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 1934OR|X|
  ANNUAL REPORT PURSUANT TO SECTION
  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
  Fiscal Year ended December 31, 2003|_|
  TRANSITION REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from ____________ to ____________ Commission
file number 0-17729 FORUM
ENERGY CORPORATION(formerly TRACER PETROLEUM CORPORATION)
(Exact name of Registrant as specified in its charter) Not Applicable(Translation of Registrants Name into English) British Columbia, Canada(Jurisdiction of incorporation or organization) Suite 1400 700-2nd  Street SW Calgary, AB. T2P 4V5(Address of principal executive offices) 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: 135,821,037 Common
Stock and 8,239,000 Common Stock Purchase Warrants Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 12 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
which financial statement item the registrant has elected to follow:Item 17 |X|   Item 18 |_|  (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    FORUM ENERGY CORPORATION (formerly
TRACER PETROLEUM CORPORATION)
FORM 20-F ANNUAL REPORT FISCAL 2003, 
ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

PagePART IItem 1.
  Identity of Directors, Senior
  Management and Advisers
  4Item 2.
  Offer Statistics and Expected
  Timetable
  4Item 3.
  Key Information
  4Item 4.
  Information on the Company
  12Item 5.
  Operating and Financial Review and
  Prospects
  15Item 6.
  Directors, Senior Management and
  Employees
  20Item 7.
  Major Shareholders and Related Party
  Transactions
  27Item 8.
  Financial Information
  28Item 9.
  The Listing
  29Item 10.
  Additional Information
  31Item 11.
  Quantitative and Qualitative
  Disclosure About Market Risk
  33Item 12.
  Description of Securities other than
  Equity Securities
  33PART IIItem 13.
  Defaults, Dividend Arrearages and
  Delinquencies
  33Item 14.
  Material Modifications to the rights
  of Security Holders and Use of Proceeds
  34Item 15.
  Controls And Procedures
  34Item 16A.
  Audit Committee Financial Expert
  34Item 16B.
  Code Of Ethics
  35Item 16C.
  Principal Accountant Fees And
  Services
  35PART IIIItem 17.
  Financial Statement
  36Item 18.
  Financial Statements
  71Item 19.
  Exhibits
  71Signatures
  72Exhibit Index
  73Certifications
  872

CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Any
or all of our forward-looking statements in this Form 20-F may turn out to be
wrong.  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;
  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, 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.

3

ITEM  1.  
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not
applicable to Form 20-F filings as annual report.
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.
Not
applicable to Form 20-F filings 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) sets forth the rate of exchange for the Canadian Dollar at the end
of each of the five 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 months.  For purposes of these tables, the rate of
exchange means the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York.  The table sets forth
the number of Canadian Dollars required under that formula to buy one 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
  
  CloseFiscal Year Ended 12/31/03
  
  1.40
  
  1.54
  
  1.31
  
  1.30Fiscal Year Ended 12/31/02
  
  1.57
  
  1.62
  
  1.51
  
  1.58Fiscal Year Ended 12/31/01
  
  1.55
  
  1.60
  
  1.49
  
  1.59Fiscal Year Ended 12/31/00
  
  1.49
  
  1.56
  
  1.44
  
  1.50Fiscal Year Ended 12/31/99
  
  1.49
  
  1.51
  
  1.46
  
  1.44The current rate of
exchange was $1.3338 on June 30,2004.
Table No. 3(A)(2)
U.S. Dollar/Canadian Dollar

01/04
  
  02/04
  
  03/04
  
  04/04
  
  05/04
  
  06/04High
  
  $
  1.3340
  
  $
  1.3442
  
  $
  1.3480
  
  $
  1.3711
  
  $
  1.3970
  
  $
  1.3768Low
  
  $
  1.2690
  
  $
  1.3108
  
  $
  1.3080
  
  $
  1.3095
  
  $
  1.3702
  
  $
  1.34044

A. 
Selected Financial Data

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

Table No. 3(A)(3)
Selected Financial Data CDN GAAP
(CDN $ in 000, except EPS, Weighted Avg. Shares and Capital Stock Shares)

Year
  Ended
  12/31/03
  
  Year
  Ended
  12/31/02
  
  Year
  Ended
  12/31/01
  
  Year
  Ended
  12/31/00
  
  Year
  Ended
  12/31/99Revenue
  
  $
  
  
  $
  
  
  $
  1
  
  $
  1
  
  $
  1,080Operating loss
  
  $
  (1,397
  )
  $
  (783
  )
  $
  (1,195
  )
  $
  (1,665
  )
  $
  (2,891
  )Net loss
  
  $
  (1,356
  )
  $
  (1,058
  )
  $
  (1,514
  )
  $
  (2,028
  )
  $
  (3,225
  )Net loss per share
  
  $
  (0.01
  )
  $
  (0.10
  )
  $
  (0.17
  )
  $
  (0.28
  )
  $
  (0.74
  )Diluted  Net
  loss per share
  
  $
  (0.01
  )
  $
  (0.10
  )
  $
  (0.17
  )
  $
  (0.28
  )
  $
  (0.74
  )Dividends per share
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00Weighted 
  Avg. Shares O/S (000)
  
