20-F 1 form20f.htm FORM 20-F form20f.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, 2012
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        
       
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)
 
                                           Canada                                                      
(Jurisdiction of incorporation or organization)

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

Carlo Pablo, (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 [   ]                 No  [X]

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  [X]
 
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 [X]   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 [X]   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 ___X__

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 as issued by the International Accounting Standards Board    Other  X  
 
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   [  ]         Item 18        [X]        
 
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  [X]    

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

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

 
 
2

 
FEC RESOURCES, INC. (formerly “FORUM ENERGY CORPORATION”)
FORM 20-F ANNUAL REPORT FISCAL YEAR 2011

TABLE OF CONTENTS
 
 
PART I
Page
     
Item 1.
   5 
Item 2.
   5 
Item 3.
   5
Item 4.
 14 
Item 4a.
 20
Item 5.
 21
Item 6.
 28
Item 7.
 35
Item 8.
 36
Item 9.
 36
Item 10.
 38
Item 11.
 40
Item 12.
 40
     
 
PART II
 
     
Item 13
 41
Item 14
 41
Item 15.
 43
Item 16A.
 43
Item 16B.
 44
Item 16C.
 44
Item 16D.
 44
Item 16E.
 44
Item 16F
 44
Item 16G
 44
Item 16H.
 44
     
 
PART III
 
     
Item 17.
 44
Item 18.
 45
Item 19.
 46
     
   47

 
3

 
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 references to we, our, us, Company, Corporation, or FEC refer to FEC Resources Inc,

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.
 
4

 
FIRST TIME APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
 
Effective from January 1, 2011, the Company adopted International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.  Unless otherwise stated, all information presented herein has been prepared in accordance with IFRS and all prior period amounts have been reclassified to conform with IFRS.  Prior annual financial statements were prepared in accordance with Canadian generally accepted accounting principles, which may not be comparable to IFRS.
 
CURRENCY
 
Unless otherwise stated, “$”, when used in this Form 20-F, refers to US dollars.

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 12/31/12
1.00
1.04
0.97
0.99
Fiscal Year Ended 12/31/11
0.98
1.05
0.94
1.02
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

The current rate of exchange was 1.01 on April 3, 2013
 
5

 
Table No. 3(A)(2)
U.S. Dollar/Canadian Dollar
 
 
10/12
11/12
12/12
01/13
02/13
03/13
High
1.00
1.00
1.00
1.01
1.03
1.03
Low
0.98
0.99
0.98
0.98
1.00
1.02

A.  Selected Financial Data

The following financial data summarizes selected financial data for our company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) for the three fiscal years ended December 31, 2012, , 2011 and 2010.  The information presented below for the two year period ended December 31, 2012 and 2011 is derived from our financial statements which were examined by our independent auditors.  The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”.

   
Year
Ended
12/31/12
(‘000)
   
Year
Ended
12/31/11
(‘000)
   
Year
Ended
12/31/10
(‘000)
 
Revenue
  $ -     $ -     $ -  
Net (Loss) Income
  $ (5,138 )   $ 435     $ (2,925 )
Net (Loss) Income Per Share
  $ (0.01 )   $ 0.00     $ (0.01 )
Diluted  Net (Loss) Income  Per Share
  $ (0.01 )   $ 0.00     $ (0.01 )
Dividends Per Share
  $ 0.00     $ 0.00     $ 0.00  
Weighted  Avg. Shares O/S (‘000)
    439,144       439,144       437,555  
Working Capital
  $ 824     $ 1,242     $ 1,692  
Resource Properties
  $ -     $ -     $ -  
Long-Term Debt
  $ -     $ -     $ -  
Shareholders’ Equity
  $ 827     $ 5,965     $ 5,530  
Capital Stock Shares  (‘000)
    439,144       439,144       439,144  
Total Assets
  $ 902     $ 6,356     $ 5,918  
 
 
6

 
B. Capitalization and Indebtedness

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

C. Reason for the Offer and Use of Proceeds

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

D.  Risk Factors

General Business Risks

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

We incurred a loss of $5,138,333 for the year ended December 31, 2012 and although we showed income of $435,290 for the year ended December 31, 2011, we have incurred operating losses in the previous fiscal years with our accumulated deficit totaling $18,963,479 as at December 31, 2012.   We also anticipate sustaining a loss from operations for the fiscal year ended December 31, 2013.  We have no sources of revenue and only show income as a result of accounting for our equity share of profits of our associates.   As a result, we may not be able to sustain operations in the future without additional debt or equity financing.

Unless We Are Able To Discover Economically  Recoverable Reserves in the Future, We May Not Be Able to Continue Operations as a Going Concern in the Long Term.
 
Our business success is dependent upon 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, 2012 and 2011 and have no producing properties.  For the year ended December 31, 2011, although we showed net income of $435,290, $885,912 of the income was from our share of profits and loss of associates recorded on the equity basis. Our ability to continue as a “going concern” in the long term is dependent on achieving profitable operations and upon obtaining additional financing.  The outcome of these matters cannot be predicted at this time.
 
7

 
Although We Believe We Have Sufficient Working Capital as of April 26, 2013 to Support Our Business in 2013, 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, 2012 and 2011 were $(422,144) and $(446,718), 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, or 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.

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 Pink Sheets (“Pink Sheets”).  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.
 
8

 
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 April 26, 2013, we had 439,143,765 common shares outstanding.  We currently have 268,207,623 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 268,207,623 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 and its subsidiary Philex Petroleum 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.
 
9

 
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 and obtaining the financing necessary to acquire such reserves.  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.

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.
 
10

 
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.                                                                                                                                          

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. In 2012, our equity interest in Lascogon Mining Corporation was diluted from 40% to 1.08% as we were unable to meet a capital call for a work program. We could be further diluted in the future should Lascogon issue more capital calls.

It Is Possible that Our Title for the Claims in Which We Have a Direct or Indirect Interest in 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 direct or indirect 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, and other countries claming rights, that call into question the property rights granted by the governments of those countries.
 
11

 
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.

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.
 
12

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.

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.
 
13

 
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.
 
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 24.05% 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 1.08% interest in Mineral Production and Sharing Agreement 148 (“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 were focused on the development of one mineral license in the Philippines until December 31, 2010, however the project was determined to be not feasible based on our findings and therefore was fully impaired.  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 then largest shareholder.  In 2012, we received a capital call for approximately $2,400,000 for future work programs and as a result of not participating, we were diluted from 40% interest in Lascogon Mining to 1.08% interest. 
 
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 dependent 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 reasons.  We have filed for a mineral production and sharing agreement covering the current and surrounding area which we believed would be granted and would have allowed production to resume.  To date the mineral production and sharing agreement has not been granted and the operations of MMC are still dormant and have been abandoned.
 
14

Recent Developments

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

On December 21, 2012, $312,432 was repaid representing the total principal and accrued interest.

In May 2012, we received a capital call from Lascogon Mining in the amount of 100 million Philippine Pesos or approximately $2,400,000.  The capital call was made to address Lascogon Mining’s current deficit and to fund the upcoming work program and exploration budget.  We were given until December 21, 2012 to forward the requested funds or have our 40% interest diluted to 1.08%.  We did not forward funds and therefore our interest in Lascogon Mining was diluted to 1.08 percent.
 
The Philippines

We are currently pursuing exploration and development opportunities for oil, natural gas, gold, and copper in the Philippines through various companies in which we hold interests. FEP, in which we own a 24.05% equity interest, owns the oil and gas rights over a 8,800 square-kilometer block located in the West Philippine Sea. In addition FEP holds interests in various other concessions located in the Philippines.

We are involved in the exploration for gold and copper through our interest in Lascogon Mining Corporation.  The current mining exploration phase of the MPSA expires in January 2014 and it is uncertain whether a further 2 year extension will be granted.
 
