director, Treasurer since August 2009
(1)  
Member of Audit Committee in 2010.
 
(2)  
Member of Compensation Committee in 2010
 
 
 
27

 
 
(3)  
Member of the Corporate Governance Committee in 2010
 
Resignations

 Mr. Riaz Sumar resigned as Director, Chief Financial Officer, Secretary, and Treasurer of the Company on October 2, 2007.  On February 1, 2008 Mr. Sumar was re-appointed as Chief Financial Officer,  Secretary, Treasurer and a Director.  In August 2009 Mr. Renato Migrino took over as Treasurer.

Dr. Walter Brown was first appointed to our Board in May 2005.  Dr. Brown resigned in February 2009 and Mr. Jose Ernesto Villaluna joined our Board at that time.

At our Annual General Meeting in August 2009 Mr. Renato Migrino, Mr. Andrew Mullins, and Mr. Franklin Cu joined the Board while Mr. Larry Youell did not stand for reelection.

On June 1, 2010 Mr. Edward Tortorici and Mr. Carlo Pablo joined the Board and on June 9, 2010 Mr. Franklin Cu resigned.

Information About our Directors and Officers

Mr. Jose Ernesto Villaluna, President, Chief Executive Officer and Director

A resident of Manila, Philippines, Mr. Villaluna has extensive experience with resource companies, and is currently President, COO and Director of Philex Mining Corporation, Brixton Energy and Mining Corporation, Lascogon Mining Corp., and ISM Communications Corp.

Mr. Barry Stansfield, Director and Chairman

Barry Stansfield is an independent Director with broad business experience spanning over thirty (30) years.  He was co-owner and Managing Director of Stansfield Lake, a London-based marketing company until that company was acquired by Communicator Plc.  He is also a partner in a private property investment company based in southern England.

Mr. Riaz Sumar, Director, Secretary, and Chief Financial Officer

A resident of Calgary, Canada, Mr. Sumar has extensive financial experience with public companies.  Mr. Sumar was previously Financial Controller of Forum Energy Corporation from 1996 to 2003.  Mr. Sumar was previously the CFO of TransAKT Corp. and previously CFO of TSX-listed, North American Gem Inc.  He received the designation of Certified General Accountant in 1997.

Mr. Andrew Mullins, Director

Mr. Mullins was previously Vice President of NASDAQ-listed Tracer Petroleum Corporation and subsequently Forum Energy Corporation. He was a key figure in the reorganisation of shares of Forum and admission of the Company to AIM in 2005. In 2006 Andrew was appointed Company Secretary of Forum Energy and in 2008 as an Executive Director of the Company.

He holds a B.Eng (Hons) in Mechanical Engineering from University College London and is also a Director and Chief Executive Officer of PhiGold Plc and PhiGold Mining Limited.

 
28

 
Mr. Renato Migrino

A resident of the Philippines, Mr. Migrino is the Treasurer, Chief Financial Officer and Vice President of Finance of Philex Mining Corporation, Director and CFO of Philex Gold Inc. Director and Treasurer of Brixton Energy and Mining Corporation, Lascogon Mining Corporation, Fidelity Stock Transfers Inc., Philex Insurance Agency Director of Mabuhay Vinyl Corporation, Philippines Gold Mining Company, Northern Luzon Exploration and Mining Co,, Silangan Mindanao Exploration Co. Inc., Silangan Mindanao Mining Co. Inc,

Mr. Edward Tortorici

Mr. Tortorici has served in a variety of senior and executive management positions, including Corporate Vice President for Crocker Bank and Managing Director positions at Olivetti Corporation of America and Fairchild Semiconductor Corporation.  Mr. Tortorici founded EA Edwards Associates, an international management and consulting firm specializing in strategy formulation and productivity improvement with offices in the USA, Europe and Middle East.  In 1987 he joined First Pacific as an Executive Director for strategic planning and corporate restructuring and launched the Group’s entry into the telecommunications and technology sectors.  Presently he oversees corporate strategy for First Pacific and guides the Group’s strategic planning and corporate development activities.  Mr. Tortorici serves as a Commissioner of PT Indofood Sukses Makmur Tbk and a Director of Metro Pacific Investments Corporation, Maynilad Water Services, Inc., Philex Mining Corporation, Medical Doctors Inc., and Landco Pacific Corporation.  He also serves as an Executive Advisor of MPIC companies located in the Philippines and as a Trustee of the Asia Society and the Metropolitan Museum of Manila.

Mr. Carlo Pablo

Mr. Pablo has 24 years of oil and gas experience with Shell in the Philippines, Indonesia and Malaysia.  His experience covers commercial and engineering roles in the downstream and upstream business.  He has specialized in negotiation of petroleum contracts, gas commercialization, strategy and portfolio management, international business development, exploration and production economics, oil and gas marketing, and project management.  From May 2010 to present Mr. Pablo has served as Chief Operating Officer of Philex Petroleum Corporation.  From October 2005 to March 2010 he was Joint Venture Liaison and Commercial Economics Advisor for Shell Philippines Exploration BV and prior to that Team Leader Business Development for Indonesia, Shell International Gas and Power

None of our directors and/or executive officers, or those persons to be appointed, have been the subject of any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he or she is a director and/or executive officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he or she is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business, or of theft, or of any felony.

There are no other arrangements or understandings between any two (2) or more directors or executive officers, pursuant to which he or she was selected as a Director or Executive Officer.  Except as disclosed above, there are no family relationships between any two (2) or more of our directors or executive officers.

 
29

 
B.  Compensation.

We have agreed to pay our directors the following consulting fees or directors’ fees on a monthly basis:

 
Jose Ernesto Villaluna
US$3,000
Riaz Sumar
US$7,000
Barry Stansfield
US$1,000
Andrew Mullins
US$1,000
Renato Migrino
US$2,000
Edward Tortorici
US$1,000
Carlo Pablo
US$3,000
 
In addition, our Board may award special remuneration to any Director undertaking any special services on our behalf, other than services ordinarily required of a Director.  Other than as indicated below, no Director received any compensation for his or her services as a Director, including committee participation and/or special assignments.

We grant stock options to directors, executive officers and employees; as described below under, “Options to Purchase Securities from Company or Subsidiaries”.

None of our executive officers or directors received other compensation in excess of the lesser of US $25,000 or 10% of such Executive Officer's or Director’s cash compensation as reported in the compensation table above and all Executive Officers and directors as a group did not receive other compensation which exceeded US $25,000 times the number of persons in the group or 10% of the compensation reported in the compensation table above.

No funds were set aside or accrued by us during the year ending December 31, 2010 to provide pension, retirement or similar benefits for our directors or Executive Officers.  Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the our directors or Executive Officers.

The following tables detail the compensation paid during fiscal year ended December 31, 2010 and 2009 to our directors and members of our administrative, supervisory or management bodies:

Director/Executive Officer Compensation

Director Compensation for Fiscal Year ended December 31, 2010
 
Directors/Officers
 
Salary
Option Exercise Net Market Value(1)
Total
Compensation
Barry Stansfield
$40,745
$0.00
$40,745
Riaz Sumar
$61,811
$0.00
$61,811
Edward Tortorici
$   7,194
$0.00
$   7,194
Jose Ernesto Villaluna
$59,791
$0.00
$59,791
Andrew Mullins
$40,745
$0.00
$40,745
Franklin Cu
$   5,168
$0.00
$   5,168
Renato Migrino
$ 24,723
$0.00
$ 24,723
Carlo Pablo
$  9,209
$0.00
$  9,209
Total CDN$
$249,386
$0.00
$249,386
(1). “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise
price and the market value of the common stock on the date of exercise.
 
 
30

 
Director Compensation for Fiscal Year ended December 31, 2009
 
Directors/Officers
 
Salary
Option Exercise Net Market Value(1)
Total
Compensation
Barry Stansfield
$47,944
$0.00
$47,944
Larry W. Youell
$68,431
$0.00
$68,431
Riaz Sumar
$97,088
$0.00
$97,088
Jose Ernesto Villaluna
$32,260
$0.00
$32,260
Andrew Mullins
$18,686
$0.00
$18,686
Franklin Cu
$   4,251
$0.00
$   4,251
Renato Migrino
$10,678
$0.00
$10,678
Walter Brown
$  1,671
$0.00
$  1,671
Total CDN$
$281,009
$0.00
$281,009
                      (1). “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise
price and the market value of the common stock on the date of exercise.


Our Board may award special remuneration to any Director undertaking any special services on our behalf other than services ordinarily required of a Director.  Other than indicated below no Director received any compensation for his or her services as a Director, including committee participation and/or special assignments.

Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the our directors or Executive Officers.

Options to Purchase Our or Our Subsidiaries’ Securities.


We have no options issued to purchase any of our subsidiaries securities.  Options to purchase securities from us are granted to directors, officers and employees on terms and conditions acceptable to the relevant regulatory authorities.  We adopted a formal stock option plan on June 19, 2000.  There were no stock options outstanding on December 31, 2010.

On January 31, 2010, 10,520,000 stock options expired unexercised; August 2, 2010 1,000,000 stock options expired unexercised and on October 25, 2010 6,000,000 stock options expired unexercised.

C.  Board Practices

We have an Audit Committee, a Compensation Committee and a Corporate Governance Committee.  No committee members receive compensation for serving on a committee.

Audit Committee. The Audit Committee oversees the retention, performance and compensation of our independent auditors, and the establishment and oversight of our systems of internal accounting and auditing control.  Members of the Audit Committee are Andrew Mullins, Carlo Pablo and Renato Migrino.  New members of our Audit Committee for 2011 will  be appointed following our Annual and General Meeting of Shareholders.

Compensation Committee. The Compensation Committee reviews and makes recommendations to our Board concerning the terms of the compensation packages provided to our senior executive officers, including salary, bonus and awards under our stock option plan and any other compensation plans that we may adopt in the future.  Members of the Compensation Committee in 2010 were Jose Ernesto Villaluna, Renato Migrino, and Edward Tortorici.  Members of our Compensation Committee for 2011 will  be appointed following our Annual and General Meeting of Shareholders.

 
31

 
Corporate Governance Committee The Corporate Governance Committee meets with and discusses current disclosure issuances with our management personnel, directors, and with both our Canadian and United States counsel, to report to our Board any matters which should be the subject of either public disclosure or remedial action and to assist our Board in establishing reporting and disclosure procedures to ensure that we are in compliance with our disclosure and compliance obligations under applicable laws, rules and obligations.  Members of the Corporate Governance Committee were Jose Ernesto Villaluna, Carlo Pablo and Riaz Sumar. Members of our Corporate Governance Committee for 2011 will  be appointed following our Annual and General Meeting of Shareholders

D. Employees

As of December 31, 2010, we had no employees.

E.  Share Ownership

The following table lists as of June 10, 2011, the share ownership of our directors and executive officers.