  
  113,700
  
  
  10,404
  
  
  8,734
  
  
  7,338
  
  
  4,351Working Capital
  
  $
  (283
  )
  $
  (587
  )
  $
  (574
  )
  $
  (281
  )
  $
  592Resource Properties (1)
  
  $
  8,951
  
  $
  
  
  $
  
  
  $
  149
  
  $
  Long-Term Debt
  
  $
  6,882
  
  $
  
  
  $
  
  
  $
  Nil
  
  $
  NilShareholders Equity/ (deficiency)
  
  $
  1,809
  
  $
  (576
  )
  $
  242
  
  $
  838
  
  $
  986Capital Stock Shares  (000)
  
  
  135,821
  
  
  10,511
  
  
  9,529
  
  
  7,845
  
  
  5,111Total Assets
  
  $
  9,109
  
  $
  71
  
  $
  852
  
  $
  1,164
  
  $
  1,379(1)
  Resource properties comprise all costs of
  acquisition of, exploration for, and development of petroleum and natural gas
  reserves (net of government incentives) less depletion and write downs.Table No. 3(A)(4)
Selected Financial Data US GAAP
(CDN $ in 000, except EPS, Wgt Avg. shares and Capital Stock Shares)

Year
  Ended
  12/31/03
  
  Year
  Ended
  12/31/02
  
  Year
  Ended
  12/31/01
  
  Year
  Ended
  12/31/00
  
  Year
  Ended
  12/31/99Revenue
  
  $
  
  
  $
  
  
  $
  1
  
  $
  1
  
  $
  1,080Operating loss
  
  $
  (1,397
  )
  $
  (783
  )
  $
  (1,195
  )
  $
  (1,665
  )
  $
  (2,540
  )Net loss
  
  $
  (2,791
  )
  $
  (1,064
  )
  $
  (1,785
  )
  $
  (2,028
  )
  $
  (2,873
  )Net loss per share
  
  $
  (0.02
  )
  $
  (0.10
  )
  $
  (0.20
  )
  $
  (0.28
  )
  $
  (0.66
  )Fully Diluted Net loss per share
  
  $
  (0.02
  )
  $
  (0.10
  )
  $
  (0.20
  )
  $
  (0.28
  )
  $
  (0.66
  )Dividends per share
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00
  
  $
  0.00Wgt. Avg. Shares O/S (000)
  
  
  113,700
  
  
  10,404
  
  
  8,734
  
  
  7,338
  
  
  4,351Working Capital
  
  $
  (283
  )
  $
  (598
  )
  $
  (221
  )
  $
  (281
  )
  $
  592Resource Properties
  
  $
  8,951
  
  $
  
  
  $
  
  
  $
  149
  
  $
  Long-Term Debt
  
  $
  6,882
  
  $
  
  
  $
  
  
  $
  Nil
  
  $
  NilShareholders Equity/(deficiency)
  
  $
  1,809
  
  $
  (876
  )
  $
  (51
  )
  $
  838
  
  $
  986Capital Stock Shares (000)
  
  
  135,821
  
  
  10,511
  
  
  9,529
  
  
  7,845
  
  
  5,111Total Assets
  
  $
  9,109
  
  $
  71
  
  $
  852
  
  $
  1,164
  
  $
  1,3795

B. 
Risk Factors

GENERAL BUSINESS RISKS


  We have a historyof operating
  losses.We
  sustained losses for each of the fiscal years ended December 31,
  2003, 2002 and 2001 of, respectively $1,356,130, $1,058,276, and $1,513,911,
  respectively. We also anticipate sustaining a loss from operations for the
  fiscal years ended December 31, 2004.
  Going Concern.Our
  success is dependent upon our 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 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, 2003
  and 2002, and had a $283,314 working capital deficiency at December 31, 2003
  and have no producing properties. Our ability to continue as a going concern
  is dependent on achieving profitable operations and upon obtaining additional
  financing. The outcome of these matters cannot be predicted at this time.
  If the going concern assumption was not appropriate for these consolidated financial
  statements adjustments might be necessary to the carrying values of assets and liabilities
  and the balance sheet classifications used (see note 1 to the financial statements).In
  the United States, reporting standards for auditors require the addition of
  an explanatory paragraph  when the
  financial statements are affected by conditions and events that cast
  substantial doubt on the companys ability to continue as a going concern
  (see comments by auditors for US readers on Canada-US reporting differences)
  We will 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
  from operations for the fiscal years ended December 31, 2003, 2002, and 2001
  were $(581,205), $(715,887) and $(1,193,841), respectively. We have been
  dependent upon the proceeds of equity financing to fund operations. No
  assurances can be given that our actual cash requirements will not exceed our
  budget, that anticipated revenues will be realized, that, when needed, lines
  of credit will be available if necessary or that additional capital will be
  available to us. There is no assurance that we will be able to obtain such
  additional funds on terms and conditions we may deem acceptable. Failure to
  obtain such additional funds may materially and adversely affect our ability
  to acquire interests in oil and gas properties.
  We do not intend to pay dividends in the foreseeable
  future.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6