Forum Energy Plc.

We currently own 24.05% 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.  
 
·
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.
 
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SC 72 (Reed Bank) formerly GSEC101

The SC72 concession (Reed Bank), is located in the West Philippine 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 $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
In February 2010, the GSEC101 exploration license was converted into Service Contract 72. The area of the block was reduced from 10,360 Km2 to 8,800 Km2 as part of this conversion.

In the first quarter of 2011, Forum completed 565 Km2 of 3D seismic acquisition over the Sampaguita Gas Field and 2,202 Line-Km of 2D seismic data was also acquired over the block in order to further define additional leads.

The interpretation of the surveys was carried out by Weatherford Petroleum Consultants ("Weatherford"). Weatherford's report identified a number of drilling locations.

Weatherford produced the following summary of unrisked resources initially in place:
 
Asset
Operator
Interest
Status
Licence area
Exploration license SC 72, West Philippnes Sea, Philippines
Forum (GSEC 101) Ltd for all properties
70%
Exploration
8800 sq-km

Contingent Resources

 
Gross
Net Attributable
 
Oil & Liquids Contingent Resources
Low Estimate
Best Estimate
High Estimate
Low Estimate
Best Estimate
High Estimate
RF
Sampaguita segment 2
34
59
103
24
41
72
0.50
Sampaguita segment 4
3
6
12
2
4
8
0.50
Total for Oil & Liquids (“OIIP”) MMbbls
37
65
115 26 46
81
 
               
Gas Contingent Resources
             
Sampaguita segment 2
1348
2354
4110
944
1648
2877
0.50
Sampaguita segment 4
127
249
488
89
174
342
0.50
Total for Gas (GIIP) BCF
1475
2603
4598
1033
1822
3219
 

 
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Prospective Resources

 
Gross
Net Attributable
 
Oil & Liquids Prospective Resources
Low Estimate
Best Estimate
High Estimate
Low Estimate
Best Estimate
High Estimate
RF
Sampaguita segment 2
40
76
146
28
53
102
0.48
Sampaguita segment 4
34
61
110
24
43
77
0.45
North Bank prospect
43
83
160
30
58
112
0.16
 Total for Oil & Liquids (“OIIP”) MMbbls
117
220
416
82
154
291
 
 
           
 Gas Prospective Resources              
Sampaguita segment 2
1603
3055
5821
1122
2139
4075
0.48
Sampaguita segment 4
1357
2441
4393
950
1709
3075
0.45
North Bank prospect
1706
3303
6398
1194
2312
4479
0.16
Total for Gas (GIIP) BCF
4666
8799
16612
3266
6159
11628
 
 
RF - i. Risk Factor for Contingent Resources, which means the estimated chance, or probability, thatthe volumes will be commercially extracted.  
 
- ii. Risk Factor for Prospective Resources, which means the chance or probability of discovering hydrocarbons in sufficient quantity for them to be tested to the surface. This, then, is the chance or probability of the Prospective Resource maturing into a Contingent Resource
 
MMbbls
- Million barrels
 
GIIP
- Gas initially in place
 
BCF
- Billion cubic feet
 
OIIP - Oil and liquids initially in place  
 
Weatherford prepared the summary using methods and terms in accordance with the Society of Petroleum Engineers guidelines.

The net attributable amounts represent FEP’s 70% interest in the estimated resources.

These pre-drill estimates of resources are based on certain assumptions and the information and interpretations currently available. There can be no assurances that these assumptions or estimates will prove to be accurate as future technical evaluations and results, including drilling results, could lead to variations or differ materially from those included in the report.

Forum was planning the execution of the second sub-phase work program at SC72 which was expected to involve the drilling of up to two wells before August 14, 2013.  On January 17, 2013 Forum announced that it had applied for an extension to the second-sub phase of SC72 from the Philippine Department of Energy.  On January 25, 2013 Forum announced that it was granted an extension until August 14, 2015 to complete the second sub-phase of SC72.

SC 72 is located in a area which is subject to a territorial dispute between the Chinese and the Philippine governments. There are discussions being held to  try and finds a commercial solution but any such commercial solution would require the full support of the Philippine government.    
 
Forum is also continuing to discuss potential partnerships with regards to SC72 to assist and augment in the successful acceleration of the development of the project.

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.
 
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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:
 
·
$1,000,000 upon production reaching 25,000 bopd;
 
·
$2,000,000 upon production reaching 50,000 bopd; and
 
·
$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.
 
In 2012, FEP wrote down $25,400,000 of its investment in Service Contract 40 as a result of receiving a resource assessment from an independent competent person
 
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.

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.
 
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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, FEP 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.  Although not material to Forum’s revenues, first production commenced in February 2012. Revenues for 2012 were approximatedly $87,758. Further ventures to produce across this significant acreage are underway and Forum is planning to drill onshore wells in 2013.

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.
 
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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 the fourth quarter 2008 and is currently 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 $0.8 million in 2010 and 2009.

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, FEP 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 FEP on 3 April 2006 (the "SPA").

In February 2012, FEP announced that the settlement agreement was not completed because not all required third party consents were obtained within the agreed timeframe resulting in the process going into arbitration.

On June 21, 2012 FEP has disclosed that FEP and BEC have agreed to a settlement under which FEP shall pay BEC the amount of $2,400,000, which is the remaining balance of a $10,000,000 payment stipulated in the Sales and Purchase Agreement, plus an additional $2,000,000 with $1,000,000 of the $2,000,000 due within six months and the balance of the $2,000,000 due within eighteen months.

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.
 
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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 Lascogon 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 received a technical report in respect of the Lascogon Project in 2010 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.

In May 2012, we received a capital call from Lascogon Mining in the amount of 100 million Philippine Pesos or approximately $2,400,000.  The capital call was made to address Lascogon Mining’s current deficit and to fund the upcoming work program and exploration budget.  We were given until December 21, 2012 to forward the requested funds or have its 40% interest diluted to 1.08%.  We did not forward funds and therefore our interest in Lascogon Mining was diluted to 1.08 percent.

The current mining exploration phase of the MPSA expires on January 2014 and it is uncertain whether a further 2 year extension will be granted.
 
C.  Organizational Structure

We are part of a group of companies with our parent company being Philex Petroleum Corporation and the ultimate parent company of our group of companies is Philex Mining Corporation. We have no subsidiaries.

ITEM  4A.  UNRESOLVED STAFF COMMENTS
 
N/A
 
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ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

We have experienced significant operating losses 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 IFRS as issued by the IASB, which are  different from US GAAP (refer to the Auditors’ Report dated April 26, 2013).

The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S. dollars.  As at December 31, 2012, the Company held  $878,033 (2011 - $1,612,609) 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, 2012, 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, 2012 versus Fiscal Year Ended December 31, 2011 (IFRS 000’s)

We hold 8,550,200 shares (24.05%) of the capital of FEP, 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. FEP 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 24.05% of the shares of FEP; and (ii) outside of information publicly made available by FEP, we are not privy to information of the status of FEP’s oil and gas activities on any of its projects.

FEP’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. FEP  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. FEP’s share of the first sub-phase work program is estimated to cost up to approximately $7.4 million, and was funded through a $10 million facility agreement with Philex Mining Corporation (“Philex Mining”).

Forum was planning the execution of the second sub-phase work program at SC72 which was expected to involve the drilling of up to two wells before August 14, 2013.  On January 17, 2013 Forum announced that it had applied for an extension to the second-sub phase of SC72 from the Philippine Department of Energy.  On January 25, 2013 Forum announced that it was granted an extension until August 14, 2015 to complete the second sub-phase of SC72.
 
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Lascogon Mining Corporation (“Lascogon”)

We  held 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 ours, and therefore very little activity was undertaken on the project from December 31, 2009 to December 31, 2011.