The following table sets forth certain information as of June 10, 2011 regarding the ownership of our common stock by (i) each beneficial owner more than 5% of our outstanding common stock, (ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our directors and executive officers as a group.  Except as otherwise indicated, the address of each person identified below is c/o FEC Resources Inc, 46 Royal Ridge Rise NW, Calgary, AB, T3G 4V2.  We believe that ownership of the shares by the persons identified below is both of record and beneficial and that such persons have sole voting and investment power with respect to the shares indicated.  Percentage of class in the following table is calculated individually based on the following formula: (shares directly or indirectly controlled + shares issuable on the exercise or conversion of various securities) / (total shares outstanding + shares issuable on the exercise or conversion of various warrant, debentures and options by the director or officer).  The total shares outstanding on June 10, 2011 was 439,143,765.

Name of Registered Shareholder owning 5% or more of the outstanding shares:
Number of
Shares
Percent
of Class
Philex Mining Corporation *
225,000,000
51.24
CDS&Co***
49,173,047
11.20
CEDE & Co***
38,403,750
8.75
Asian Coast International
67,740,000
15.42
Indexa Corp****
30,000,000
6.83
 
Name of Director and/or Officer and number of shares held:
   
Jose Ernesto Villaluna *
-
-
Barry Stansfield
216,539
-
Renato Migrino *
-
-
Andrew Mullins
-
-
Edward Tortorici *
-
-
Carlo Pablo **
-
-
Riaz Sumar
10,000
-
 
Number of shares held by all Directors and Officers as a group:
226,539
-
 

 
 
32

 
* Officers and Directors of  Philex Mining Corporation and which owns 225,000,000 shares.

** Officer of Philex Petroleum Corporation, subsidiary of Philex Mining Corporation

***  Cede& Co. and CDS and Co. are clearing houses in Canada and the United States and represent the interest of multiple shareholders and there is no way of knowing if any one in particular beneficially holds over 10% of the voting rights attached to our shares.

****  These shares are held in escrow and will only be released on declaration of commerciality of MPSA148.

The particulars of the stock options granted to officers and directors are set forth in the preceding section entitled “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.”  The particulars regarding convertible debentures and warrants acquired by certain officers and directors are as follows:

The following table lists the current directors, executive officers and employees to whom warrants to purchase our shares were sold and the number of share purchase warrants so sold as of the date of this report, as well as the number of share purchase warrants sold to directors and all employees as a group.

Warrants Held by Directors and Officers
Name
Number of Share Purchase Warrants
Exercise Price
Expiration Date
None
None
   

We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries.  Currently, we are not controlled directly or indirectly by any foreign government but are controlled by Philex Mining Corporation.

There are no arrangements, known to us, the operation of which may at a subsequent date result in a change in our control other than as noted above.

The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.

On June 10, 2011, the shareholders’ list showed 591 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 45,480,800 representing 10.36% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 528.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS


A.  Major Shareholders

We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries.  We are  controlled by Philex Mining Corporation.  The following table provides the names and share ownership of those parties that have ownership of 5% or more of each class of our voting securities as of June 10, 2011:


 
 
33

 

Name
Number of Shares Owned
Percent of Class
Philex Mining Corporation *
225,000,000
51.24
CDS&Co**
49,173,047
11.20
CEDE & Co**
38,403,750
8.75
Asian Coast International
67,740,000
15.42
Indexa Corp***
30,000,000
6.83

* Jose Ernesto Villaluna, Edward Tortorici, and Renato Migrino,  all Directors of FEC Resources Inc.,  are officers or directors of Philex Mining Corporation.  Philex Mining purchased 200,000,000 shares in a private placement in December 2007 and 20,000,000 shares were purchased in a private transaction at the same time.  In April 2010, Philex Mining Corporation received a further 5,000,000 shares pursuant to a private placement at US$0.50 per share.  Carlo Pablo is a director of Philex Petroleum Corporation which is a subsidiary of Philex Mining Corporation.

**  Cede& Co. and CDS and Co. are clearing houses in Canada and the United States and represent the interest of multiple shareholders and there is no way of knowing if any one in particular beneficially holds over 10% of the voting rights attached to our shares.

***  These shares were issued in 2006 and are held in escrow to be released upon the proving of the commerciality of MPSA148.   On December 31, 2006 Index Corp was the registered shareholder of 50,000,000 shares and on December 31, 2007 Indexa was the registered holder of 30,000,000 shares held in escrow as noted above.  .

There are no arrangements, known to us, the effect of which may at a subsequent date result in a change in our control other than as noted in Item 5 Operating and Financial Review and Prospects.

As at June 10, 2011, management is not aware of any person holding a greater than 5% registered interest in any class of our voting securities other than as set forth above.  The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.

On June 10, 2011, the shareholders’ list showed 591 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 45,480,800 representing 10.36% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 528.

Our major shareholder has the same voting rights as all other shareholders.

B.  Related Party Transactions

During the year ended December 31, 2010 general and administrative expenses included management fees charged by directors, officers and companies controlled by directors and officers of the Company totaling $249,385 (2009: $281,009; 2008: $343,776;). During the year ended December 31, 2010, the Company incurred an interest charge of $10,916 (2009: $7,972; 2008: $Nil) on a loan from the parent of the Company.

Included in accounts payable and accrued liabilities at December 31, 2010 is $17,458 (2009; $4,568) owed to directors, officers and companies controlled by them for unpaid consulting fees.

In addition, on December 31, 2010, the Company owed Lascogon Mining Corporation $18,793 for audit fees paid on behalf of the Company for preparation of an annual report to be filed in the United States.

 
34

 
During the quarter ended March 31, 2011 general and administrative expenses included management fees charged by directors, officers and companies controlled by directors and officers of the Company totaling $54,000 (2010: $60,000).

During the quarter ended March 31, 2011 the Company incurred an interest charge of $2,548 (2010: $2,700) on a loan from the parent of the Company.

Included in accounts payable and accrued liabilities at March 31, 2011 is $19,081 (2010; $1,185) owed to directors, officers and companies controlled by them for unpaid consulting fees and or expenses.

In addition, on March 31, 2011, the Company owed Lascogon Mining Corporation $18,895 for audit fees paid on behalf of the Company for preparation of an annual report to be filed in the United States.

Related party transactions are measured at the exchange amount, which amount is agreed to by the parties.
* Note Item 7.C not required for this Annual Report.


ITEM 8.  FINANCIAL INFORMATION

A.  Consolidated Financial Statements and Other Financial Information

See “Item 17. Financial Statements."

We know of no pending legal or arbitration proceedings, including those relating to bankruptcy, governmental receivership or similar proceeding and those involving any third party against it, nor are we involved as a plaintiff in any material pending litigation.

We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us or our subsidiaries.

We have not declared any dividends for the last five (5) years, nor do we intend to declare any dividends in the foreseeable future.

B.  Significant Changes/Developments

In April 2010, we completed a private placement of 5,000,000 shares at US$0.50 per share to Philex Mining Corporation, our parent company.

On December 31, 2010 we determined that the results of MPSA 148 did not indicate a commercially viable gold deposit.

ITEM 9.  THE OFFER AND LISTING
 

A.  Listing Details and Markets

Our shares have traded on the OTC – Bulletin Board (“OTC.BB”) under the symbol “FECOF” since September 22, 1999.

 
35

 
The table below lists the high/low bid/ask prices on NASD/OTC.BB for our shares for each year within the five (5) most recent fiscal years.

NASDAQ Small Cap/OTC.BB Stock Annual Price History - Common Shares
(US Dollars)
Year Ended
High
Low
12/31/10
$0.04
$0.00
12/31/09
$0.01
$0.00
12/31/08
$0.03
$0.00
12/31/07
$0.01
$0.05
12/31/06
$0.08
$0.026

The table below lists the volume of trading and high/low bid/ask prices on NASD/OTC-Bulletin Board for our shares for each full quarterly period within the two most recent fiscal years and any subsequent periods.


OTC Bulletin Board Stock Trading Activity - Common Shares
(US Dollars)
Quarter Ended
Volume
High
Low
3/31/11
38,146,676
0.07
0.02
12/31/10
15,560,944
0.03
0.01
9/30/10
16,426,881
0.01
0.00
6/30/10
2,668,558
0.02
0.01
3/31/10
10,324,680
0.04
0.01
12/31/09
3,312,772
0.01
0.00
9/30/09
3,963,214
0.01
0.00
6/30/09
6,847,903
0.01
0.00
3/31/09
1,369,379
0.01
0.00



The table below highlights for the most recent six (6) months the high and low market prices for each month of our common shares on the OTC.BB.



OTC.BB Stock Monthly Price History - Common Shares
(US Dollars)
Month Ended
High
Low
Volume
05/31/11
0.04
0.02
3,282,732
04/30/11
0.04
0.03
1.929.478
03/31/11
0.05
0.03
4,290,265
02/28/11
0.06
0.03
7,492,154
01/31/11
0.07
0.02
26,364,257
12/31/10
0.02
0.02
7,143,184

Our shares are issued in registered form and the following information is taken from the records of Computershare Investor Services (located in Vancouver, British Columbia), the lead registrar and transfer agent for our common shares.

On June 10, 2011, the shareholders’ list showed 591 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 45,480,800 representing 10.36% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 528.
Our shares are not registered to trade in the U.S. in the form of American Depository Receipts (ADR's) or similar certificates.

 
36

 
ITEM 10.  ADDITIONAL INFORMATION.

A.  Share Capital

Not applicable

B.  Memorandum and Articles of Association

Reference is hereby made to our Certificate of Continuance, and to our Bylaws, each of which is incorporated herein by reference to, respectively, Exhibit 3.1 and 3.2 to our Registration Statement on Form F-1, file number 33-81290.

C.  Material Contracts.

See "Item 4. Information About the Company."

D.  Exchange Controls

Investment Canada Act
 
The Investment Canada Act (the “ICA”) prohibits the acquisition of control of a Canadian business enterprise in Canada by non-Canadians without the prior consent of Investment Canada, the agency that administers the ICA, unless such acquisition is exempt under the provisions of the ICA.  Investment Canada must be notified of such exempt acquisitions.  The ICA covers acquisitions of control of corporate enterprises, whether by purchase of assets, shares or “voting interests” of an entity that controls, directly or indirectly, another entity carrying on a Canadian business.

Apart from the ICA, there are no other limitations on the right of non-resident or foreign owners to hold or vote securities imposed by Canadian law or our Certificate of Continuance.  There are no other decrees or regulations in Canada which restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities except as discussed in “Taxation”, below.

E.  Taxation

The following is a summary of the principal Canadian federal income tax considerations generally applicable in respect of our common stock.  The tax consequences to any particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holder's particular circumstances.  This summary is applicable only to holders who are resident in the United States; have never been resident in Canada; deal at arm's length with us; hold their common stock as capital property; and who will not use or hold the common stock in carrying on a business in Canada.