  The market price of our common shares has been and will in
  all likelihood, 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.
  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 the common shares.
  The
  value and transferability of our shares may be adversely impacted by the
  limited trading market for our shares and the penny stock rules.There is only a
  limited trading market for our shares on the Over the Counter Bulletin Board
  Exchange (OTCBB). There can be no assurance that this market will be
  sustained or that we will be able to satisfy any future trading criteria that
  may be imposed by the National Association of Securities Dealers (NASD).In addition, holders
  of our common shares may experience substantial difficulty in selling their
  securities as a result of the penny stock rules. Our common shares are
  covered by the penny stock rules, a Securities and Exchange Commission rule
  that 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 rule, the broker-dealer must make a special
  suitability determination for the purchaser and transaction prior to the
  sale. Consequently, the rule may affect the ability of broker-dealers to sell
  our securities and also may affect the ability of purchasers of our stock to
  sell their shares in the secondary market. It may also cause fewer broker
  dealers to make a market in our common shares.
  The large number of shares eligible for future sale by
  existing shareholders may adversely affect the market price for our common
  shares.Future
  sales of substantial amounts of common shares in the public market, or the
  perception that such sales could occur, could adversely affect the market
  price of the common shares. At June 4, 2004, we had 137,683,646 common shares
  outstanding. On that date we also had reserved 8,389,790 common shares for
  issuance under our stock plan at per share exercise prices ranging from $0.08
  to $0.43 and had reserved 8,239,000 common shares for issuance under the
  Warrants pursuant to various private placements and the acquisition of Forum
  Exploration Inc.  We intend to include
  these common shares in a Registration Statement to be filed with the United
  States Securities and Exchange Commission pursuant to the Securities Act 1933
  registering the common shares for resale.7

See Item 6. Directors, Senior Management and
  Employees--Options to Purchase Securities from the Company or Subsidiaries.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 Rule 144 into the public
  market may adversely affect prevailing market prices for the common shares
  and could impair our ability to raise capital in the future through the sale
  of equity securities.
  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 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 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 and natural gas
  reserves. However, since these regulations generally apply to all oil and gas
  producers, we believe that these regulations should not put us a material
  disadvantage to other oil and gas producers.OPERATING RISKS - OIL AND GAS EXPLORATION ACTIVITIES
  We do
  not currently own properties with oil or gas reserves.We do not own any
  properties with oil or gas reserves. Our future oil and natural gas reserves,
  production, and, therefore, cash flow and income, as well as our success are
  highly dependent on success in finding or acquiring recoverable 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 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 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 will result in any discoveries of commercial bodies of oil or gas.
  The long-term profitability of our operations will be in part directly
  related to the cost and success of our exploration programs 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, no assurance can be given that 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.8


  If we are unable to continue to identify, explore and
  develop new properties, our business operations may be adversely affected.We
  expect that in order to be successful in our oil and gas 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. Without
  successful drilling or acquisition ventures our oil and gas assets,
  properties and the revenues derived there from, if any, will decline over
  time. To the extent we engage in drilling activities, such activities carry
  the risk that no commercially viable oil or gas production will be obtained.
  The cost of drilling, completing and operating wells is often uncertain.
  Moreover, drilling may be curtailed, delayed or cancelled as a result of many
  factors, including shortage of available working capital, title problems,
  weather conditions, environmental concerns, 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 our oil and gas will depend
  on numerous factors beyond its control, including the demand for and supply
  of oil and gas, the proximity of our natural gas reserves to pipelines, the
  capacity of such pipelines, 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 the area.
  The exploration and development of oil and gas 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 oil prices may adversely impact our operations
  and activities.The
  price of oil and gas has fluctuated widely, 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 therefore the economic
  viability of any of our exploration projects, cannot accurately be predicted.9


  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 the
  joint venture agreements or other option or joint venture agreements to which
  we are, or may become a party, and we may have our interest in properties, in
  which we may acquire interests subject to such agreements, reduced as a
  result. Furthermore, if other parties to such agreements do not meet their
  share of such costs, we may be unable to finance the cost required to
  complete recommended programs.
  It is possible that our title for
  the claims in which we have an interest will be challenged by third parties.Although
  we will attempt to ascertain the status of the title for any projects in
  which we have or will acquire a material interest, there is no guarantee that
  title to such concessions will not be challenged or impugned. In some
  countries, the system for recording title to the rights to explore, develop
  and mine natural resources is such that a title opinion provides only minimal
  comfort that the holder has title. Also, in many countries, claims have been
  made and new claims are being made by aboriginal peoples that call into
  question the rights granted by the governments of those countries.
  Reserve
  estimates for oil and gas reserves 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 crude oil and natural
  gas reserves, 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 and gas 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, if any, set forth herein will ultimately be produced.
  Our oil and gas production and marketing may be adversely
  affected by factors beyond our control.The
  production and marketing of oil and gas 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 imports,
  actions by foreign oil-producing nations, the availability of adequate
  pipeline and other transportation facilities, the availability of equipment
  and personnel, the marketing of competitive fuels, the effect of governmental
  regulations and other matters affecting the availability of a ready market
  such as fluctuating supply and demand.10