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 received a technical report in respect of the Lascogon Project in 2011 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.

In May 2012, we received a capital call from Lascogon Mining in the amount of 100 million Philippine Pesos or approximately $2,400,000.  The capital call was made to address Lascogon Mining’s current deficit and to fund the upcoming work program and exploration budget.  We were given until December 21, 2012 to forward the requested funds or have its 40% interest diluted to 1.08%.  We did not forward funds and therefore our interest in Lascogon Mining was diluted to 1.08 percent.
 
Metalore Mining Corporation (“Metalore”)

We continue to hold shares of the project joint venture company, Metalore but we have effectively abandoned the property that was previously held by the joint venture company.
 
Fiscal year ended December 31, 2012 versus December 31, 2011

Our consolidated accounts show loss for the year ended December 31, 2012 of $5,138,333 or $(0.01) per share, versus a income of $435,290 or $0.00 per share for the year ended December 31, 2011. General and Administration expense were $408,401 for the year ended December 31, 2012 versus $441,146 for the same period in 2011. We recorded amortization of $1,065 for the year ended December 31, 2012 versus $1,617 for the same period in 2011. Interest expense for the year ended December 31, 2012 was $10,642 versus $10,467 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, 2012 foreign exchange loss was $2,798 versus a loss of $1,983 for the year ended December 31, 2011.
 
23

Share of profits/(loss) in associates  in Lascogon, MMC and FEP was $(4,688,441) for the year ended December 31, 2012 versus $885,912 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 FEP’s loss was a large part of the share of profits/(loss) of associates.  In 2012, FEP wrote down $25,400,000 of its investment in SC40 as a result of receiving a resource assessment from an independent competent person.  Our equity share of loss related to the write down was $6,360,160, of which we recorded $4,688,441 in order to reduce the carrying value of our investment to $Nil with the remainder of this loss being unrecognized. The large difference in net income between 2012 and 2011 was attributable to recording our equity share of the loss of FEP .

Interest income was $877 for the year ended December 31, 2012 versus $991 for the previous year. The difference was a result of the interest earned on the higher cash balance in 2011.

Fiscal year ended December 31, 2011 versus December 31, 2010

Our consolidated accounts show income for the year ended December 31, 2011 of $435,290 or $0.00 per share, versus a loss of $2,925,257 or $(0.01) per share for the year ended December 31, 2010. In 2010, as a result of determining that the Lascogon Project did not contain an economic reserve, we recorded an impairment of the capitalized project costs in the amount of $2,301,820. Thus, this impairment charge was the primary reason for the significant difference between the net income in 2011 and the net loss in 2010.

General and Administration expense were $441,146 for the year ended December 31, 2011 versus $516,563 for the same period in 2010. We recorded amortization of $1,617 for the year ended December 31, 2011 versus $1,489 for the same period in 2010. Interest expense for the year ended December 31, 2011 was $10,467 versus $10,975 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, 2011 foreign exchange loss was $1,983 versus a loss of $3,323 for the year ended December 31, 2010.

Share of profits/(loss) in associates  in Lascogon, Metalore and Forum Energy was $885,912 for the year ended December 31, 2011 versus $(100,843) 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 income was a large part of the share of profits/(loss) of associates.

No shares of Forum Energy were sold to fund operations during 2011.

Interest income was $991 for the year ended December 31, 2011 versus $2,115 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 $899,135 at December 31, 2012 versus $1,632,629 for the year ended December 31, 2011. The difference is mainly a result of the higher cash balance on December 31, 2011. Our assets reflect the value of FEP and Lascogon on an equity basis. These investments are both reflected at a carrying value of $Nil in the financial statements as at December 31, 2012.
 
24

 
Liquidity and Capital Resources (IFRS)

Our working capital position at December 31, 2012 was $824,497 versus working capital of $1,241,598 at December 31, 2011 and shareholders’ equity was $826,981 at December 31, 2012 (December 31, 2011 $5,965,314).

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 in the amount of $273,000 from Philex Mining. Interest on the loan is at Libor plus 3%. The loan and accrued interest totaling $312,432 was repaid on December 21, 2012.

If necessary, we are able to sell our FEP shares on the London Stock Exchange Alternative Investment Market to meet our working capital needs. No shares of FEP were sold to fund operations during the year.

Cash used in operating activities for the year ended December 31, 2012 was $(406,459) versus $(438,538) for the same period in 2011 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, 2012 versus $(1,792) for the previous year. The difference was not material.

Cash used in financing activities for the year ended December 31, 2012 was $(312,432) versus $Nil for the previous year.  On December 21, 2012, we repaid and outstanding loan and accrued interest to Philex Mining.

Capital Resources

In order to fully earn a 40% interest in the joint venture with Philex Gold Philippines Inc. (“PGPI”) on the Lascogon Project, we were required to fund a total of $1 million of the work program by October, 2006 which was completed. To maintain our 40% interest, we were required to pay for 40% of the ongoing work program or our position would be diluted.  In May 2012, we received a capital call from Lascogon Mining in the amount of 100 million Philippine Pesos or approximately $2,400,000.  The capital call was made to address Lascogon Mining’s current deficit and to fund the upcoming work program and exploration budget.  We were given until December 21, 2012 to forward the requested funds or have our 40% interest diluted to 1.08%.  We did not forward funds and therefore our interest in Lascogon Mining was diluted to 1.08 percent.

We currently own 35% of Metalore, 1.08% of Lascogon and 24.05% of FEP. All but FEP require us to fund our share of any work programs in order to maintain our current equity holdings in each company. If FEP 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 until such time as we can find economically producible reserves. We don’t anticipate that we will require any additional funds for working capital for the fiscal year ended December 31, 2013, 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.
 
25

Off-Balance Sheet Arrangements

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 that 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 and Estimates
 
Basis of preparation and accounting policies
 
The Company has prepared its consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The Company adopted IFRS in accordance with IFRS 1 – First-time Adoption of International Financial Reporting Standards (“IFRS 1”) with a transition date of January 1, 2010. The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2012.
 
There were no changes to the accounting policies applied by the Company to each of the 2012 quarterly unaudited interim consolidated financial statements, to those applied to the consolidated financial statements for the year ended December 31, 2012.
 
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Critical Accounting Estimates

The preparation of financial statements 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 Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

Determination of natural resource reserves and natural resources estimates

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.

Deferred tax assets and liabilities

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. We recognize liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record our best estimate of the tax liability including the related interest and penalties in the current tax provision. We believe we have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

Determination of the fair value of share-based compensation

We measure the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.

Lascogon Contingent Consideration

There were 30,000,000 common shares of ours issued into escrow which are to be awarded to the vendor of the investment in Lascogon upon the declaration of commerciality as full and final consideration for the investment; these shares are considered contingent consideration. These shares are to be released from escrow if the project is declared commercial and were deemed to have zero value when they were issued. Accordingly no liability has been recognized.
 
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Functional Currency

We evaluated our functional currency and determined that the United States Dollar was our functional currency.  All accounts and transactions were converted into US dollars from the transition date to IFRS.  We  determined that the effective date of the change in functional currency under IFRS was March 11, 2003.
 
Share capital and investments were converted from January 1, 2003 as a result of the conversion to IFRS.

Recent  Accounting Related Pronouncements

The following new standards, amendments and interpretations, which have not been early adopted in these financial statements, will or may have an effect on our future results and financial position:
 
Future Accounting Changes
 
IAS 27 Separate Financial Statements (“IAS 27”)

IAS 27 replaced the existing IAS 27 “Consolidated and Separate Financial Statements”. IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. IAS 27 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this standard on our financial statements.

IAS 28 Investments in Associates and Joint Ventures (“IAS 28”)

IAS 28 was amended in 2011 and now includes the required accounting for joint ventures as well as the definition and required accounting for investments in associates. The standard sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. Proportional consolidation is no longer an option for joint ventures. IAS 28 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this amendment to IAS 28 on our financial statements.