 
37

 
This summary does not take into account provincial income tax consequences.  This summary assumes that the publicly announced proposals will be enacted as proposed with the effective dates set out therein; otherwise, this summary assumes that there will be no other changes in law whether by judicial or legislative action.

If a non-resident were to dispose of common stock to another Canadian corporation which deals (or is deemed to deal) on a non-arm's length basis with the non-resident, and which, immediately after the disposition, is connected with us (i.e. which holds shares representing more than 10% of the voting power and more than 10% of the market value of all of our issued and outstanding shares), the excess of the proceeds over the paid-up capital of the common stock sold will be deemed to be taxable as a dividend either immediately, or eventually, by means of a deduction in computing the paid-up capital of the purchasing corporation.

Under the Canadian Tax Act, a gain from the sale of common stock by a non-resident will not be subject to Canadian tax, provided the stockholder (and/or persons who do not deal at arm's length with the stockholder) has not held a “substantial interest” in our shares (25% or more of the shares of any class of our equity securities) at any time in the five (5) years preceding the disposition.  Generally, the Canadian-United States Tax Convention (the “Tax Convention”) will exempt from Canadian taxation any capital gain realized by a resident of the United States, provided that the value of the common stock is not derived principally from real property situated in Canada.

In the case of any dividends paid to non-residents of Canada, the Canadian tax is withheld by us, which remits only the net amount to the stockholder. By virtue of Article X of the Tax Convention, the rate of tax on dividends paid to residents of the United States is generally limited to 15% of the gross dividend (or 10% in the case of certain corporate stockholders owning at least 10% of our voting shares).  In the absence of the treaty provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend.  Stock dividends received by non-residents of Canada from us are taxable by Canada as ordinary dividends.

This summary is of a general nature only and is not exhaustive of all possible income tax consequences.  It is not intended as legal or tax advice to any particular holder of common stock, and should not be so construed.  Each holder should consult his/her own tax advisor with respect to the income tax consequences applicable to him/her in his/her own particular circumstances.

F.  Dividends and Paying Agents

Not applicable

G.  Summary By Experts

Not applicable


H.  Documents on Display

The documents concerning us which are referred to in this Annual Report are either annexed hereto as exhibits (see Item 19) or may be inspected at our principal executive offices in Calgary, Alberta, Canada.

I.  Subsidiary Information

Not applicable

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 
38

 
Currency Exchange Rate Sensitivity

The results of our operations are subject to currency translational risk, and currency transactional risk. Regarding currency translational risk, the operating results and financial position of our subsidiaries are reported in local currencies and then translated into Canadian dollars at the applicable exchange rate for preparation of our consolidated financial statements.  The fluctuation of the U.S. dollar and Peso in relation to Canadian dollar will therefore have an impact upon profitability of our operations and may also affect the value of our assets and the amount of shareholders’ equity.

In regards to transactional risk, our functional currency is the Canadian dollar and our activities are predominantly executed using both the U.S. and Canadian dollars.  We have done a limited number of financings, and we are not subject to significant operational exposures due to fluctuations in these currencies.  Our common shares are listed on the OTC.BB and are bought and sold in US dollars.  We have not entered into any agreements, or purchased any instruments, to hedge any possible currency risks at this time.


Interest Rate Sensitivity

We currently have no significant short-term or long-term debt requiring interest payments.  This does not require us to consider entering into any agreements or purchasing any instruments to hedge against possible interest rate risks at this time.  Our interest-earning investments are short-term.  Thus, any reductions in future income or carrying values due to future interest rate declines are believed to be immaterial.

Commodity Price Sensitivity

Our future revenue and profitability will be dependant, to a significant extent, upon prevailing spot market prices for gold, oil and gas.  In the past, gold, oil and gas prices have been volatile.  Prices are subject to wide fluctuations in response to changes in supply of, and demand for, gold, oil and gas, market uncertainty, and a variety of additional factors that are beyond our control.  We currently have no significant operating revenue.


ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

Not Applicable.
 

 
PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.  
None.

 
39

 
 
ITEM 15. CONTROLS AND PROCEDURES.
 
Disclosure Controls and Procedures
 
 
The Board has overall responsibility for reviewing our disclosure to ensure we provide full and plain disclosure to shareholders and other stakeholders.  The Board discharges its responsibilities through its committees, specifically with respect to financial disclosure.  The Audit Committee is responsible for reviewing our financial reporting procedures and internal controls to ensure full and accurate disclosure of our financial position.
 
 
Our Chief Executive Officer and Chief Financial Officer are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this Annual Report (the "Evaluation Date") are not  effective as discussed below.
 
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
 
 
As of December 31, 2010, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls over financial reporting were not effective and that there were material weaknesses in our internal controls over financial reporting. The material weaknesses were an inability to detect the inappropriate application of US GAAP rules, as more fully described below, as the result of deficiencies that existed in the design or operation of our internal control over financial reporting.
 
 
The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under COSO and SEC rules were: (1) lack of a majority of independent directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) limited number of staff, not allowing for complete segregation of incompatible duties.; and (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. The aforementioned material weaknesses were identified by the Company’s Chief Financial Officer in connection with the preparation of our financial statements as of December 31, 2010 and communicated the matters to our management and board of directors.
 
 
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an affect on the Company’s financial results. However, management believes that the lack of a majority of independent directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures, could impact the Company’s financial statements for the future years.
 
These weaknesses in our internal controls over financial reporting result in a remote likelihood that a material misstatement would not be prevented or detected. Management and the board of directors work to mitigate the risk of a material misstatement in financial reporting; however, there can be no assurance that this risk can be reduced to less than a remote likelihood of a material misstatement.
 
 
40

 
Management believes that the appointment of one or more independent directors, will remedy the lack of a majority of outside directors on the Company’s Board and has recently appointed an additional two directors. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties..
 
 
Any effort to increase the size of the Board of Directors, appoint independent directors or personnel is conditional upon the Company to raise additional capital.
 
 
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only the management’s report in this annual report.
 
 
Changes in Internal Control over financial reporting
 
 
During the year ended December 31, 2010, and subsequently there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting or that would require corrective action.
 

ITEM 16 .  (RESERVED)


ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Audit Committee is responsible for reviewing our financial reporting procedures, internal controls, the performance of our auditors, and the reserve evaluations prepared by our independent reserves evaluation engineering consultants.  The Audit Committee is also responsible for reviewing all disclosure with respect to financial matters prior to filing or release and quarterly and annual Financial Statements prior to their approval by the full Board.  Members of the Audit Committee during 2010 were Andrew Mullins, Carlo Pablo and Renato Migrino.  Until our Annual General Meeting in 2010,  only Renato Migrino and Andrew Mullins were members of the Audit Committee.  New Audit Committee members will be appointed following our meeting of shareholders in 2011.

 
41

 
Our Board has determined that it has at least one (1) independent financial expert serving on its Audit Committee.  This individual is Renato Migrino.  Mr. Migrino is the Treasurer, Chief Financial Officer, Vice President Finance, and Compliance Officer for Philex Mining Corporation .  Mr. Migrino has significant experience in the review of financial statements and related information.

Mr. Migrino is our Treasurer and therefore would not be regarded as independent.


ITEM 16 B: CODE OF ETHICS.

We have adopted a formal “Code of Ethics” applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  We believe that the Code of Ethics is reasonably 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 a registrant files with, or submits to, regulatory agencies and in other public communications made by the registrant;
 
3.
Compliance with applicable governmental laws, rules and regulations;
 
4.
The prompt internal reporting of violations of the standards to an appropriate person or persons identified in the standards; and
 
5.
Accountability for adherence to the standards of the Code of Ethics.

The Code of Ethics (in hard copy) is available for inspection in our headquarters during regular business hours and a copy can also be provided at no charge on request

In addition, we practice corporate governance in accordance with rules and regulations in Canada.

Corporate Governance relates to the activities of the Board who are elected by and accountable to the shareholders, and takes into account the role of management who are appointed by the Board and who are charged with our on-going management.  Our Board encourages sound corporate governance practices designed to promote our well being and on-going development, having always as its ultimate objective our best long-term interests and the enhancement of value for all shareholders.  The Board also believes that sound corporate governance benefits our employees and the communities in which we operate.  The Board believes that our corporate governance policies and practices, outlined below, are appropriate and substantially consistent with the guidelines for improved corporate governance in Canada as adopted by the Toronto Stock Exchange.

To better fulfill and implement the Board’s corporate governance policies, we have established a Corporate Governance Committee.  The Corporate Governance Committee meets with and discusses current disclosure issuances with our management personnel, directors, and with both our Canadian and United States counsel, in order to not only report to the Board any matters which should be the subject of either public disclosure or remedial action, but also to assist the Board in establishing reporting and disclosure procedures to ensure that we are in compliance with our disclosure and compliance obligations under applicable laws, rules and obligations.  The members of the Corporate Governance Committee are Barry Stansfield, Andrew Mullins and Riaz Sumar

 
42

 
ITEM 16 C.  ACCOUNTANTS FEES AND SERVICES

Audit Fees

Our external auditors, BDO, charged total fees of  $67,166 related to the audit of our annual financial statements for the year ended December 31, 2009 and for the audit of the annual financial statements for the year ended December 31, 2010, an amount of $50,000 was accrued as a best estimate of fees to be billed by BDO.  There were no fees associated with the filing of taxes.

Audit Related Fees

We did not incur any fees in either of the two fiscal years for assurance and related services by BDO Canada LLP (“BDO”) that are related to the performance of their audit or review of our financial statements.

 Tax Fees

We did not incur any fees in either of the last two fiscal years for professional services rendered by BDO for tax compliance, tax advise and tax planning.

Other Fees

None


ITEM 16 D.  EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITEE

 Not Applicable.

ITEM 16 E.  PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 Not Applicable.

ITEM 16 F.  CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

None.

 
43 

 


PART III

ITEM 17. FINANCIAL STATEMENTS.

The Auditors’ Report, financial statements and notes thereto, schedules thereto, as required under Item 17 are found immediately below.

     Financial Statements:
Report of Auditors, dated April 28, 2011
Consolidated Balance Sheets at December 31, 2010 and December 31, 2009
Consolidated Statements of Loss and Deficit for the Years ended December 31, 2010, December 31, 2008, and December 31, 2008
Consolidated Statements of Cash Flows for the Years ended December 31, 2010, December 31, 2009, and December 31, 2008
Notes to the Consolidated Financial Statements
Financial Statements of Forum Energy Plc (FEP)
Financial Statements of Lascogon Mining Corporation (Lascogon)


 
44 

 
 

 











FEC RESOURCES INC.
 
 INDEPENDENT AUDITOR’S REPORT AND
 
CONSOLIDATED FINANCIAL STATEMENTS
 
December 31, 2010 and 2009
 
(Stated in Canadian Dollars)





 
45 

 

Tel: 604  688 5421
Fax: 604  688 5132
www.bdo.ca
BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC  V6C 3L2  Canada
 
 

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of FEC Resources Inc.