  Our operations will be subject to numerous environmental
  risks.Our
  natural gas and oil operations will be subject to compliance with 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 may cause substantial delays and require capital outlays in
  excess of those anticipated, adversely affecting our earnings and competitive
  position in the future.
  Since
  we have acquired 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.Since our exploration
  and development activities will occur primarily in countries other than Canada
  or 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 the United States and Canada are also subject to the risks inherent
  in foreign operations, including loss of revenue, property and equipment as a
  result of hazards such as expropriation, nationalization, war, insurrection
  and other political risks.
  We
  face competition from larger and better financed companies seeking to acquire
  properties in our sphere of operation.The oil and gas
  industry is highly competitive and our business could be harmed by
  competition with other companies. Because oil and gas are fungible
  commodities, the principal form of competition is price competition. We will
  strive to maintain the lowest finding and production costs possible to
  maximize profits. In addition, as an independent oil and gas 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,
  exploration for and production of oil and natural gas 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.11


  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 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 of these individuals.
  Our directors may face conflicts of
  interest in connection with our participation in certain ventures because
  they are directors of other resource companies.David Robinson, who
  serves as our President, Chief Executive Officer and as a director, and David
  Wilson, who serves as a director, are also directors of 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.ITEM  4.  INFORMATION ON THE COMPANY
A. 
Corporate History and Development of the Company.

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 more recently, in July 2003, to Forum
Energy Corporation. Our wholly owned subsidiaries are TEPCO Ltd. (TEPCO) and
Forum Energy International LTD (formerly Tracer Petroleum International Ltd. (TPI)), a company incorporated in Bermuda
to pursue oil and gas ventures in the Middle East.  In addition we own 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.

We
are engaged in the acquisition, exploration and, when warranted, development of
natural resource properties. In the years ending December 31, 1999, 2000 and
2001, our focus was on the disposition of certain of our property interests. We
successfully completed our disposition program in 2002 retaining in some
instances small working interest in some of our prior projects. We are
currently focused on the exploration and development of two petroleum license
areas in the Philippines held by FEI.
Our
head office is located at Suite 1400 700 
 2nd Street SW, Calgary, Alberta T2P 4V5. Our phone number is (403)
290-1676. We also have an office for FEI located at 14 F Pearlbank Centre , 146
Valero Street, Salcedo Village, 1227 
Makati City, Philippines with phone number (632) 893-7019 /21.
12

B. 
Business Overview
At
this time, we do not have any revenue generating assets, and as a result rely
on equity and/or debt financing to fund ongoing operations. We have experienced
large operating losses and cash outflows and, as such, our ability to continue
as a going concern is dependant upon achieving profitable operations and upon
obtaining additional financing. The outcome of these matters cannot be
predicted at this time.
We
are currently pursuing exploration and development opportunities for oil and
natural gas in the Philippines.

Recent Developments
The Philippines
We
are currently pursuing exploration and development opportunities for oil and
natural gas in the Philippines through FEI, a Philippines based energy company
with sole participation in two petroleum contract areas.
Debt Conversion
On
December 15, 2003 Roc Oil Company Limited elected to convert debt pursuant to
its agreement in our company amounting to US$255,944 plus interest accrued to
the date of conversion of US$51,431. In consideration we issued an aggregate of
3,073,572 shares at the conversion price of US$0.10 per share, representing $398,511.
C. Current Exploration/Development
Forum Exploration Inc.
FEI
is focusing on oil and gas exploration in the Philippines. Currently, FEI has
applied for and/or currently holds a 100% interest in two contract areas in the
Philippines (the Forum Properties).
The
first contract area is a GSEC (Geophysical Survey and Exploration Contract),
which covers Manila Bay and a portion of the contiguous landward area of Luzon
Island. This GSEC, known as GSEC92, expired May 12th 2000. FEI recently applied
for another GSEC area which includes the Manila Bay area, previously covered by
GSEC 92, plus an additional area on land in a strip extending northwards from
the bay and beyond Lincayen Gulf.
The
second contract area is a service contract (SC) area known as SC 40, which
covers the northern half of Cebu Island plus part of the Visayan Sea offshore
to the west of the island. Several exploration prospects and leads have been
identified by FEI within the service contract area, both on Cebu and offshore
in the Visayan Sea. A small gas field has been discovered and appraised on Cebu,
but its small size has meant that so far it has not been developed. Another
small field was discovered during FEIs 2003 onshore drilling program. FEI
plans (subject to the receipt of necessary working capital which it may or may
not receive) to conduct an evaluation of both these fields - to be carried out
by PGS Reservoir Consultants (UK) Limited (PGS), an independent consulting
firm, specializing in petroleum reservoir evaluation.
13