IFRS 9 Financial Instruments (“IFRS 9”)

IFRS 9 was issued in November 2009 and is the first step to replace current IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. We are currently evaluating the impact of IFRS 9 on our financial statements.
 
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IFRS 10 Consolidated Financial Statements (“IFRS 10”)

IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”)12 “Consolidation—Special Purpose Entities” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this standard on our financial statements.

IFRS 11 Joint Arrangements (“IFRS 11”)

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. IFRS 11 supersedes current IAS 31 “Interests in Joint Ventures and SIC 13 Jointly Controlled Entities-NonMonetary Contributions by Venturers” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this standard on our financial statements.

IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”)

IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this standard on our financial statements.

IFRS 13 Fair Value Measurements (“IFRS 13”)

IFRS 13 defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. We are currently evaluating the impact of this standard on our financial statements.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on us.

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.
 
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Name
Age
Position/Area of Experience/Function
Jose Ernesto Villaluna (2) (3)
Andrew Mullins (1)
Paul Wallace
Carlo Pablo (1) (2)(3)
Barry Stansfield
Riaz Sumar (3)
Renato Migrino (1) (2)
Claro Ramirez
73
32
62
50
63
42
63
52
Director since February 2009, President and CEO from  August 2009 to November 2012.
Director since August 2009
Director since November 2012
Director since June 2010
Director since April 2003
Director, CFO, Secretary since May, 2005
Director, Treasurer since August 2009
Director since October 2011
 
(1)  
 
Member of Audit Committee in 2012.
 
(2)  
Member of Compensation Committee in 2012
 
(3)  
Member of the Corporate Governance Committee in 2012
 
Information About our Directors and Officers

Mr. Jose Ernesto Director

A resident of Manila, Philippines, Mr. Villaluna has extensive experience with resource companies, and is currently director of Philex Mining Corporation; ISM Corporation; formerly President of Brixton Energy and Mining Corporation, Lascogon Mining Corporation; formerly President and COO of Philex Mining Corporation and Philex Petroleum Corporation.

Mr. Barry Stansfield, Director

Barry Stansfield is an independent Director with broad business experience spanning over thirty (30) years.  He was co-owner and CEO 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 Energy Corporation and admission of the Company to AIM in 2005. In 2006 Andrew was appointed Company Secretary of FEP and in 2008 as an Executive Director of the FEP. 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.
 
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Mr. Renato Migrino Director, Treasurer

A resident of the Philippines, Mr. Migrino is the Treasurer, Chief Financial Officer and Senior 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. Paul Wallace

Mr Paul Frederick Wallace (age 62) is a Chartered Accountant and member of the Canadian Institute of Chartered Accountants.  He was appointed as the Chief Financial Officer of Hong Kong based First Pacific Company Limited from 1995 to 1997 and between 2003 and 2004.  He was appointed Group Finance Director to the Sanctuary Group plc between 2005 and 2008. Mr. Wallace was appointed as Chief Executive Officer of Blue Ocean Wireless Limited in May 2009, and as a Non-Executive Director of JPMorgan Global Emerging Markets Income Trust Plc in June 2010.  He is also the Finance Director of FEP,

Mr. Carlo Pablo, Chairman, President, Chief Executive Officer

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

Mr. Claro Ramirez

Mr. Ramirez is a resident of Richmond, British Columbia, Canada and has served as Senior Vice President of Philippine Long Distance Telephone Company (“PLDT”) for the last eleven years.

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.

Andrew Mullins is the son in Law of Barry Stansfield.

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.

Carlo Pablo, Paul Wallace, Andrew Mullins and Barry Stansfield are also directors of FEP.  Andrew Mullins serves as Corporate Secretary for FEP.

Jose Villaluna, Renato Migrino and Riaz Sumar serve as directors of Lascogon.
 
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Jose Villaluna is a Director of Philex Mining Corporation and Renato Migrino is Treasurer, Chief Financial Officer and Senior Vice President for Finance of Philex Mining Corporation.

Carlo Pablo, Renato Migrino, and Jose Villaluna are directors of Philex Petroleum Corporation.  Mr. Pablo also serves as President and Chief Operating Officer and Mr. Migrino serves as Treasurer.

B.  Compensation.

We have recently agreed to pay our directors the following consulting fees or directors’ fees on a monthly basis:
 
 
Jose Ernesto Villaluna
 
$1,000
 
Riaz Sumar
 
$7,000
 
Barry Stansfield
 
$1,000
 
Andrew Mullins
 
$1,000
 
Renato Migrino
 
$2,000
 
Paul Wallace
 
$1,000
 
Carlo Pablo
 
$3,000
 
Claro Ramirez
 
$1,000


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 below 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 below.

No funds were set aside or accrued by us during the year ending December 31, 2012 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, 2012 and 2011 to our directors and members of our administrative, supervisory or management bodies:
 
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Director/Executive Officer Compensation

Director Compensation for Fiscal Year ended December 31, 2012
 
Directors/Officers
Salary
Option Exercise Net Market Value(1)
Total Compensation
Barry Stansfield
$12,000
$0.00
$12,000
Riaz Sumar
$84,000
$0.00
$84,000
Edward Tortorici
$11,000
$0.00
$11,000
Jose Ernesto Villaluna
$34,000
$0.00
$34,000
Andrew Mullins
$12,000
$0.00
$12,000
Renato Migrino
$24,000
$0.00
$24,000
Claro Ramirez
$12,000
$0.00
$12,000
Carlo Pablo
$36,000
$0.00
$36,000
Paul Wallace
$1,000
$0.00
$1,000
Total
$226,000
$0.00
$226,000
(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.

Director Compensation for Fiscal Year ended December 31, 2011
 
Directors/Officers
Salary
Option Exercise Net Market Value(1)
Total  Compensation
Barry Stansfield
$12,000
$0.00
$12,000
Riaz Sumar
$84,000
$0.00
$84,000
Edward Tortorici
$12,000
$0.00
$12,000
Jose Ernesto Villaluna
$36,000
$0.00
$36,000
Andrew Mullins
$12,000
$0.00
$12,000
Renato Migrino
$24,000
$0.00
$24,000
Claro Ramirez
$  2,645
$0.00
$2,645
Carlo Pablo
$36,000
$0.00
$36,000
Total
$218,645
$0.00
$218,645
(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 above no Director received any additional compensation for his or her services 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, 2012 and none were issued or exercised in 2012 or 2011.

 
33

 
C.  Board Practices

We have an Audit Committee, a Compensation Committee and a Corporate Governance Committee.  No committee members receive additional compensation for serving on a committee and all committee members serve for a one year term

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 Renato Migrino, Andrew Mullins, and Carlo Pablo.  New members of our Audit Committee for 2013 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 2012 were Jose Ernesto Villaluna, Renato Migrino, and Edward Tortorici.  Paul Wallace replaced Edward Tortorici and Carlo Pablo replaced Jose Villaluna on November 29, 2012.  Members of our Compensation Committee for 2013 will  be appointed following our Annual and General Meeting of Shareholders.

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 2013 will  be appointed following our Annual and General Meeting of Shareholders.
 
D. Employees

As of December 31, 2012, we had no employees.

E.  Share Ownership

The following table lists as of April 2, 2013, the share ownership of our directors and executive officers.

The following table sets forth certain information as of April 2, 2013 regarding the ownership of our common stock by (i) each of our directors, (ii) each of our named executive officers, and (iii) 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 April 2, 2013 was 439,143,765.
 
34

 

Name of Director and/or Officer and number of shares held:
Number of Shares
Percent of Class
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
-
 
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 April 2, 2013, the shareholders’ list showed 583 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 44,721,165 representing 10.18% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 520.
 