We have audited the accompanying consolidated financial statements of FEC Resources Inc., which comprise the consolidated balance sheets as at December 31, 2010 and December 31, 2009 and the consolidated statements of operations and deficit, comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2010, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of these consolidated financial statements in accordance with Canadian Generally Accepted Accounting Principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian auditing standards and standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of FEC Resources Inc. as at December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010 in accordance with Canadian Generally Accepted Accounting Principles.

Chartered Accountants
Vancouver, British Columbia

April 28, 2011

 
46

 
FEC RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(Stated in Canadian Dollars)

     
ASSETS
2010
2009
     
Current
   
Cash
$2,049,989
$       39,072
Sales taxes recoverable
1,241
975
Prepaid expenses
18,766
19,658
     
 
2,069,996
59,705
     
Equipment – Note 4
3,578
5,111
Investments – Note 5
514,754
3,667,286
     
 
$2,588,328
$3,732,102
     
LIABILITIES
     
Current
   
Accounts payable and accrued liabilities – Note 9
$       96,990
$       63,198
Due to  parent company – Note 6
289,750
294,646
 
386,740
357,844
     
SHAREHOLDERS’ EQUITY
     
Share capital – Note 7
19,916,915
17,339,665
Warrants – Note 7
-
267,501
Contributed surplus – Note 7
4,062,440
3,794,939
Accumulated other comprehensive loss – Note 8
(2,481,046)
(1,979,909)
Deficit
(19,296,721)
(16,047,938)
     
 
2,201,588
3,374,258
     
 
$2,588,328
$3,732,102

Nature of Operations – Note 1



APPROVED ON BEHALF OF THE BOARD OF DIRECTORS:
     
“Riaz Sumar”
Director
 
“Renato Migrino”
Director
Riaz Sumar
   
Renato Migrino
 


SEE ACCOMPANYING NOTES
 
47 

 

FEC RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
for the years ended December 31, 2010, 2009 and 2008
(Stated in Canadian Dollars)


 
 
2010
 
2009
 
2008
       
General and administrative expenses
     
Amortization
$           1,533
$        2,191
$        2,332
General and administration – Note 9
526,922
455,624
607,531
Interest – Note 9
11,315
7,972
-
       
 
(539,770)
(465,787)
(609,863)
Other items:
     
Equity loss in investments – Note 5
(56,031)
(1,045,810)
(1,493,411)
Foreign exchange gain (loss)
(59,797)
2,283
54,490
Gain (loss) on dilution of investment in FEP
12,250
307,389
(239,488)
Interest income
2,179
180
15,449
Write-down of investments – Note 5
(2,607,614)
-
(1,964,440)
       
Net loss for the year
(3,248,783)
(1,201,745)
(4,237,263)
       
Deficit, beginning of the year
(16,047,938)
(14,846,193)
(10,608,930)
       
       
Deficit, end of the year
$(19,296,721)
$(16,047,938)
$(14,846,193)
       
Basic and diluted loss per common share
$          (0.01)
$           (0.00)
$           (0.01)
       
Weighted average number of shares outstanding
437,554,724
434,143,765
434,143,765
       


SEE ACCOMPANYING NOTES
 
48 

 

FEC RESOURCES INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
for the years ended December 31, 2010, 2009 and 2008
 (Stated in Canadian Dollars)




 
2010
2009
2008
       
Net loss for the year
$   (3,248,783)
$   (1,201,745)
$   (4,237,263)
Foreign currency translation adjustments
(    517,018)
(1,985,447)
3,073,315
Effect of foreign currency translation on dilution of investment
15,881
(         553)
146,776
       
Comprehensive loss for the year
$   (3,749,920)
$   (3,187,745)
$   (1,017,172)
       

SEE ACCOMPANYING NOTES
 
49 

 

FEC RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2010, 2009 and 2008
(Stated in Canadian Dollars)
 
 
       
   2010  2009  2008
 Net loss for the year  $(3,248,783)  $(1,201,745)  $(4,237,263)
 Non-cash items included in loss:      
    Amortization  1,533  2,191  2,332
    Equity loss in investments  56,031  1,045,810  1,493,411
    (Gain) loss on dilution of investment in FEP  (12,250)  (307,389)  239,488
    Interest accrued on advance from parent company  10,916  -  -
     Unrealized foreign exchange  58,056  -  -
    Write-down of investments  2,607,614  -  1,964,440
 Net changes in non-cash operating working capital      
 items related to operations:      
    Sales taxes recoverable  (266)  72,328  (19,515)
    Prepaid expenses  892  12,883  (6,206)
    Accounts payable and accrued liabilities  33,792  (64,766)  (917,401)
       
   (492,465)  (440,688)  (1,480,714)
       
 Investing Activities      
    Acquisitions of equipment  -  (1,860)  (3,392)
       
   -  (1,860)  (3,392)
       
 Financing Activities      
    Advances from parent company  -  294,646  -
    Issuance of share capital, net of costs  2,577,250  -  -
    Repayment of convertible debentures  -  -  (2,499,000)
       
   2,577,250  294,646  (2,499,000)
       
 Effect of foreign exchange on cash held in foreign currency  (73,868)  -  -
       
 Increase (decrease) in cash during the year  2,010,917  (147,902)   (3,983,106)
       
 Cash, beginning of the year  39,072  186,974  4,170,080
       
 Cash, end of the year  $    2,049,989  $    39,072  $    186,974
       
 Supplemental disclosure of cash flow information:      
    Cash paid for:      
    Interest  $    -  $    -  
       $    249,900
 Income taxes  $    -  $    -  $    -
       
       
 
SEE ACCOMPANYING NOTES
 
50 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)


FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)

Note 1                 Nature of Operations

FEC Resources Inc. (the “Company”) was incorporated under the laws of Alberta, Canada and is engaged primarily in the business of exploration and development of oil and gas and other mineral related opportunities, either directly or indirectly through companies in which the Company invests.  The Company is not currently directly involved in any oil and gas or mineral related exploration activities.  The exploration and development of oil and gas reserves and the pursuit of other energy and mineral reserves involves significant financial risks. The success of the Company is dependent upon the success of its investments and their ability to discover economically recoverable reserves and to bring such reserves into profitable production, and is subject to a number of risks, including environmental risks, contractual risks, legal risks and political risks, fluctuations in the price of oil and gas and other factors beyond the Company’s control.


Note 2                 Significant Accounting Policies

 
These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and except as described in Note 13, conform in all material respects with accounting principles generally accepted in the United States of America.  The preparation of financial statements in conformity with Canadian GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include the potential impairment of asset values, valuation of equity investments, determining the fair value of non-cash share based payments, future income tax asset recoverability and ability to continue as a going concern.  While it is the opinion of management that these consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below, actual results could differ from the estimates made.

a)  
Basis of Presentation

These financial statements previously included the accounts of the Company and its wholly owned subsidiaries, FEC Resources (BVI) Limited and Pacific Geothermal Energy, Inc. (“PACGEO”). During the year ended December 31, 2009, these subsidiaries were dissolved with the result that the Company no longer has any subsidiary companies. All inter-company transactions were eliminated upon consolidation.

 
51 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)


Note 2                 Significant Accounting Policies – (cont’d)

b)      Investments

Investments in companies subject to significant influence are accounted for using the equity method. The equity method is a basis of accounting whereby the investment is initially recorded at cost and the carrying value is adjusted thereafter to include the Company’s pro-rata share of post-acquisition income or loss.  The amount of the adjustment is included in the determination of net income (loss) by the Company and the investment account of the Company is also increased or decreased to reflect the Company’s share of capital transactions and changes in accounting policies and corrections of errors.  Profit distributions received or receivable from the investments will reduce the carrying value of the investment.  Investments accounted for on the equity basis are written down to their fair value when they have a loss in value that is other than a temporary decline.  During the year ended December 31, 2010, the Company recognized a write-down of its investments totalling $2,607,614 (2009 - $ nil: 2008- $1,964,440)

c)  
Property, plant and equipment

 
Property, plant and equipment is carried at cost less accumulated amortization. The Company depreciates its computer equipment at the rate of 30% per annum utilizing the declining balance method.

d)  
Impairment of Long-Lived Assets

Long-lived assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.  An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and their eventual disposition is less than their carrying amount.  Impairment, if any, is assessed using discounted cash flows.




 
52 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)



Note 2                 Significant Accounting Policies – (cont’d)

e)  
Foreign Currency Translation

The functional currency of the Company is the Canadian dollar. The Company and its investments accounted for by the equity method operate in Canada, the United Kingdom and the Philippines.

Monetary assets and liabilities of the Company’s operations denominated in currencies other than the Canadian dollar are translated into Canadian dollars at the rates of exchange at the consolidated balance sheet dates. Non-monetary assets and liabilities are translated at historical exchange rates prevailing at each transaction date. Revenue and expenses are translated at average exchange rates throughout the reporting period, with the exception of depreciation, depletion and amortization which is translated at historical exchange rates. Gains and losses on translation of foreign currencies are included in earnings.

The cumulative translation adjustments included in Accumulated other comprehensive income (‘‘AOCI’’) relate to unrealized translation gains and losses on the Company’s net investment in equity-accounted investees that are translated using the current rate method. The exchange gains and losses will become realized in earnings upon the disposition, liquidation or dilution of the investment that gave rise to such amounts.

f)  
Stock-based Compensation

The Company accounts for stock options at fair value pursuant to CICA Handbook Section 3870, which establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments. Compensation expense for options granted is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model.
 

g)  
Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes that are more likely than not to be realized.
 

 

 


 
53 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)



Note 2                 Significant Accounting Policies – (cont’d)

h)  
Loss Per Share

 
Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year.  Diluted earnings (loss) per share reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock.  The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method.

 
Common equivalent shares (consisting of shares issuable on the exercise of options and warrants) totalling Nil (2009 - 21,053,333; 2008 – 23,053,333) have been excluded from the calculation of diluted loss per share because the effect is anti-dilutive.  Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.

i)  
Financial Instruments

The Company recognizes financial assets and liabilities on the balance sheet when it becomes a party to the contractual provisions of the instrument. Financial instruments are measured at fair value on initial recognition of the instrument, into one of the following five categories: held-for trading, loans and receivables, held-to-maturity investments, available-for-sale financial assets or other financial liabilities.

Subsequent measurement of financial instruments is based on their initial classification. Held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net earnings. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired. The remaining categories of financial instruments are recognized at amortized cost using the effective interest rate method.

The Company expenses transaction costs related to the acquisition or issuance of held-for-trading financial instruments in the period in which the costs are incurred.  The Company capitalizes transaction costs related to the acquisition or issuance of all other categories of financial instruments.