Manila Bay
The
Manila Bay prospect was identified in the early 1990s as a potential
Miocene/Pliocene gas target and the first well was drilled on the structure by
Cophil Exploration and its partners during 1995. Unfortunately technical and
operational problems forced the abandonment of the initial hole and a sidetrack
well also had to be abandoned after it encountered an overpressured late
Miocene limestone horizon at around 7,430 feet. Gas was detected in the
drilling mud during the penetration of the limestone section, but the lack of
wireline logs or drill stem tests meant that no further evaluation of the
limestone zone was possible at that stage.
In
1996 a further well was drilled on the structure very close to the original
well location. This well successfully drilled down to a Total Depth (TD) of
11,684 feet. Gas shows from the drilling mud were identified in several zones
and this information, together with wireline log data, was used to select three
zones for drill stem testing. Unfortunately, all of the three tested zones
flowed water, with only minor amounts of gas. 
There was the suspicion that the final test of the shallow Malo Pungatan
limestone horizon, which had been responsible for the over-pressure problems
encountered in the original well, was compromised by a probable casing leak, adding
further uncertainty to the interpretation of the well results.
The
available seismic and well data from Manila Bay were the subject of a detailed
review and evaluation by PGS during 1997. The conclusions from this work were
that some additional prospects may be present near the original Manila Bay
wells and that new seismic work, involving re-processing and attribute
analysis, may identify potential new drilling targets.
SC 40  Cebu
Exploration
in the Visayan basin began over 100 years ago and since then approximately 130
wells have been drilled. The majority of the wells were very shallow tests and
drilled outside of structural closure. Oil and gas shows have been encountered
in a number of wells with oil and gas discoveries made on Cebu Island. Since
1994 twelve wells have been drilled in the offshore Visayan basin, ten of which
lie within the SC 40 Licence. Of these ten wells, nine-targeted wells of
Miocene reef pays have been defined on 2D seismic data and good reservoir quality
was established on 7 of those wells. 
Hydrocarbon seeps are also common in the area indicating an active and
mature petroleum system.
Recent Drilling Activity

FEI
met the 2003 Department of Energy (DOE) work commitments for SC40 through the drilling
of four wells. The work program commenced with the drilling of Forum 1X on
March 31st 2003, followed by 1X/A, 2X and 3X which were drilled to
TD in December 2003. Oil and gas shows were encountered during drilling and
Forum 2X flowed up to 217,000 standard cubic feet of gas per day through a
half-inch choke with an initial pre-flow pressure of about 700 pounds per
square inch (psi) and a flowing pressure of 350 psi during testing in October
2003. It is not yet known whether commercially viable quantities of oil and gas
can be produced from any of these wells.

The
wells are located in Barangay Maya, Daanbantayan, Cebu and were drilled to
depths of between 1,000 and 2,000 feet using FEIs wholly-owned Hycalog HH3500
drilling rig.
14

Forum
1-X is located close to the old MST-11 well, which flowed 540 boe per day
during a test conducted by American Asiatic Oil Company (AAOC) in 1961. Other
subsequent wells drilled in the 1960s and early 1970s by AAOC and by China National
Petroleum Company of Taiwan also reported to have flowed oil on test, but
sustained production at commercial rates was never established.
All exploration and
development work is being carried out by FEI, our 66.67% owned subsidiary with
our funding assistance.
ITEM 5.  OPERATING AND FINANCIAL OVERVIEW AND
PROSPECTS.
We
have experienced significant operating losses and fund outflows from operations
over the last few years and as a result our ability to continue as a going
concern is dependent on achieving profitable operations and/or upon obtaining
additional financing.
Our
audited financial statements were prepared in accordance with accounting
principles and practices generally accepted in Canada (Canadian GAAP), which
are not materially different from those in the United States (refer to the
Auditors Report dated May 21, 2004).
Fiscal Year Ended December 31, 2003 versus Fiscal Year Ended
December 31,2002

During
the year ended December 31, 2003, we continued to focus our efforts on creating
shareholder value through the acquisition of, or participation in, the
development of international  petroleum
projects. Our primary focus at this time is on opportunities in the
Philippines.

In
July, 2003 we finalized our acquisition of two-thirds of FEI. The consideration
was 100,000,000 of our common shares, plus a commitment to fund the overhead of
FEI and to fund the minimum work commitment on the two properties it has 100%
working interests in. During the course of the year, we drilled three wells
that are currently being tested. To date, we have met our obligations under the
License areas and are in the process of raising additional working capital to
further develop our interests as well as to pursue other opportunities in the
energy sector both in the Philippines and South East Asia.
The
consolidated results for the year ended December 31, 2003 was a loss of
$1,356,130 or $0.01 per share versus a loss of $1,058,276 for 2002 or $0.10 per
share. The results for the year ended December 31, 2003 incorporate the
activities of FEI.
We
have experienced significant operating losses and fund outflows from operations
in the years ended December 31, 2003 and 2002, had a $283,314 working capital
deficiency at December 31, 2003 and have no producing properties. Our ability to continue as a going concern
is dependent on achieving profitable operations and upon obtaining
additional financing. The outcome of these matters cannot be predicted at this
time.
In
the United States, reporting standards for auditors require the addition of an
explanatory paragraph  when the
financial statements are affected by conditions and events that cast
substantial doubt on the companys ability to continue as a going concern (see
comments by auditors for US readers on Canada-US reporting differences).
If the going concern assumption was not appropriate adjustments might be necessary to the
carrying values of assets and liabilities and to the balance sheet classifications used.
15