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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 and its subsidiary, Philex Petroleum 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 April 2, 2013:

Name
Number of Shares Owned
Percent of Class
Philex Petroleum Corporation *
225,000,000
51.24
CDS&Co**
49,975,291
11.38
CEDE & Co**
38,783,960
8.83
Asian Coast International
67,740,000
15.42
Indexa Corp***
30,000,000
6.83

* These shares are currently registered to Philex Mining Corporation, who has assigned the shares to Philex Petroleum Corportaion. The Company's records are currently being updated to reflect this transfer. Jose Ernesto Villaluna and Renato Migrino, both 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 $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 April 2, 2013, 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 April 2, 2013, the shareholders’ list showed 583 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 44,721,165 representing 10.18% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 520.
 
36

 
B.  Related Party Transactions

During the year ended December 31, 2012 general and administrative expenses included key management personnel compensation totaling $226,000 (2011: $218,645).

During the year ended December 31, 2012 the Company incurred an interest charge of $10,642 (2011: $10,467) on a loan from the parent of the Company.

Included in accounts payable and accrued liabilities at December 31, 2012 is $61 (December 31, 2011; $332) owed to directors, officers and companies controlled by them for unpaid consulting fees and or expenses.

In addition, at December 31, 2012, 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 fair value.
 
* Note Item 7.C not required for this Annual Report.
 
ITEM 8.  FINANCIAL INFORMATION

A.  Consolidated Financial Statements and Other Financial Information

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

None

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 but in 2012 our shares were only listed on the Pink Sheets as a result of a lack of market makers.
 
37

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

NASDAQ Small Cap/OTC.BB/Pink Sheets Stock Annual Price History - Common Shares
(US Dollars)
Year Ended
High
Low
12/31/12
$0.05
$0.01
12/31/11
$0.07
$0.02
12/31/10
$0.04
$0.00
12/31/09
$0.01
$0.00
12/31/08
$0.03
$0.00

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
3/31/13
4,449,500
0.02
0.01
12/31/12
2,116,800
0.02
0.01
9/30/12
15,708,600
0.03
0.01
6/30/12
8,910,600
0.05
0.02
3/31/12
4,416,300
0.04
0.02
12/31/11
9,478,982
0.03
0.02
9/30/11
6,149,806
0.04
0.02
6/30/11
5,212,210
0.04
0.02
3/31/11
38,146,676
0.07
0.02
 
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
3/31/13
0.01
0.01
960,200
02/28/13
0.02
0.01
2,332,200
01/31/13
0.02
0.01
1,157,100
12/31/12
0.01
0.01
764,900
11/30/12
0.02
0.01
825,200
10/31/12
0.02
0.01
526,700

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.
 
38

 
On April 2, 2013, the shareholders’ list showed 583 registered shareholders and 439,143,765 shares outstanding.  The number of shares held by U.S. residents was 44,721,165 representing 10.18% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 520.
 
Our shares are not registered to trade in the U.S. in the form of American Depository Receipts (ADR's) or similar certificates.

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.
 
39

 
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
 
40

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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 Philippine 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 United States 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.
 
41

 
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.
 
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 IFRS. 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") and concluded they 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 International Financial Reporting Standards.
 
As of December 31, 2012, 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 IFRS guidance, as more fully described below, as the result of deficiencies that existed in the design or operation of our internal control over financial reporting.
 
42

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 IFRS 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, 2012 and communicated the matters to our management and board of directors.
 
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. 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 IFRS 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 raising 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 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, 2012, 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.
 
43

 
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 2012 were Andrew Mullins, Carlo Pablo and Renato Migrino.  New Audit Committee members will be appointed following our meeting of shareholders in 2013.

Our Board has determined that it has at least one (1) 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.
 
44

 
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 Jose Villaluna, Carlo Pablo and Riaz Sumar.

ITEM 16 C.  ACCOUNTANTS FEES AND SERVICES

Audit Fees

For the audit of the annual financial statements for the year ended December 31, 2012, an amount of $45,000 was accrued as a best estimate of fees to be billed by our external auditors BDO Canada LLP (“BDO”).  In 2011, BDO charged total fees of  $60,503 related to the audit of our annual financial statements for the year ended December 31, 2011.  There were no fees associated with the filing of taxes.

Audit Related Fees

We did not incur any audit related fees in either of the two fiscal years for assurance and related services by 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.
 
Our engagement of BDO was approved by the Audit Committee

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.

ITEM 16 G.  Corporate Governance

 Not Applicable.
 
PART III

ITEM 16 H.  Mine Safety Disclosure

 Not Applicable.

ITEM 17. FINANCIAL STATEMENTS.
 
We have elected to report under Item# 18.
 
44
45

 
ITEM 18. FINANCIAL STATEMENTS.

The Auditors’ Report, financial statements and notes thereto, schedules thereto, as required under Item 17 are found immediately below.
 
 
46

 
 
FEC RESOURCES INC.
Financial Statements
For the year ended December 31, 2012
(Expressed in United States dollars)
 
F-1

 

logo bdo charter accountants
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 financial statements of FEC Resources Inc., which comprise the statements of financial position as at December 31, 2012 and December 31, 2011 and the statements of comprehensive income (loss), changes in equity and cash flows for each of the years in the three year period ended December 31, 2012, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, 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 financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and with the 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 and fair presentation 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. Accordingly, we express no such opinion.  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 in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of FEC Resources Inc. as at December 31, 2012 and December 31, 2011 and its financial performance and its cash flows for each of the years in the three year period ended December 31, 2012, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
Chartered Accountants
April 26, 2013
 
F-2

 
FEC RESOURCES INC.
STATEMENTS OF FINANCIAL POSITION
Expressed in United States Dollars
 
    December 31     December 31  
    2012     2011  
ASSETS            
Current assets            
Cash and cash equivalents (Note 6)
  $ 878,033     $ 1,612,609  
Receivables
    2,491       1,568  
Prepaid expenses
    18,611       18,452  
      899,135       1,632,629  
Non-current assets
               
Property, plant and equipment (Note 7)
    2,484       3,549  
Investment in associates (Note 8)
    -       4,720,167  
    $ 901,619     $ 6,356,345  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities                
Trade and accrued payables (Note 11)
  $ 74,638     $ 89,241  
Due to parent company (Notes 9 and 11)
    -       301,790  
      74,638       391,031  
Shareholders’ Equity                
Share capital (Note 10)
    16,732,397       16,732,397  
Contributed surplus (Note 10)
    3,058,063       3,058,063  
Deficit
    (18,963,479 )     (13,825,146 )
      826,981       5,965,314  
    $ 901,619     $ 6,356,345  
 
SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
 
/s/Carlo Pablo                                           /s/Riaz Sumar                                                    
Carlo Pablo                                                  Riaz Sumar
Director                                                        Director
 
The accompanying notes form an integral part of these financial statements

 
F-3

 
FEC RESOURCES INC.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Expressed in United States Dollars
 
    Year ended     Year ended     Year ended  
    December 31     December 31     December 31  
    2012     2011     2010  
 General and administrative expenses                  
General and administration (Note 12)
  $ 408,401     $ 441,146     $ 516,563  
Operating loss
    (408,401 )     (441,146 )     (516,563 )
                         
Share of (loss) profits of associates (Note 8)
    (4,688,441 )     885,912       (100,843 )
Gain (loss) on dilution of investment in associate (Note 8)
    (31,726 )     -       2,829  
Finance expense (Notes 3, 9 and 11)
    (10,642 )     (10,467 )     (10,975 )
Impairment of investments (Note 8)
                    (2,301,820 )
Interest income
    877       991       2,115  
(Loss) income before taxes
    (5,138,333 )     435,290       (2,925,257 )
Income Taxes (Note 13)
    -       -       -  
Net (loss) income and total comprehensive (loss) income for the year
  $ (5,138,333 )   $ 435,290     $ (2,925,257 )
                         