 
54 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)




Note 3                Changes in Accounting Policies

Adoption of New Accounting Standards

In January 2009, the CICA issued Sections 1582 – Business Combinations, 1601 – Consolidated Financial Statements and 1602 – Non-controlling Interests which replaces CICA Sections 1581 – Business Combinations and 1600 – Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (“IFRS”). Section 1582 is applicable for the Company’s business combinations with acquisition dates on or after January 1, 2011. Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. Section 1601 is applicable for the Company’s interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011.


In 2006, AcSB published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies.  The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period.  In February 2008, the AcSB announced that 2011 is the changeover date for publicly accountable companies to use IFRS, replacing Canadian GAAP.  The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.  The transition date of January 1, 2010 will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010.  Adoption of IFRS as Canadian GAAP will require the Company to make certain accounting policy choices and could materially impact our reported financial position and results of operations.

Note 4                 Equipment

   
Accumulated
Net book
 
Cost
Amortization
value
       
Computer equipment
     
December 31, 2010
$      14,453
$      10,875
$        3,578
       
December 31, 2009
$      14,453
$        9,342
$        5,111


 
55 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)



Note 5                 Investments

The Company has the following investments accounted for using the equity method:

 
2010
2009
     
Forum Energy plc (“FEP”)
$           514,754
$1,119,732
Lascogon Mining Corporation
                    -
2,547,554
     
 
$        514,754
$3,667,286

i)      Investment in FEP
 
The investment in FEP is summarized as follows:
 

 
 
 
 Number of shares
held
 
Amount
     
 Balance, December 31, 2007  8,550,200  4,233,699
 Loss on dilution of investment in FEP as a result of additional FEP share issuances  -  (92,710)
 Foreign currency translation adjustment  -  3,073,3125
 Equity loss in investment of FEP  -  (1,361,439)
 Write-down of investment in FEP to fair value  -  (1,964,440)
 Balance, December 31, 2008  8,550,200  3,888,425
 Gain on dilution of investment in FEP as a result of additional FEP share issuances  -  306,836
 Foreign currency translation adjustment  -  (1,985,447)
 Equity loss in investment of FEP  -  (1,090,082)
 Balance, December 31, 2009  8,550,200  $       1,119,732
 Gain on dilution of investment in FEP as a result of additional FEP share issuances  -  28,131
 Foreign currency translation adjustment  -  (517,018)
 Equity loss in investment of FEP  -  (116,091)
     
 Balance, December 31, 2010  8,550,200  $       514,574
     
     
 
 

 
56 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)




Note 5                 Investments – (cont’d)

i)      Investment in FEP – (cont’d)

 
As FEP offers its shares to outside investors, the resulting dilution of the investor’s shareholdings constitutes an effective disposition necessitating recognition of a dilution gain or loss. As at December 31, 2010, the Company’s interest in FEP had been diluted to 25.63% (2009: 25.84%, 2008: 28.42%) as a result of the sale of FEP common shares and equity offerings by FEP in which the Company did not participate.

At December 31, 2010, the Company held 8,550,200 (2009 – 8,550,200) common shares of FEP with a market value of $7,737,400 (2009 – $7,646,038) based on the quoted closing price of FEP common stock on the London Stock Exchange.  During the year ended December 31, 2008, the Company recorded a write-down of $1,964,440 as a result of the determination that the decline in market value of the FEP shares was other than temporary.

 
The financial position and results of operations of FEP as at December 31, 2010 and 2009 are summarized as follows:

 
2010
2009
     
Assets
$50,365,071 
$52,373,455
     
Liabilities
$6,347,269
$5,747,564
     
Equity
$44,017,802 
$46,625,891
     
Net loss for the year ended December 31
$   (451,469) 
$(4,130,743)

The Company is related to FEP by virtue of a common parent and 4 common directors.
 
ii)      Investment in Lascogon Mining Corporation (“Lascogon”)

 
By a memorandum of an agreement dated January 2, 2006 and a settlement and release agreement dated May 11, 2006, the Company agreed to acquire a 40% interest in a mining project (Lascogon Mining Corporation) in the Philippines in partnership with Philex Gold, Inc. (“PGI”).



 
57 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)


Note 5                 Investments – (cont’d)

ii)      Investment in Lascogon Mining Corporation (“Lascogon”) – (cont’d)

 
The project is the Mining and Production Sharing Agreement 148 (“MPSA 148”) between PGI and the Government of Philippines, which comprises 2,306 hectares.  The Company agreed to acquire the interest in the project by way of assignment from Indexa Corp. (“Indexa”) to the Company of an Agreement between Indexa and PGI.  Indexa is a Philippine Company who had entered into a sole Agreement with PGI for the rights to a joint exploration program.  Indexa assigned its rights and obligations in their entirety to the Company, pursuant to which a new Philippine Joint Venture Company was formed, of which the Company would ultimately own 40% and PGI would own 60% equity interests respectively.  For this assignment, Indexa was entitled to receive a fee which was to be determined by an independent valuation.

 
The commitments of the Company in this regard were to provide an initial US$250,000 ($290,900) signature bonus to PGI (paid), pay a fee of US$100,000 ($110,551) (paid) and then for the Company to contribute to the Joint Venture Company a total of US$1,000,000 ($1,105,514) from January 1, 2006 through to October 31, 2006 being estimated as sufficient funding to complete the planned exploration and prospect work program.  On October 2, 2006, the Company had met all its funding obligations and fully earned its 40% interest in the Joint Venture Company.  Also, as a result of the independent valuation and negotiations, the Company issued 20,000,000 common shares of the Company with a fair value of $891,360 to Indexa and a further 30,000,000 common shares of the Company into escrow, to be awarded to Indexa upon the declaration of commerciality as full and final consideration for the assignment of its rights to the Company.  The 30,000,000 shares are considered contingent consideration and will be recorded as additional cost of the investment at fair value once it is likely that they will be issued.

The investment in Lascogon is summarized as follows:
 
 Balance at December 31, 2007  $       2,635,254
 Equity loss in investment in Lascogon  (131,972)
 Balance at December 31, 2008  2,503,282
 Equity income in investment in Lascogon  44,272
 Balance at December 31, 2009  $       2,547,554
 Equity income in investment in Lascogon  60,060
 Write-down of investment in Lascogon  (2,607,614)
 Balance at December 31, 2010  $          -
   
 


 
58 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)




Note 5                 Investments – (cont’d)

ii)      Investment in Lascogon Mining Corporation (“Lascogon”) – (cont’d)


 
The financial position and results of operations of Lascogon as at December 31, 2010 and 2009 are summarized as follows:

 
2010
2009
     
Assets
$   4,389,950
$   3,901,124
     
Liabilities
$   3,903,130
$   3,887,707
     
Equity
$      486,820
$        13,418
     
Net income for the year ended December 31
$      150,149
$      110,680

 
During the year ended December 31, 2010, the Company recorded an impairment charge of $2,607,614 representing the amount at which the investment was being carried in the Company’s accounts. Such a write-down was determined as a result of Lascogon determining that any further development of MPSA 148 would not provide an acceptable return on the investment. Despite this impairment, the Company has maintained its ownership of its investment in Lascogon and, as at December 31, 2010, in order for the Company to maintain its 40% interest without dilution, the Company would be required to pay cash calls totaling approximately US$984,916.

The Company is related to Lascogon by virtue of a common parent and 2 common directors.

iii)      Investment in Metalore Mining Corporation (“Metalore”)

During the year ended December 31, 2007, the Company wrote down its investment in Metalore to $Nil by recording a charge against income in the amount of $764,675. As at December 31, 2010, the Company still holds its 35% interest in Metalore Mining Corporation; however, the project has been abandoned.


 
59 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)



Note 6                 Due to parent company

During the year ended December 31, 2009, the Company was advanced US$273,000 by Philex Mining Corporation, the parent company of the group including the Company. The loan is unsecured, and was due on December 31, 2010 and bears interest at LIBOR plus 3 % per annum which amounted to 3.46% as at December 31, 2010 (2009: 3.45%).

To date no amount of the loan has been repaid and the balance, including accrued interest as of December 31, 2010, is $289,750 (US$291,323).   There have been no discussions on the repayment of the outstanding amount and no demand has been made by the parent company for repayment.


Note 7                 Share Capital

a)  
 Authorized:

Unlimited number of common shares without par value; and

 
Unlimited number of Class A and Class B preferred convertible redeemable voting shares without par value.

b)  
Issued:

Common Shares
Number
Amount
Balance, December 31, 2009, and 2008 and 2007
434,143,765
$17,339,665   
Shares issued pursuant to private placement
    5,000,000
      2,577,250
Balance, December 31, 2010
439,143,765
$19,916,915   

On January 7, 2010 Philex Mining Corporation subscribed for 5,000,000 shares at US$0.50 per share for total proceeds of $2,577,250 (US$2,500,000).  The shares were issued on April 26, 2010.

c)  
Warrants:

 
Number
Amount
     
Balance, December 31, 2009, 2008 and 2007
3,533,333  
$      267,501  
Expired and allocated to contributed surplus
     (3,533,333)  
        (267,501) )
 
                  -  
$                  -   

 
The warrants were exercisable until January 31, 2010 and allowed the holder to purchase one common share of the Company for every warrant held at US$0.0723 per share.  The warrants expired unexercised on January 31, 2010 and the value of the unexercised warrants was transferred to contributed surplus.

 
60 

 
FEC RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(Stated in Canadian Dollars)


Note 7                 Share Capital – (cont’d)

a)  
Contributed Surplus

   
Balance, December 31, 2009, 2008 and 2007
$    3,794,939
Unexercised warrants transferred to contributed surplus
267,507
Balance, December 31, 2010
$    4,062,440


e)  
Options

The Company has established a stock option plan whereby options may be granted to its directors, officers, consultants, and employees.  The exercise price of each option equals the market price of the Company’s stock on the date of the grant and an option’s maximum term is five years.  The options vest immediately.

 
 
 
Number of
Options
Weighted
Average
Exercise
Price/Share
     
Outstanding and exercisable December 31, 2007
25,549,545
US$  0.09
Expired
(6,029,545)
US$  0.16
Outstanding and exercisable December 31, 2008
19,520,000
US$  0.07
Expired
(2,000,000)
US$  0.09
Outstanding and exercisable December 31, 2009
17,520,000
US$  0.07
Expired
(17,520,000)
US$  0.07
Outstanding and exercisable December 31, 2010
$               -
$               -

There were no stock options outstanding on December 31, 2010.


Note 8                 Accumulated Other Comprehensive Income (Loss)

   
Balance, December 31, 2007
$      (3,214,000)
Foreign currency translation adjustments
3,073,315
Effect of foreign currency translation on dilution of investment
146,776
   
Balance, December 31, 2008
6,091
Foreign currency translation adjustments
(1,985,447)
Effect of foreign currency translation on dilution of investment
(553)
   
Balance, December 31, 2009
(1,979,909
Foreign currency translation adjustments
(517,018)
Effect of foreign currency translation on dilution of investment
15,881
   
Balance, December 31, 2010
 $ (2,481,046)

Note 9                 Related Party Transactions and Balances

 
During the year ended December 31, 2010 general and administrative expenses included management fees charged by directors, officers and companies controlled by directors and officers of the Company totaling $249,385 (2009: $281,009; 2008:  $343,776;). During the year ended December 31, 2010, the Company incurred an interest charge of $10,916 (2009: $7,972; 2008: $Nil) on a loan from the parent of the Company.