Fiscal Year Ended December 31, 2002 versus Fiscal Year Ended
December 31, 2001
During
the year ended December 31, 2002, we continued to focus our efforts on  the acquisition of or participation in the
development of proven petroleum reserves internationally.
The
loss for the year was $1,058,276, or $0.10 per share (2001  loss of $1,513,911
or $0.17 per share). This was primarily attributed to administrative
expenditures of $782,835 (2001  $1,196,014), which are mainly associated with
the ongoing pursuit of international petroleum development opportunities.
We
had a working capital deficiency at December 31, 2002 of $587,102 (December 31,
2001  deficiency of $573,871) and shareholders deficiency of $576,489
(December 31, 2001  equity of $241,537). During the year, we raised $180,370
of new equity capital through the exercise of stock options. In addition we
sold assets and received proceeds of $643,326, and raised a further $104,631
through the issue of short-term loans and convertible debt. We expect that
we  will have to raise additional funds
through equity and/or debt in order to finance acquisitions and operations.
Fiscal Year Ended December 31, 2001 versus Fiscal Year Ended
December 31, 2000
During
2001, we continued to our efforts on property disposition while seeking to
identify new international oil and gas projects for possible acquisition.
The
loss for the year was $1,513,911, or $0.17 per share compared to $2,028,006 or
$0.28 per share in the year ended December 31, 2000. This was primarily a
result of decreased administrative expenditures of $1,196,014 compared to
$1,609,501 in 2000; these expenses are mainly associated with the ongoing pursuit
of international petroleum development opportunities. Additionally in 2000 we
recorded a write-down of $367,375 related to our eZuz.com Inc. investment.
We
had a working capital deficiency at December 31, 2001 of $573,871 compared to
$281,483 at the end of 2000. During 2001, we raised $848,600 of new equity
capital through private placements and the exercise of share purchase warrants
and stock options.

We
also received loans aggregating US$240,762 from Roc Oil Company Limited of Sydney,
Australia. These funds were used in connection with our efforts to identify and
acquire oil and gas projects in Iran. Ultimately, we determined not to pursue
the acquisition of any of the projects under consideration.
Roc
Oil Company Limited has the option to convert this loan amount (including
accrued and unpaid interest thereon) into our common shares and warrants
exercisable for our common shares on or before the May 1, 2003 Maturity Date.
The conversion price which is the lesser of US$0.20 per share or 80% of the
weighted average closing price for the previous 20 trading days, subject to a
floor price of US$0.05 per share. ROC is also entitled to receive share
purchase warrants to purchase up to an additional 5,000,000 shares at an exercise
price of  $0.20 per share on or before
the Maturity Date. The total number of warrants issued to Roc will depend upon
the value of the dollar figure loaned to us. If Roc elects not to convert to
common shares and receive the warrants, then Tracer will be obligated to repay
the entire outstanding principal balance and accrued interest within 30 days
from the Maturity Date and that may affect the Use of Proceeds, and may have to
be paid out of the amount currently allocated for working capital. This also
may restrict our ability to fully exploit our proposed exploration program in
the Philippines.
16

Liquidity and Capital Resources

The
working capital deficit at December 31, 2003 was $283,314 (2002  deficit
$587,102) and shareholders surplus was $1,808,953 (2002- deficit $576,489).
During the year, we sold shares under a Private Offering and received net
proceeds of $2,738,888 . In December the ROC Oil Company Limited debt including
accrued interest totaling $398,511 was converted into common shares at US$0.10
per share. We will need to raise additional capital through debt, equity or
other offerings to fund our ongoing operations and further development of our
properties if warranted.

We
may need to raise additional funds if the results of our exploration
programs demonstrate that either further exploration or development of our
properties is warranted. No assurance can be given such financing will be
available to us when required or on commercially viable terms.   See RISK FACTORS.

Our
Company is well positioned to fund its 2004 development programme of US$2
million and to take advantage of acquisition opportunities as they arise.

AIAK
CAPITAL FINDERS AGREEMENT

In February, 2004 we entered into a finders agreement with AIAK Capital Ltd.
(AIAK) pursuant to which AIAK, on an exclusive basis for a period of
180 days was retained to obtain equity and/or debt financing for us in the
Capital Markets of Asia. The range of the financing was to be between US$5 and
US$50 million. Subsequently, in April 2004, based on discussions with AIAK
Management, we agreed that the appropriate amount of financing which AIAK should
attempt to secure was US$20 million. It has been suggested by them that such
financing may be through a combination including a potential transfer of certain
of our assets to a new Special Purpose Vehicle (SPV) through which the US$20
million would be raised. Out interest in the SPV would, be based upon a valuation
by an independent engineering firm. If AIAK is successful, in addition to
reimbursement of out of pocket expenses, it will receive a finders fee equal to
8% of the aggregate amount raised.

To date the Company has yet to transfer its assets into such an SPV, nor has AIAK been able to arrange any other form of financing. Accordingly, we are seeking
financing from other sources as well. There is, of course, no assurance that
financing, either through AIAK sources or other sources introduced to us, will
be completed as planned, if at all.


Critical Accounting Policies
The
financial statements have been prepared in accordance with Canadian GAAP. A
summary of significant accounting policies is presented in Note 2 to the
Financial Statements.  Most accounting
policies are mandated under Canadian GAAP and therefore do not have the ability
to select alternatives.  However, in
accounting for oil and gas activities, companies have a choice between two
acceptable accounting policies: the full-cost and the successful efforts method
of accounting.
We
follow the full-cost method of accounting for oil and natural gas
activities.  Using the full-cost method
of accounting, all costs of acquiring, exploring and developing oil and natural
gas properties are capitalized, including unsuccessful drilling costs and
administrative costs associated with acquisition and development.
Under
the full-cost method of accounting, an impairment test is applied to the
overall carrying value of
property, plant and equipment for each cost centre on a country by country
basis with the proved reserves using commodity prices at period end.