 Earnings / (loss) per common share (Note 16)                        
  - Basic and diluted   $ (0.01 )   $ 0.00     $ (0.01 )
                         
 Weighted average number of shares outstanding     439,143,765       439,143,765       437,554,724  
 
The accompanying notes form an integral part of these financial statements

 
F-4

 
FEC RESOURCES INC.
STATEMENTS OF CHANGES IN EQUITY
Expressed In United States Dollars
For the years ended December 31, 2012 and December 31, 2011
 
   
 
Share capital
   
Contributed surplus
   
Warrants
   
Deficit
   
Total
 
                               
Balance January 1, 2012
  $ 16,732,397     $ 3,058,063     $ -     $ (13,825,146 )   $ 5,965,314  
Total comprehensive loss for the year
    -       -       -       (5,138,333 )     (5,138,333
Balance December 31, 2012
  $ 16,732,397     $ 3,058,063     $ -     $ (18,963,479   $ 826,981  
                                         
   
 
Share capital
   
Contributed surplus
   
Warrants
   
Deficit
   
Total
 
Balance January 1, 2011
  $ 16,732,397     $ 3,058,063     $ -     $ (14,260,436 )   $ 5,530,024  
Total comprehensive income for the year
    -       -       -       435,290       435,290  
Balance December 31, 2011
  $ 16,732,397     $ 3,058,063     $ -     $ (13,825,146 )   $ 5,965,314  
                                         
                                         
   
 
Share capital
   
Contributed surplus
   
Warrants
   
Deficit
   
Total
 
Balance January 1, 2010
  $ 14,232,397     $ 2,832,666     $ 225,397     $       $ 5,955,281  
Total comprehensive loss for the year
    -       -       -       (2,925,257 )     (2,925,257 )
Warrants expired
    -       225,397       (225,397     -       -  
Shares issued
    2,500,000       -       -       -       2,500,000  
Balance December 31, 2010
  $ 16,732,397     $ 3,058,063     $ -     $ (14,260,436 )   $ 5,530,024  
 
 
The accompanying notes form an integral part of these financial statements

 
F-5

 
FEC RESOURCES INC.
STATEMENTS OF CASH FLOWS
Expressed In United States Dollars
 
 
 
31-Dec
   
31-Dec
   
31-Dec
 
For the year ended  
2012
   
2011
   
2010
 
 Cash used in                        
 OPERATING ACTIVITIES                        
Net (loss) income for the year
  $ (5,138,333 )   $ 435,290     $ (2,925,257 )
                         
Non-cash items included in loss
                       
Amortization (Note 7)
    1,065       1,617       1,489  
Share of profits (loss) of associates (Note 8)
    4,688,441       (885,912 )     100,843  
Loss (gain) on dilution of investment in associate (Note 8)
    31,726       -       (2,829 )
Accrued finance expense
    10,642       10,467       10,975  
Accrued finance expense
    10,642       10,467       10,975  
Impairment of investments
    -       -       2,301,820  
      (406,459     (438,538 )     (512,959 )
                         
Changes in working capital related to operating activities
                       
Receivables
    (923     (320 )     (320
Prepaid expenses     (159     (416 )     (164
Trade and accrued payables
    (14,603     (8,276 )     37,386  
Net cash used in operating activities
    (422,144     (446,718     (476,057 )
                         
INVESTING ACTIVITIES
                       
Additions to properties, plant and equipment, net (Note 7)
    -       (1,792 )     -  
Net cash used in investing activities
    -       (1,792 )     -  
                         
FINANCING ACTIVITIES
                       
Repayment of parent company loan
    (312,432 )     -       -  
Shares issued
    -       -       2,500,000  
Net cash used in financing activities
    (312,432 )     -       2,500,000  
                         
Net increase(decrease) in cash
    (734,576 )     (448,510 )     2,023,943  
Cash – beginning of the year
    1,612,609       2,061,119       37,176  
Cash – end of the year
  $ 878,033     $ 1,612,609     $ 2,061,119  

The accompanying notes form an integral part of these financial statements

 
F-6

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)


Note 1                      Corporate Information

FEC Resources Inc. (“FEC” or 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 Company is listed in the United States on the Over-The-Counter Bulletin Board (“OTCBB”), having the symbol FECOF.

The principal address of the Company is 203, 200 Barclay Parade S.W. Calgary, Alberta T2P 4R5.  The Company’s parent company is Philex Mining Corporation.


Note 2                      Basis of Preparation

a) Statement of Compliance

These financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The financial statements were authorized for issue by the Board of Directors on April 26, 2013.

b) Basis of Measurement

The financial statements have been prepared on a historical cost basis and are presented in United States dollars, which is also the Company’s functional currency.

The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates.  It also requires management to exercise judgment in applying the Company’s accounting policies.  The areas involving a higher degree of judgment of complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5.
 
F-7

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 2                      Basis of Preparation (continued)

c) Nature of Operations

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. The Company has not generated revenue from operations. The Company experienced a net loss of $5,138,333 during the twelve months-ended December 31, 2012 including its equity share of loss in Forum Energy Plc of $4,688,441, a non-cash expense. As of December 31, 2012, the Company has cash resources of $878,033 which is considered sufficient to meet its obligations for at least twelve months from the end of the reporting period.


Note 3                      Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years presented in these financial statements.

a)      Investment in associates

Investments in companies over which the Company has the power to exercise significant influence (but not control) 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.  Any premium paid for an associate above the fair value of the Company's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate.
 
F-8

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 3                      Summary of Significant Accounting Policies (continued)

a)      Investment in associates (continued)

Impairment

Investments accounted for on the equity basis are assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset, with the result that they have a loss in value that is other than a temporary decline.

An impairment loss is calculated as the difference between the investment’s carrying amount and the present value of the estimated future cash flows expected to be generated by the investment. All impairment losses are recognized in profit or loss. In the event the recoverable amount subsequently increases to a value greater than the carrying amount, an impairment gain is recognized up to the original pre-impaired value.

During the years ended December 31, 2012 and 2011 the Company did not recognize any write-down or impairment reversal of its investments.

b)      Property, plant and equipment

Recognition and Measurement

On initial recognition, property, plant, and equipment are valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company. This includes the appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items.  The corresponding liability is recognized within provisions.

Property plant and equipment is subsequently measured at cost less accumulated depreciation less any impairment losses.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and Losses

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in profit or loss.
 
F-9

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 3                    Summary of Significant Accounting Policies (continued)

b)      Property, plant and equipment (continued)

Depreciation

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

 
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

 
Impairment

 
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

c) Foreign Currency Translation

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

For the Company and any of its investee companies with a United States dollar functional currency, at the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into United States dollars by the use of the exchange rate in effect at that date. At the year-end date, unsettled monetary assets and liabilities are translated into United States dollars by using the exchange rate in effect at the year-end date and the related translation differences are recognized in net income.

Exchange gains and losses arising on the retranslation of monetary available-for-sale financial assets are treated as a separate component of the change in fair value and recognized in net income/loss. Exchange gains and losses on non-monetary available-for-sale financial assets form part of the overall gain or loss recognized in respect of that financial instrument.

Non-monetary assets and liabilities that are measured at historical cost are translated into United States dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. Non-monetary assets and liabilities that are measured at fair value or a revalued amount are translated into United States dollars by using the exchange rate in effect at the date the value is determined and the related translation differences are recognized in net income/loss or other comprehensive loss consistent with where the gain or loss on the underlying non-monetary asset or liability has been recognized.
 