Included in accounts payable and accrued liabilities at December 31, 2010 is $17,458 (2009; $4,568) owed to directors, officers and companies controlled by them for unpaid consulting fees.

In addition, on December 31, 2010, the Company owed Lascogon Mining Corporation $18,793 for audit fees paid on behalf of the Company for preparation of an annual report to be filed in the United States.

Related party transactions are measured at the exchange amount, which amount is agreed to by the parties.


Note 10                 Income Taxes

As at December 31, 2010, the significant components of the Company’s future tax assets and liabilities are as follows:

 
2010
2009
     
Non capital losses carried forward
$   1,728,000
$   1,732,000
Investments
412,000
31,000
Financing costs
-
10,000
Other
3,000
-
Valuation allowance
(2,143,000)
(1,773,000)
     
 
$               -
$               -


No income tax benefits to the future tax assets have been recognized in the accounts as their realization does not meet the requirements of “more likely than not” under the liability method of tax allocation.


 
61 

 


Note 10                 Income Taxes – (cont’d)

The reconciliation of income taxes at Canadian statutory rates to the reported income tax provision is as follows:

 
2010
2009
     
Statutory tax rate
28.00%
29.00%
     
Income tax recovery at statutory rates
$   (910,000)
$   (399,000)
Effect of reduction in statutory rates
97,000
55,000
Non-deductible portion of capital loss
335,000
-
Expiry of loss carry forwards
110,000
212,000
Other
(2,000)
106,000
Change in valuation allowance
370,000
26,000
     
 
$               -
$               -


 
The Company has non-capital losses for Canadian income tax purposes of approximately $6,914,000 which, may be carried forward to offset future taxable income.  The benefit, if any, of these non-capital losses have not been reflected in the consolidated financial statements.

 
As at December 31, 2010, the Canadian non-capital losses carried forward expire as follows:

   
2014
$      544,000
2015
1,255,00
2026
1,703,000
2027
1,701,000
2028
602,000
2029
498,000
2030
611,00
 
 $ 6,914,000


The Company has incurred expenditures in various other jurisdictions, which are subject to tax authority approval.  No provision for taxes in these other jurisdictions has been recorded.

 
62 

 


Note 11                 Financial Instruments

The Company’s financial instruments comprise primarily of cash, accounts payable and accrued liabilities, and a short-term loan. The Company has designated cash and cash equivalents as held-for-trading, which is measured at fair value. Accounts payable and accrued liabilities, as well as due to related party are designated as other liabilities, which are measured at amortized cost.

a)      Fair value

The carrying values of accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.

The methods and assumptions used to develop fair value measurements for those financial instruments carried at fair value in the balance sheet have been prioritized into three levels of a fair value hierarchy.  Level one includes quoted prices (unadjusted) in active markets for identical assets or liabilities, level two includes inputs that are observable other than quoted prices include in Level one and level three includes inputs that are not based on observable market data.  The Company’s cash and cash equivalents is a level one fair value measurement.

b)      Foreign currency exchange risk

 
The Company is exposed to foreign currency fluctuations for transactions denominated in U.S. dollars; however this risk is partially mitigated as the majority of the Company’s cash is kept in U.S. dollars.  As at December 31, 2010, the Company held  $2,043,652 (US$2,054,748) (2009 - $36,524 (US$34,752)) of cash denominated in U.S. dollars subject to exchange rate fluctuations between the Canadian dollars and the U.S. dollars.

 
c)
Concentration of credit risk

The Company maintains cash deposits in one chartered Canadian bank which, from time to time, exceed the amount of depositors insurance available in each respective account.  Management assesses the financial condition of this bank and believes that the possibility of any credit loss is minimal.

 
63 

 

Note 11                 Financial Instruments – (cont’d)

 
d)
Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages liquidity by maintaining cash balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2010 the Company’s accounts payable and accrued liabilities were $96,990, all of which fall due for payment within twelve months of the balance sheet date. In addition, the Company’s short term loans were $289,750, which are due on demand.  The Company has minimal long-term commitments

e)  
Interest Rate Risk

Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash and cash equivalents. The Company did not have any borrowings outstanding as at December 31, 2010 except the loan from its parent company. The loan from the parent company has terms that include interest at LIBOR plus 3% thus exposing the Company to a potential cash flow interest rate risk due to this borrowing having a variable interest rate.


Note 12
Capital Management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders, to meet external capital requirements on credit facilities and to support any growth plans.

The capital of the Company consists of the items included in shareholders’ equity and cash net of debt obligations. The Company monitors capital based on the debt to debt-plus-equity ratio. Debt is total debt shown on the balance sheet, less cash. Debt-plus-equity is calculated as debt shown on the balance sheet, plus total shareholders’ equity which includes share capital, warrants, contributed surplus and deficit. Currently the Company has no debt except for a short-term loan due to its parent company. The Company’s Board of Directors approves management’s annual capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management.


 
64 

 

Note 13
Differences between Canadian and United States Generally Accepted Accounting Principles

 
These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) which differ in certain material respects from accounting principles generally accepted in the United States (“US GAAP”).  Material differences between Canadian and US GAAP and their effect on the Company’s financial statements are summarized below:

Balance Sheets

 
2010
2009
     
Total assets under Canadian GAAP
$   2,588,328
$    3,732,102
Investment in Lascogan
-
(1,228,800)
     
Total assets under US GAAP
$   2,588,328
$   2,503,302
     
Total liabilities under Canadian GAAP & US GAAP
386,740
357,844
     
Total shareholders’ equity under Canadian GAAP
2,201,588
3,374,258
Cumulative differences in the classification and presentation of previously issued convertible debentures
 
 
1,593,730
 
 
1,593,730
Investment in Lascogon previously charged to expense under US GAAP
 
1,233,987
 
-
Deficit
(2,827,717)
(2,822,530)
     
Total shareholders’ equity under US GAAP
2,201,588
2,145,458
     
Total liabilities and shareholders’ equity under US GAAP
 
$   2,588,328
 
$   2,503,302


 
65 

 


Note 13
Differences between Canadian and United States Generally Accepted Accounting Principles – (cont’d)

Statements of Loss

 
2010
2009
2008
       
Net loss under Canadian GAAP
$   (3,248,783)
$  (1,201,745)
$   (4,237,263)
Lascogon investment previously charged to expense under US GAAP
 
1,233,987
 
-
 
-
Equity loss and write-off of resource property costs in Lascogon Mining Corporation
 
 
(5,187)
 
 
(98,615)
 
 
(736,995)
       
Net loss under US GAAP
(2,019,983)
(1,300,360)
(4,974,258)
Foreign currency translation adjustments
(517,018)
(1,985,447)
3,073,315
Effect of foreign currency translation on dilution of investment
 
15,881
 
(533)
 
146,776
       
Comprehensive loss under US GAAP
$   (2,521,120)
$   (3,286,360)
$   (1,754,167)
       
Basic and diluted loss per share under US GAAP
 
$           (0.01)
 
$           (0.00)
 
$           (0.01)
       
Weighted average shares outstanding
437,554,724
434,143,765
434,143,765


Resource Property Costs

 
Under Canadian GAAP, the costs of acquiring mineral properties and related exploration and development expenditures are deferred.  Under US GAAP, resource property costs related to exploration can only be deferred subsequent to the establishment of reserves.  The financial statements of Lascogon Mining Corporation (“Lascogon”) reflect deferred exploration costs at December 31, 2010 of $3,681,202 (2009: $3,642,627).  For purposes of US GAAP, the Company’s equity share of the income or loss in its investment in Lascogon is adjusted for its share of the expensing of exploration costs prior to the establishment of reserves under US GAAP.  For the year ended December 31, 2010, this amounted to $5,187 (2009 - $98,615; 2008 - $736,995).









Note 13
Differences between Canadian and United States Generally Accepted Accounting Principles – (cont’d)

Resource Property Costs – (cont’d)

 
For purposes of Canadian GAAP, during the year ended December 31, 2010, the Company recorded an impairment charge of $2,607,614 representing an amount which it is being carried on the Company’s books as a result of determining that any further development of MPSA 148 would not provide an acceptable return on the investment. For purposes of US GAAP, the resulting impairment charge for the year ended December 31, 2010 totalled $1,373,627 after taking into effect the balances previously expensed in respect of mineral exploration costs.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted

In April 2009, the FASB issued guidance within ASC Topic 805, “Business Combinations.”  ASC Topic 805 amends the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination.  This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The adoption of this guidance did not have a material impact on our consolidated financial statements.

During February 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-09, “Subsequent Events (Topic 855)”.  The amended guidance in ASU 2010-09 states that an entity that is an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued, but is not required to disclose the date through which subsequent events have been evaluated.  The adoption of the provisions of this amendment did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.



Note 13
Differences between Canadian and United States Generally Accepted Accounting Principles – (cont’d)

Recent Accounting Pronouncements – (cont’d)

New Accounting Pronouncements Not Yet Adopted – (cont’d)

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

 
66 

 


Report of Independent Registered Public Accounting Firm

Board of Directors
Forum Energy Plc
Chertsey, United Kingdom
 
We have audited the accompanying consolidated statement of financial position of Forum Energy Plc as of 31 December 2010 and 2009 and the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the two years in the period ended 31 December 2010. 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 audits.
 