17

Critical Accounting Estimates
The
preparation of financial statements in accordance with Canadian GAAP requires
management to make certain judgments and estimates. Changes in these judgments
and estimates could have a material impact on our financial result and
financial condition.  The process of
estimating reserves is critical to several accounting estimates.  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.
These financial statements have been prepared on a going concern basis. If the
going concern assumption was not appropriate adjustments might be necessary to
the carrying values of assets and liabilities and the balance sheet
classifications used.

Recent Canadian Accounting Related Pronouncements


Standards of Disclosure for Oil and Gas Activities

Effective
September 20, 2003, the Alberta Securities Commission implemented NI 51-101.
Standards of Disclosure for Oil and Gas Activities.  NI 51-101 is effective for fiscal years that include or year
ended December 31, 2003.  The instrument
imposes more standardized and more conservative guidelines for reserve
estimates. Definitions for disclosure of reserves, net asset value, netbacks
and finding and development costs are also provided in the Instrument.

Continuous Disclosure Obligations
The
Ontario Securities Commission has issued a National Instrument 51-102 (NI
51-102), Continuous Disclosure Obligations, effective for interim MD & A
disclosures for the first quarter ending March 31, 2004.  The instrument outlines enhanced
requirements for disclosure and interim financial statements, MD & A and
the Annual Information Form (AIF). The instrument also requires shorter
reporting deadlines for the annual and interim financial statements, MD & A
and the AIF.
18

Full-Cost Accounting Guideline
The
Canadian Institute of Chartered Accountants (CICA) issued Accounting
Guideline 16, Full Cost Accounting for years beginning on or after January 1,
2004.  The new guideline updates reserve
definitions to include the standards of NI 51-101, sets criteria for accounting
for disposals of properties and defines the method to be used to deplete and
depreciate capitalized costs.  The guidelines
also sets standards for presentation and disclosure under full-cost accounting.
Adoption of the guideline is not expected to have a material impact on the
Financial Statements of our Company.
Stock Based Compensation
In
September 2003, the CICA amended Handbook section 3870, Stock Based
compensation and Other Stock Based Payments. The amendment requires that
companies recognize an expense in the financial statements for the stock based
payments based on the fair value method beginning January 1, 2004.

Disclosure of Guarantees
The
CICA issued Accounting Guideline 14, Disclosure of Guarantees in February
2003. This guideline requires disclosure of all guarantees their fair value and
a description of their nature in the notes to the financial statements. The new
guidelines is effective for fiscal years beginning on or after January 1,
2003.  Adoption did not affect the
financial result of the Company for 2003.
Asset Retirement Obligations
In
December 2002, the CICA issued Handbook Section 3110,Asset Retirement
Obligations.  This standard requires
recognition of a liability representing the fair value of the future
requirement obligations associated with property, plant and equipment.  This fair value is capitalized as part of
the cost of the related asset and amortized to expense over its useful life.
The standard is effective for all fiscal years beginning on or after January 1,
2004 and is not expected to have a material impact on the Financial Statements
of our Company presently.
Business Conditions and Risks
The
business of exploration, development and acquisition of oil and gas reserves
involves a number of uncertainties and, as a result, we are exposed to a number
of risks inherent in the oil and gas industry. 
Operationally, we face risks that are associated with finding,
developing and producing oil and gas reserves. 
These include risks associated with drilling economic risk,
environmental and safety concerns, and access to processing facilities.  The financial risks that are not within our
control include the fluctuation in commodity prices and interest rates.
We mitigate risk through
the competence of our management team, and safety and environmental programs
that meet or exceed regulations.
19

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 the 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. The Executive Officers serve at the pleasure of the Board of
Directors.

Name
  
  Age
  
  Position/Area
  of Experience/FunctionLarry W. Youell (1)(2)
  
  61
  
  Director since June 1998, Chairman since April 2003David Robinson
  
  41
  
  Director, President & CEO since December 2003Barry Stansfield (1)(2)(3)
  
  53
  
  Director since April 2003David G. Wilson(1)(2)(3)
  
  59
  
  Director since June 1998David Thompson(1)
  
  50
  
  Director, CFO since March 2003, Corporate Secretary
  since August 2003.(1)
  Member of Audit Committee.(2)
  Member of Compensation Committee(3)
  Member of the Corporate Governance CommitteeMr.
David Thompson was appointed in March 1, 2003.
The
following persons were members of our Board of Directors as of December 31,
2002 and resigned as of the dates indicated:
Mr.
Stephen Jacobs resigned effective March 25, 2003.
Mr.
Sameer Hirji resigned effective December 31, 2002.
Mr.
David Robinson resigned effective April 30, 2003 but was re-appointed a
director and President and Chief Executive Officer on December 8th,
2003.
In
addition, Mr. David Harrison resigned as our Corporate Secretary effective May
13, 2003 and Mr. Riaz Sumar was appointed as his replacement. Mr. Riaz Sumar
resigned as Corporate Secretary and was replaced by Mr. David Thompson in
August 2003.
20