F-10

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 3                      Summary of Significant Accounting Policies (continued)

c) Foreign Currency Translation (continued)

For the Company’s investee companies with a functional currency other than Unites States Dollars, any cumulative translation adjustments would be included in Accumulated other comprehensive income (‘‘AOCI’’) if material and would represent 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 would become realized in earnings upon the disposition, liquidation or dilution of the investment that gave rise to such amounts.

d) Share-based Payments

Where equity-settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive loss/income over the vesting period.  Performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting is based on the number of options that eventually vest.  Non-vesting conditions and 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 these vesting conditions are satisfied.  The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.
 
Where 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 loss/income over the remaining vesting period.

Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received in the statement of comprehensive loss/income, unless they are related to the issuance of shares. Amounts related to share issue costs are recorded as a reduction of share capital.

When the value of goods or services received in exchange for the share-based payment cannot be reliably estimated, the fair value is measured by use of a valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations.

All equity-settled share-based payments are reflected in contributed surplus, until exercised. Upon exercise, shares are issued from treasury and the amount reflected in contributed surplus is credited to share capital, adjusted for any consideration paid.
 
F-11

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 3                    Summary of Significant Accounting Policies (continued)

d)      Share-based Payments (continued)

Where a grant of options is cancelled or settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured at the repurchase date. Any such excess is recognized as an expense.

e) Income Taxes

Income tax expense comprises of current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive loss/income.

Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax basis, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on 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 nor taxable profit or loss.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting year the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

f) Earnings / Loss Per Share

Basic earnings/loss per share is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant year.

Diluted earnings/loss per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments were converted.

There were no dilutive instruments (consisting of shares issuable on the exercise of options and warrants) outstanding on December 31, 2012 or December 31, 2011.  Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.
 
F-12

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 3                    Summary of Significant Accounting Policies (continued)

g) Financial Instruments

Financial Assets

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

Non-derivative financial assets that do not meet the definition of loans and receivables are classified as available-for-sale and comprise principally the Company’s investments in entities not qualifying as subsidiaries or associates. Available-for-sale investments are carried at fair value with changes in fair value recognized in other comprehensive income/loss. If there is no quoted market price in an active market and fair value cannot be readily determined, then available-for sale investments are carried at cost.

Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

The Company’s financial instruments consist of cash, other receivables, trade and accrued payables and due to parent company.

The Company has designated cash and other receivables as loans and receivables, which are measured at amortized cost. Trade and accrued payables and due to parent company are designated as other liabilities which are measured at amortized cost. Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of the period which are unpaid.

Impairment on Financial Assets

At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

With the exception of equity instruments classified as available for sale, if, in a subsequent period, the amount of the impairment loss decreases and the decrease relates to an event occurring after the impairment was recognized; the previously recognized impairment loss is reversed through profit or loss. On the date of impairment reversal, the carrying amount of the financial asset cannot exceed its amortized cost had impairment not been recognized.
 
F-13

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
 
Note 3                      Summary of Significant Accounting Policies (continued)

h) Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, demand deposits with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value.

i) Share capital

Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s common shares are classified as equity instruments.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

j) Finance income and expenses:

Finance expense comprises interest expense on borrowings, accretion of the discount on provisions and impairment losses recognized on financial assets.

Interest income is recognized as it accrues in profit or loss, using the effective interest method.

Foreign currency gains and losses, reported under finance income and expenses, are reported on a net basis.

Note 4                     Standards, Amendments and Interpretations Not Yet Effective
 
The Company has prepared its consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2012.

The following new standards, amendments and interpretations, which have not been early adopted in these financial statements, will or may have an effect on the Company’s future results and financial position:
 
F-14

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
 
Note 4                    Standards, Amendments and Interpretations Not Yet Effective (continued)

IAS 27 Separate Financial Statements (“IAS 27”)

IAS 27 replaced the existing IAS 27 “Consolidated and Separate Financial Statements”. IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. IAS 27 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its financial statements.

IAS 28 Investments in Associates and Joint Ventures (“IAS 28”)

IAS 28 was amended in 2011 and now includes the required accounting for joint ventures as well as the definition and required accounting for investments in associates. The standard sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. Proportional consolidation is no longer an option for joint ventures. IAS 28 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this amendment to IAS 28 on its financial statements.

IFRS 9 Financial Instruments (“IFRS 9”)

IFRS 9 was issued in November 2009 and is the first step to replace current IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The company is currently evaluating the impact of IFRS 9 on its financial statements.

IFRS 10 Consolidated Financial Statements (“IFRS 10”)

IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”) 12 “Consolidation—Special Purpose Entities” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its financial statements.
 
F-15

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
 
Note 4                      Standards, Amendments and Interpretations Not Yet Effective (continued)
 
IFRS 11 Joint Arrangements (“IFRS 11”)

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. IFRS 11 supersedes current IAS 31 “Interests in Joint Ventures” and SIC 13 “Jointly Controlled Entities-NonMonetary Contributions by Venturers” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its financial statements.

IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”)

IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its financial statements.

IFRS 13 Fair Value Measurements (“IFRS 13”)

IFRS 13 defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value
measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its financial statements.
 
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company.
 
Note 5                     Critical Accounting Estimates and Judgments

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income/loss in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below:
 
F-16

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 5                   Critical Accounting Estimates and Judgments (continued)
 
i)  
Lascogon Contingent Consideration – Note 8 (ii)

There were 30,000,000 common shares of the Company issued into escrow which are to be awarded to Indexa Corp., the vendor of the investment in Lascogon, upon the declaration of commerciality as full and final consideration for the investment; these shares are considered contingent consideration. These shares are to be released from escrow if the project is declared commercial and were deemed to have zero value when they were issued. Accordingly no liability has been recognized as the likelihood of the Lascogon being in a position to declare commerciality is remote.

ii)  
Functional Currency

The Company evaluated its functional currency and determined that the United States Dollar was the functional currency of the Company.  All accounts and transactions were converted into US dollars from the transition date.  The Company determined that the effective date of the change in functional currency under IFRS was March 11, 2003.
 
Share capital and investments were converted from January 1, 2003.

iii)  
Investments in Associates
 
The Company periodically or when circumstances change, reviews its investments in its associates to ascertain whether it has maintained significant influence over these investments and also, reviews whether there exists any evidence that the investments in associates are required to be impaired. During the year ended December 31, 2012, the Company’s investment in Lascogon was diluted such that it was reclassified to Available-for sale investments as the Company determined that it no longer exerted significant influence over this investment. (Note 8).
 
Note 6                    Cash and Cash Equivalents

Cash at banks and on hand earns interest at floating rates based on daily bank deposit rates.
 
F-17

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 7                   Property, Plant and Equipment

Computer Equipment
 
December 31 2012
   
December 31 2011
   
December 31 2010
 
Cost
                 
Opening Cost
  $ 15,543       13,751       13,751  
Additions
    -       1,792          
Ending Cost
    15,543       15,543       13,751  
                         
Accumulated Depreciation
                       
Opening Accumulated Depreciation
  $ (11,994 )     (10,377 )     (8,888 )
Charge for the year
    (1,065 )     (1,617 )     (1,489 )
Ending Accumulated Depreciation
    (13,059 )     (11,994 )     (10,377 )
                         
Carrying Value
  $ 2,484       3,549       3,374  
 
Note 8                   Investment in associates

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

   
December 31, 2012
   
December 31, 2011
 
             
Forum Energy plc (“FEP”)
  $ -     $ 4,720,167  
Lascogon Mining Corporation
    -       -  
Metalore Mining Corporation
    -       -  
    $ -     $ 4,720,167  
 
i)  
Investment in FEP
 
The investment in FEP is summarized as follows:
   
Number of shares held
   
 
Amount
 
             
Balance, January 1, 2010
    8,550,200     $ 3,944,051  
Gain on dilution of investment
    -       2,829  
Equity share of loss from investment
    -       (112,625 )
                 
Balance, December 31, 2010
    8,550,200       3,834,255  
Equity share of income from investment in FEP
    -       885,912  
                 
Balance December  31, 2011
    8,550,200     $ 4,720,167  
Equity share of loss from investment in FEP (1)
    -       (4,688,441 )
Dilution loss on issuance of FEP shares
    -       (31,726 )
Balance, December  31, 2011
    8,550,200     $ -  

F-18
 

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
 
Note 8                   Investment in associates (continued)
 
i)  
Investment in FEP (continued)
 
During the year ended December 31, 2012, FEP wrote down $25,400,000 of its investment in Service Contract 40 “SC40” as a result of receiving a resource estimate from an independent consultant.  The Company’s equity share of the losses incurred by FEP was in excess of the carrying value of the investment prior to recording the loss. However, in accordance with the guidance of IFRS, the Company has discontinued recording losses once the carrying value of the equity investment was reduced to zero. If FEP subsequently reports profits, the Company will resume recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.
 