 
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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forum Energy Plc at 31 December 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended 31 December 2010, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
 

 
BDO LLP
London, United Kingdom
July 15, 2011
 
 

 


 



 
67 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010 AND 2009
 
 
   Note
Year ended
31 December
2010
US$'000
 Year ended
31 December
2009
US$'000
       
 Revenue    6,068  1,786
       
 Cost of sales    (4,009)  (1,590)
       
 Gross Profit    2,059  196
       
 Other Administratice expenses    (2,397)  (2,578)
 Share-based payments expense      (336)
       
 Total administrative  3  (2,397)  (2,578)
       
 Loss from operations    (338)  (2,382)
       
 Finance income  5  15  2
 Finance expenses  6  (235)  (117)
       
 Loss before tax    (558)  (2,497)
       
 Taxation  7  -  102
       
 Loss from continued operations    (558)  (2,395)
       
 Loss on discontinued operations, net of tax  8  -  (1,332)
       
 Loss for the year    (558)  (3,727)
       
 Total comprehensive loss for the year    (558)   (3,727)
       
 Total comprehensive (loss)/income attributable to:      
 Owners of the parent    (438)  (3,618)
 Non-controlling interest    (120)  (109)
       
     (558)  (3,727)
       
 Loss per ordinary share (US$) attributable      
 Basic and diluted  9  (0.013)  (0.119)
       
 Loss per ordinary share (US$) on continued operations      
 Basic and diluted  9  (0.013)  (0.075)
       
 Loss per ordinary share (US$) on discontinued operations      
 Basic and diluted  9  (0.000)  (0.044)
       
       


 
68 

 

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2010 AND 2009

 
 
 Group
 Share
Capital
US$'000
 Share
premium
US$'000
 Share
option
reserve
US$'000
 Deficit
US$'000
 Total
US$'000
 Non-
Controlling
interest
US$'000
 Total capital
and
reserves
US$'000
               
 Balance as at 1 January 2009  5,443  48,938  157  (10,708)  43,830  1,563  45,393
               
 Total comprehensive loss for the year  -  -  -  (3,618)  (3,618)  (109)  (3,727)
 Share-based payment  -  -  336  -  336  -  336
 Issue of shares (net of issue costs)  498  1,931  -  -  2,429  -  2,429
               
 Balance as at January 2010  5,941  50,869  493  (14,326)  42,977  1,454  44,431
               
               
 Total comprehensive loss for the year  -  -  -  (438)  (438)  (120)  (558)
 Transfer to retained deficit  -  -  (55)  55  -  -  -
 Issue of shares (net of issue costs)  41  95  -  -  136  -  136
               
 Balance as at 31 December 2010  5,982  50,964  438  (14,709)  42,675  1,334  44,009
               

 
The share premium account holds the balance of consideration received in excess of the par value of the shares. The share premium account can be used to pay any unpaid subscriptions.

The share option reserve relates to the cumulative fair value of options charged to the statement of comprehensive income adjusted for transfer on exercise, cancellation or expiry.

The deficit reserve is the cumulative net gains and losses recognised in the statement of comprehensive income adjusted for transfer on exercise, cancellation or expiry of options from the share option reserve.


 
69 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2010AND 2009

                                                       
 
   Note
 2011
US$'000
 2009
US$'000
       
 Assets      
 Non-current assets      
 Property, plant and equipment  11  3,673  4,168
 Intangible assets  10  42,630  40,859
 Investments  12  18  5
       
 Total non-current assets    46,321  45,032
       
 Current assets      
 Inventories  12  419  65
 Trade and other receivables  13  1,151  639
 Cash and cash equivalents  19  2,464  4,172
       
       
 Total current assets    4,034  4,876
       
 Total assests    50,355  49,908
       
 Liabilities      
 Non-current liabilities      
 Other liabilities and provisions  15  3,994  4,667
       
       
 Total non-current liabilities  15  3,994  4,667
       
 Current liabilities      
 Trade payable and other payables  15  2,352  810
       
 Total current liabilities    2,352  810
       
 Total liabilities    (6,346)  (5,477)
       
 Total net assests    44,009  44,431
       
 Capital and reserves attributable to equity holders of the Group      
 Share capital  16  5,982  5,941
 Share premium reserve  16  50,964  50,869
 Share option reserve    438  493
 Deficit    (14,709)  (14,326)
     42,675  42,977
       
 Non-Controlling interest    1,334  1,454
       
 Total equity    44,009  44,431
 
The financial statements were approved and authorised for issue by the Board on July 15, 2011.
 
Andrew J. Mullins
Executive Director

 
 
70 

 



CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2010 AND 2009

 
 
   Note
 Year ended
31 December
2010
US$'000
 Year ended
31 December
2009
US$'000
       
 Cashflows from operating activities      
       
 Loss before tax for the year    (558)  (3,829)
 Adjustments for.      
     Depreciation    2,454  796
     (Gain)/loss on financial assets  5  (13)  3
     Finance income  5  (2)  (2)
     Finance expenses    35  -
     Equity settled share-based payment expense  16  -  336
     1,916
 (2,696)
       
 (Increase)/decrease in trade and other receivables    (512)  1,124
 (Increase)/decrease in inventories    (354)  12
 Increase in trade and other payables    843  178
 Increase in provisions and employee benefits    26  21
       
 Net cash flows from operating activities    1,919  (1,361)
       
 Investing activities      
       
 Purchase of property, plant and equipment    (2,001)  (21)
 Disposal of property, plant and equipment    42  -
 Purchase of intangible assets  10  (1,771)  (253)
 Sale of discontinued operations  8  -  813
 Interest received  5  2  2
       
 Net cash from investing activities    (3,728)  541
       
 Financing activities      
 Issue of ordinary share capital (net of issue costs)  16  136  2,429
       
 Net cash from financing activities    136  2,429
       
 Net increase in cash and cash equivalents    (1,673)  1,609
       
 Cash and cash equivalents at beginning of the year    4,172  2,574
       
 Exchange losses on cash and cash equivalents    (35)  (11)
       
 Cash and cash equivalents at end of the year  19  2,464  4,172
 
     

 
71 

 

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010 AND 2009
 
1 ACCOUNTING POLICIES
Basis of preparation
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards IFRSs and IFRIC interpretations, issued by the International Accounting Standards Board (IASB) (‘IFRSs’).

Changes in accounting policies
(i) New and amended standards adopted by the Group
The following new standards and amendments to standards are mandatory for the first time for the Group for financial year beginning 1 January 2010.

Standard
Date of adoption
Impact on initial application
IAS 27 - Amendment - Consolidated and Separate Financial Statements
1 July 2009
The amendment affects the acquisition of subsidiaries achieved in stages and disposals of interests.  Amendment does not require the restatement of previous transactions.
During the year, there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity; there have been no transactions with non-controlling interests.
IFRS 3 - Revised - Business Combinations
1 July 2009
The revision to IFRS 3 introduced a number of changes in accounting for acquisition costs and recognition of intangible assets in business combinations. The revised standard does not require the restatement of previous business combinations.
During the year, there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity; there have been no transactions with non-controlling interests.
IAS 39 – Amendment - Financial Instruments: Recognition and Measurement: Eligible Hedged Items
1 July 2009
The amendment clarifies the principles for determining eligibility of hedged items.
The amendment did not have any impact on the current or prior years’ financial statements. Future transactions will be accounted for consistently with this amendment.
IFRS 2 - Amendment - Group Cash-settled Share-based Payment Transactions
1 January 2010
The amendments clarifies that where a parent (or another group entity) has an obligation to make a cash-settled share-based payment to another group entity’s employees or suppliers, the entity receiving the goods or services should account for the transaction as equity –settled.
The amendment did not have any impact on the current or prior years’ financial statements. Future transactions will be accounted for consistently with this amendment.
‘Additional exemptions for first-time adopters’ (Amendment to IFRS 1)
1 January 2010
This is not relevant to the Group as it is an existing IFRS preparer.
Improvements to IFRSs (2009)
Generally
1 January 2010
The improvements in this Amendment clarify the requirements of IFRSs and eliminate inconsistencies within and between Standards. The improvements did not have any impact on the current or prior years’ financial statements.
IFRIC 17 - Distributions of Non-cash Assets to Owners
1 January 2010
The interpretation provides guidance on how to measure distribution of assets other than cash.
The application of this interpretation did not have any impact on the current or prior year’s financial statements. Future transactions will be accounted for consistently with this interpretation.
IFRIC 18 - Transfer of Assets from Customers
1 January 2010
The interpretation clarifies the treatment of agreements in which an entity receives from a customer an item of property that it must use to provide the customer with an on-going access to goods or services.
The application of this interpretation did not have any impact on the current or prior year’s financial statements. Future transactions will be accounted for consistently with this interpretation.
IFRIC 9/ IAS 39 - Amendment - Embedded Derivative
1 January 2010
The amendment clarifies the treatment of embedded derivatives in host contracts that are classified out of fair value through profit or loss.
The application of this interpretation did not have any impact on the current or prior year’s financial statements. Future transactions will be accounted for consistently with this interpretation.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation
 
1 January 2010
The interpretation provides guidance for application of hedge accounting in foreign operations.
The application of this interpretation did not have any impact on the current or prior year’s financial statements. Future transactions will be accounted for consistently with this interpretation.


 
72

 
No other IFRSs issued and adopted but not yet effective are expected to have an impact on the Group’s financial statements.

(ii) Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:

Standard
 
Description
Effective date
· IAS 32
Amendment - Classification of Right Issues
1 Feb 2010
· IFRIC 19
Extinguishing  Financial Liabilities with Equity Instruments
1 Jul 2010
· IFRS 1
Amendment - First Time Adoption of IFRS
1 Jul 2010
· IAS 24
Revised - Related Party Disclosures
1 Jan 2011
· IFRIC 14
Amendment - IAS 19 Limit on a defined benefit asset
1 Jan 2011
· IFRS 7 *
Amendment - Transfer of financial assets
1 Jul 2011
· IFRS 1 *
Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters
1 Jul 2011
 
Improvements to IFRSs (2010) *
1 Jan 2011
· IAS 12 *
Deferred Tax: Recovery of Underlying Assets
1 Jan 2012
· IFRS 9 *
Financial instruments
1 Jan 2013

The Group has not yet assessed the impact of IFRS 9. Except for the amended disclosure requirements of IAS 24 (the above revised standards), amendments and interpretations are not expected to materially affect the Group’s reporting or reported numbers.
 
 
*Not yet endorsed by European Union.

Going concern
On 15 February 2010, the Group was awarded the Service Contract over the GSEC101 licence area. The terms of this licence includes a minimum spend commitment of US$3 million which must be satisfied within a period of 18 months of award of the service contract. The Group will be able to meet the requirements of this commitment through the US$10 million facility agreement entered into between the Group and Philex Mining Corporation on 24 November 2010. Subsequent minimum spend commitments for the SC72 licence area amount to US$6 million which must be met by 30 June 2013.
 
On this basis and after making enquiries, the Directors have a reasonable expectation that the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidation
The consolidated financial statements present the results of the Company and its subsidiaries (the Group) as if they formed a single entity. Inter-company transactions and balances between Group companies are therefore eliminated in full.

Business combinations
The consolidated financial statements incorporate the results of business combinations using the acquisition method of accounting. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date.
The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

Joint ventures
The Group enters into arrangements with third parties for the joint exploration, development and production activities under contractual arrangement.
It classifies these arrangements as jointly controlled operations for the purposes of IAS 31. Accordingly, the Group only accounts for its share of assets, liabilities, revenues and expenses, classified in the appropriate Statement of Financial Position and Statement of Comprehensive Income headings.

The Galoc, Nido and Matinloc fields are accounted for by the Group using proportionate consolidation which brings into account the Group's share of assets, liabilities, revenue and operating costs related to their fields..

Non-current assets held for sale
Non-current assets are classified as held for sale when:

they are available for immediate sale;
management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
an active programme to locate a buyer has been initiated;
the asset is being marketed at a reasonable price in relation to its fair value; and
a sale is expected to complete within 12 months from date of classification.