As at December 31, 2012 the Company’s interest in FEP was 24.05% and on December 31, 2011 it was 25.63%.

At December 31, 2012, the Company held 8,550,200 shares of FEP with a fair value of $11,750,369 (December 31, 2011: $7,002,736). The common shares of FEP are traded on the London Stock Exchange Alternative Investment Market (“AIM”).
 
FEP is related to the Company by virtue of three common directors and a common parent.
 
At December 31, 2011 FEP disclosed a contingent liability as the company was in an arbitration process with Basic Energy Corporation ("BEC") in relation to certain assets acquired from BEC. On June 21, 2012 FEP disclosed that FEP and BEC have agreed a settlement under which FEP shall pay BEC the amount of $2,400,000, which is the remaining balance of a $10,000,000 payment stipulated in the Sales and Purchase Agreement, plus an additional $2,000,000 with $1,000,000 of the $2,000,000 due within six months and the balance of the $2,000,000 due within eighteen months. The Company has not incurred any obligation to fund any of the settlement FEP reached with BEC.
 
F-19

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 8                    Investment in associates (continued)

i)  
Investment in FEP (continued)

 
Summarized Financial Information for FEP is as follows:

   
December 31, 2012
   
December 31, 2011
 
             
Assets
  $ 43,347,000     $ 61,322,000  
                 
Liabilities
  $ 21,286,000     $ 13,893,000  
                 
Equity
  $ 22,061,000     $ 47,429,000  
                 
Revenue
  $ 4,522,000     $ 12,734,000  
                 
Net (loss) income for the year ended December 31
  $ (26,424,000 )   $ 3,420,000  

The Company’s investment in FEP does not reflect a 24.05% interest in the equity of FEP because of the foreign currency translation adjustments to Other Comprehensive Income/Loss prior to the transition to IFRS.

ii)  
Investment in Lascogon Mining Corporation (“Lascogon”)

 
The investment in Lascogon is summarized as follows:
 
   
Amount
 
       
Balance, January 1, 2010
  $ 2,290,038  
Equity share of income from investment
    11,782  
Impairment of investment in Lascogon
    (2,301,820 )
         
Balance December  31, 2012 and December 31, 2011
  $ -  

In December 2010, the Company wrote down its investment in Lascogon by an amount of $2,301,820 as a result of Lascogon determining that further development would not provide an acceptable return on investment.
 
30,000,000 common shares of the Company that were issued into escrow, to be awarded to the vendor of the investment in Lascogon upon the declaration of commerciality as full and final consideration for the assignment of its rights to the Company, are considered contingent consideration and will be recorded as an additional cost of the investment, at fair value, should Lascogon reach commerciality, which, as at December 31, 2012 is not considered likely.

 
F-20

 
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 8                      Investment in associates (continued)

ii)  
Investment in Lascogon Mining Corporation (“Lascogon”) (continued)

In May 2012, the Company received a capital call from Lascogon in the amount of 100 million Philippine Pesos or approximately $2,400,000. The capital call was made to address Lascogon’s current deficit and to fund the upcoming work program and exploration budget. The Company was given until December 21, 2012 to forward the requested funds or have its 40% interest diluted to 1.08%. The Company did not forward funds and therefore its interest in Lascogon has been diluted to 1.08 percent with the result being that Lascogon is no longer considered an associate of the Company as the Company no longer exerts significant influence. Upon the dilution of its interest in Lascogon, the investment has been reclassified to an available for sale investment having a fair value of $Nil as at December 31, 2012.
 
In accordance with the original Heads of Agreement, the Company retained the right to buy back into Lascogon and re-establish its 40 percent interest but is required to pay a 400% penalty on funds it would have to advance.
 
As at December 31, 2012 Lascogon had approximately $3,668,000 of total assets comprised mostly of cash in the amount of $3,654,000. Lascogon had an immaterial loss for the year and advances due to related parties of approximately $4,087,000.
 
The Company is related to Lascogon by virtue of a common ultimate parent and three common directors.

iii)  
Investment in Metalore Mining Corporation (“Metalore”)
 
The Company still holds 35% of Metalore Mining Corporation however the project has been abandoned and the company has no operations and accordingly the investment cost has been fully impaired.


Note 9                    Due to Parent Company

During the year ended December 31, 2009, the Company was advanced $273,000 by Philex Mining Corporation, the parent company of the group including the Company. The loan was unsecured, and was due on December 31, 2010 and bore interest at LIBOR plus 3 % per annum.  On December 31, 2011 the Company owed a total of $301,790 including accrued interest.  On December 20, 2012, the Company repaid $312,432 representing the loan and total accrued interest.

The interest rate on the loan as at December 31, 2011 was 4.07%.
 
F-21

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 10                 Share Capital
 
a)  Authorized:
 
The Company is authorized to issue an unlimited number of common shares without par value; and
 
The Company is authorized to issue an unlimited number of Class A and Class B preferred convertible redeemable voting shares without par value.
 
Issued:

Common Shares
 
Number
   
Amount
 
             
Balance, January 1, 2010
    434,143,765     $ 14,232,397  
Shares issued via private placement
    5,000,000       2,500,000  
                 
Balance December 31, 2012, December 31, 2011 and December 31, 2010
    439,143,765     $ 16,732,397  

No preferred shares have been issued since the Company’s inception.
 
b) Contributed Surplus

Balance, January 1, 2010
  $ 2,832,666  
Unexercised warrants transferred to contributed surplus in 2010
    225,397  
Balance December 31, 2012, December 31, 2011 and December 31, 2010
  $ 3,058,063  
 
c) Nature and Purpose of Equity and Reserves

The reserves recorded in equity on the Company’s balance sheet include Contributed Surplus and Deficit.

Contributed Surplus is used to recognize the value of stock option grants prior to exercise.

Warrants is used to recognize the value of warrant grants prior to exercise.

Deficit is used to record the Company’s change in deficit from earnings and losses from period to period.
 
F-22

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2012
(Stated in United States Dollars)
Note 10                 Share Capital – (continued)
 
d) Share based payments:
 
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.
 
There were no stock options outstanding on December 31, 2012 and December 31, 2011 and none were issued between January 1, 2010 and December 31, 2012.
 
Note 11                 Related Party Transactions and Balances

 
During the year ended December 31, 2012 general and administrative expenses included key management personnel compensation totaling $226,000 (2011: $218,645; 2010: $242,000) (Note 12).

During the year ended December 31, 2012 the Company incurred an interest charge of $10,642 (2011: $10,467; 2010: $10,975) on a loan from the parent of the Company (Note 9).

Included in accounts payable and accrued liabilities at December 31, 2012 is $61 (December 31, 2011; $332) owed to directors, officers and companies controlled by them for unpaid consulting fees and or expenses.

In addition, at December 31, 2012, 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.

The Company’s parent company is Philex Mining Corporation, a company incorporated in the Philippines.

Related party transactions are measured at fair value.