Non-current assets classified as  held for sale are measured at the lower of:

their carrying amount immediately prior to being classified as held for sale in accordance with the Group’s accounting policy; and
fair value less costs to sell.

Following their classification as held for sale, non-current assets are not depreciated.

The results of operations during the year are included in the consolidated statement of comprehensive income up to the date of disposal.

 
73 

 

Discontinued operations are presented in the statement of comprehensive income (including the comparative period) as a single line which comprises
the post tax loss of the discontinued operation. Operations are classified as discontinued when the decision is made to dispose of the operation by the directors and the operations are actively marketed.

Associates
When the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. The Group’s share of post-acquisition profit and losses is recognised in the consolidated statement of comprehensive income, except that the losses in excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profit and losses resulting from these transactions is eliminated against the carrying value of the associate.

Foreign currency
The functional currency of the parent company and its subsidiaries is the US$. Transactions entered into by Group entities in a currency other than the functional currency of the entity  are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the statement of financial position date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the statement of comprehensive income.

Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual right to the cash flow expires or when substantially all the risk and rewards of ownership are transferred. Financial liabilities are de-recognised when the obligations specified in the contract are either discharged or cancelled.

Revenue
Revenue is derived from sales of oil to third party customers. Sales of oil are recognised at the time of delivery of the product to the purchaser. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and other sales tax or duty.

Financial assets
The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group’s accounting policy for each category is as follows:

Trade and other receivables and other financial assetsThese assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers, but also incorporate other types of contractual monetary asset such as advances made to affiliated entities. They are initially recognised at fair value plus transaction costs and subsequently carried at amortised cost, using the effective interest method, less any provision for impairment. If the need for impairment of a receivable arises, the value of the provision, representing the expected loss from not being able to recover such receivables, is recognised as a cost of sale.

Cash and cash equivalents Cash comprises bank and cash deposits at variable interest rates. Any interest earned is accrued monthly and classified as interest income. Cash equivalents comprise short-term, highly liquid investments with original maturities of three months or less at the date acquired, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of IAS 39 these amounts are classified as loans and receivables where appropriate.

Financial liabilities

Trade payables and other short-term monetary liabilitiesThese are initially measured at fair value and subsequently recognised at amortised cost using effective interest rate method.

Investments
Investments in quoted companies are carried at market value with any gains or losses recognised in other comprehensive income.

Share-based payments
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive income over the vesting period.

Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period.

Where equity instruments are granted to persons other than employees, the statement of comprehensive income is charged with the fair value of goods and services received.

Tax
Income tax on the profit or loss from ordinary activities includes current and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowed and is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date. Income tax is charged or credited to profit or loss, except when the tax relates to items credited or charged directly to equity, in which case the tax is also dealt with in equity.

 
74

 
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the statement of financial position differs from its tax base, except for differences arising on the initial recognition of goodwill for which amortisation is not tax deductible, the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit and on investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either the same taxable Group company or different Group entities, which intend either to settle current tax assets and liabilities on a net basis or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Unevaluated oil and gas properties
The Group applies the full cost method of accounting, having regard to the requirements of IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’. Under the full cost method of accounting, all costs associated with exploration for and evaluation of mining and oil and gas properties are capitalised in geographical pools pending determination of the feasibility of each project. Such cost pools are based on geographic areas and are not larger than a segment. The Group currently has one pool, the Philippines.

Costs which are capitalised include costs of licence acquisition, technical services and studies, exploration drilling and testing and appropriate technical
and administrative expenses but do not include general overheads or costs incurred prior to having obtained the legal rights to explore an area, which are expensed directly to the statement of comprehensive income as they occur.

When the technical and commercial feasibility of a mining or oil or gas project has been determined, the related expenditures will be transferred to property, plant and equipment as proved properties. Where a licence is relinquished, or a project is abandoned, or is considered to be of no further commercial value to the Group, the related costs will be written off to the statement of comprehensive income.

Unevaluated mining and oil and gas costs are assessed at each period end and where there are indications of impairment. Any amount by which carrying costs exceed recoverable amounts will be written off. The recoverability of unevaluated oil, gas and mining costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves.

At the completion of the exploration phase, if technical feasibility is demonstrated and commercial reserves are discovered, then, following the decision
to continue into the development phase, the carrying value of the relevant asset will be reclassified as an oil and gas asset within property, plant and equipment, but only after the carrying value of the asset has been assessed for impairment in accordance with the impairment of property, plant and equipment assets policy. Unevaluated oil and gas properties are not amortised prior to reclassification to the property, plant and equipment phase.

Property, plant and equipment
Depletion and amortisation of proved oil and gas mining properties is provided over the estimated commercial life of each property and computed using the units of production method based on proved reserves as determined annually by management. Depletion, depreciation and amortisation are included within operating expenses within the statement of comprehensive income.

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future costs of dismantling and removing items. The corresponding liability is recognised within provisions.

Depreciation is provided on all items of property and equipment to write off the carrying value of items over their expected useful economic lives. It is applied at the following rates:
 
 
 Drilling equipment  20% per annum straight line
 Transport and motor equipment   –   20% per annum straight line
 Furniture, fixtures and fittings  –   20% per annum straight line
 Tools and other equipment   –   33% per annum straight line
 

                                                                                                                                                                                                                                                     
Impairment of property, plant and equipment
Property, plant and equipment are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows).

Any impairment charge is included in the administrative expenses line item in the statement of comprehensive income, except to the extent they reverse gains previously recognised in the statement of  changes in equity.

Inventories
Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Weighted average cost is used to determine the cost of ordinarily interchangeable items.

 
75

 
Provision for abandonment costs
Provision for abandonment costs is recognised at the commencement of production. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding tangible fixed asset of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the capital costs of production. Any change in the present value of the estimated expenditure is reflected as an adjustment to the provision and the fixed assets.

Leased assets
Where assets are financed by leasing agreements that do not give rights approximating ownership, these are treated as operating leases. The annual rentals are charged to the statement of comprehensive income on a straight line basis over the term of the lease.

Listed investments
Listed investments are held at current market value.

Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, which are described in Note 1, Management has made the following judgements that have
the most significant effect on the amounts recognised in the financial statements:

Recoverability of exploration and evaluation costs Under the full cost accounting method of accounting for exploration costs, such costs are capitalised as intangible assets and assessed for impairment on a cost pool basis when circumstances suggest that the carrying amount off the costs pool may exceed its recoverable value and, therefore, there is a potential risk of an impairment adjustment. This assessment involves judgement as to; the likely future commerciality of the asset and when such commerciality should be determined: future revenue and costs pertaining to any concession based on proved plus probable, prospective and contingent resources and the discount rate to be applied to such revenues and cost for the purpose of deriving a recoverable value. The Management have reviewed the recoverability of the assets and consider this to be greater than the current net book value. Further information is included in Note 10.

Depreciation Percentages are applied by the Management to the Group’s net book value of depletable assets based on future levels of production
for producing assets.

Share options Provisions for share-based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the continuing participation of employees (see Note 16).

Fair value of exploration and appraisal assetsThe fair value of exploration and appraisal assets is based on internal and third-party reports, further discounted to reflect future risks such as higher interest rates, smaller than expected reserves and variation to other critical assumptions.

Impairment review
While conducting an impairment review of its assets, the Group makes certain judgements in making assumptions about the likelihood of licence conversion, the future prices, reserve levels, and future development and production costs. Changes in the estimates used can result in significant charges to the statement of comprehensive income. This is performed solely for the purposes of considering the carrying value of the Group’s assets.

Legal proceedings and commercial disputes
In accordance with IAS 37  the Group only recognises a provision where there is a present obligation from a past event, a transfer of economic benefit is probable and the amount of cost of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial statements. Realisation of any contingent liabilities not currently recognised or disclosed in the financial statements could have a material effect on the Group’s financial position. Application of this accounting principle requires the Management to make determinations about various factual and legal matters beyond their control. Among the factors considered in making decisions on provisions are the nature of the disputes and litigations, the progress of the cases, the opinions of legal advisers, experience of similar cases and any decision of the Group’s Management as to how it will respond to any such claim or litigation.

 
76 

 
 
2    SEGMENT ANALYSIS
The Group operated in one principle operating segment, ‘the exploration for and production of oil and gas’.

 All the Group’s oil and gas revenues are generated in the Philippines and are made to Philippine based customers as shown in the consolidated income  statement. Further information on these customers is included within Note 20.

 All the Group's non-current assets are located In the Philippines as shown in the consolidated statement of financial position .
 
3.    EXPENSES BY NATURE
 
 
 
 
Year ended
31 December
2010
US$'000 
Year ended
31 December
2010
US$'000 
 
Fees payable to the Group’s Auditor for the audit of the Group’s annual accounts
50 66 
Fees payable to the Group’s Auditor’s overseas associate for the audit of the Group’s    
 subsidiaries, pursuant to legislation  18  15
 Directors’ remuneration  826  950
 Employee salaries and other benefits  286  440
 Share-based payments  -  336
 Depreciation and amortisation  23  22
 Operating lease rentals  91  76
     
     
 
 


 
4    SALARIES
 
  Group
 
Year ended
31 December
2010
 
Year ended
31 December
2010
 
 Average number of employees (including Directors) are as follows:    
 Administration and finance  16  12
 Technical 4  3
     
   20  15
 

 

  Group
 
Year ended
31 December
2010
US$'000
 
Year ended
31 December
2010
US$'000
 
 Gross salaries (including Directors)  733  869
 Fees (including Directors) 559  448
 Employee benefits and social security costs 46   73
 Share-based payments -  336
     
   1,338  1,726


 
77 

 

Directors’ and Senior Management emoluments
 
 
 
Termination
Payment
US$'000
 NI/SS
US$'000
 Salary
US$'000
Bonuses
US$'000 
Fees
US$'000 
 Year ended
31 December
2010
Total
US$'000
 Year ended
31 December
2009
Total
US$'000
               
Directors’ emoluments              
Alan Henderson (resigned 3 April 2009)  -  -  -  -  -  -  41
Barry Stansfield  -  6  50  -  34  90  85
Andrew J. Mullins  -  23  198  14  -  235  415
Walter W. Brown  171  -  -  -  189  360  386
 Roberto V. Ongpin (appointed 19 June 2009)  -  -  -  -  50  50  23
 Robert C. Nicholson (appointed 9 March 2010)  -  -  -  -  37  37  -
 Paul F. Wallace (appointed 27 July 2010)  -  -  -  -  22  22  -
 Carlo S. Pablo (appointed 27 July 2010)  -  -  -  -  22  22  -
 Edward Tortorici (appointed 18 November 2010)  -  -  -  -  5  5  -
 Richard Beacher (appointed 18 November 2010)  -  -  -  -  5  5  -
   171  29  248  14  364  826  950