Information About our Directors and Officers
David R. Robinson, President, Chief
Executive Officer, and Director
Based
in Calgary, Mr. Robinson has spent the past 17 years working in both the
investment business and petroleum industry. Mr. Robinson is Director, President
and Chief Executive Officer of  Canadian
based Aurado Exploration, Ltd. Mr. Robinson was previously the President and
Chief Executive Officer of Tracer Petroleum from January 1999 until June 2002,
the President and Chief Executive Officer Odyssey Petroleum Corporation, and
prior to that Executive Vice President of Arakis Energy Corporation, both of
which were Calgary-based and NASDAQ-listed. Mr. Robinson was responsible for
raising over US$200 million in equity capital for these companies.
Mr. Larry Youell, Chairman and Director
Mr. Youell
spent 21 years with Consumers Gas Company Limited and its subsidiaries
(Consumers), in a variety of roles with increasing responsibility including
Senior Vice President Operations, and Senior Vice President Business Support.
He was also President of Rose Technology, and General Manager of Consumers
largest division. Prior to joining Consumers, Mr. Youell was a Management
Consultant with an international base of clients. Mr. Youell was born and
raised in Calgary, Alberta. He received his Honours degree in Business from the
University of Western Ontario in 1963 and a Masters in Business Administration
from that university in 1968. Mr. Youell has been active in charitable causes,
including serving as Chair of the Arthritis Society in Ontario and lead roles
in fund raising for United Way and Skylight Theatre. He is also Past Chair of
the Ontario Natural Gas Association and International Approvals Services Inc.
Mr. Youell is Mr. Robinsons uncle.
Mr. David M. Thompson, CFO, Corporate Secretary and Director
Based
in Hamilton, Bermuda, Mr. Thompson acts not only as one of our Directors but
also as Chief Financial Officer.  Mr.
Thompson is also the  Managing Director
and a major shareholder in AMS Limited, an international management company in
Bermuda with funds and assets under management exceeding $200 million. Mr.
Thompson was responsible for incorporating a management company and developing
it into an international organization offering a variety of services including
trading companies, foreign sales corporations, personal trusts, asset
management and financial money management. Previously, Mr. Thompson spent nine
years as Senior Vice President and Executive Director of the Larmag Group of
Companies in the Netherlands, which is now operated through AMS. His more than
25 years of financial experience includes raising over US$75 million from
private debt and equity markets for investment in an upstream oil and gas
business located in Turkmenistan. He later negotiated the terms of the sale of
these holdings to Dragon Oil PLC.  Mr.
Thompson received an Institute of Bankers Diploma from the University of London
and later received his CMA from York University in Toronto.
Mr. David Wilson, Director

A
resident of Calgary, Mr. Wilson is a geologist with 34 years of experience who
provides us with international oil and gas exploration and development
expertise. He spent over twelve years with a major Canadian oil and gas
company, lastly as the Senior Director - Strategic Exploration Group. He
currently is a director and Executive Vice President for Mergers and
Acquisitions of Nations Energy Company Limited, a private Canadian company with
operations in Kazakhstan, Azerbaijan, and California.  Nations Energy Company Limited currently produces 40,000 barrels
of oil per day.

21

Mr. Barry Stansfield, Director
A
resident of London, England, Mr. Stansfields expertise lies in marketing. He
spent the last 5 years working as a partner in B&L Estates, a property
management company.
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 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 is an officer or director from engaging in or
continuing any conduct, practice, or employment in connection with the purchase
or sale of securities, or convicting such person of any felony or misdemeanor
involving a security or any aspect of the securities business or of theft or of
any felony.
There
are no other arrangements or understandings between any two or more directors
or executive officers, pursuant to which he was selected as a director or
executive officer. Except as disclosed above, there are no family relationships
between any two or more directors or executive officers.
B. 
Compensation.

We
have committed to pay our directors the following consulting fees and directors
fees on a monthly basis:

David Robinson
  US$6,000Larry Youell
  US$2,000David Thompson
  US$6,000David Wilson
  US$1,000Barry Stansfield
  US$1,000In
addition, the Board of Directors may award special remuneration to any Director
undertaking any special services on our behalf other than services ordinarily
required of a Director. Other than as indicated below, no Director received any
compensation for his services as a Director, including committee participation
and/or special assignments.
We
grant stock options to Directors, Executive Officers and employees; as
described below under, Options to Purchase Securities from Company or
Subsidiaries.
None
of our executive officers/directors received other compensation in excess of
the lesser of US $25,000 or 10% of such officers cash compensation as reported
in the compensation table above and all executive officers/directors as a group
did not receive other compensation which exceeded US $25,000 times the number
of persons in the group or 10% of the compensation reported in the compensation
table above.

No
funds were set aside or accrued by us during the year ending December 31, 2003
to provide pension, retirement or similar benefits for 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.
22

The
following tables detail the compensation paid during fiscal year ended December
31, 2003 and 2002 to our Directors and members of our administrative,
supervisory or management bodies:
Director/Executive Officer
Compensation
Fiscal Year ended December 31,2003


Directors/Officers
    
    Salary/Fees
    
    Option Exercise Net
        Market Value(1)
    
    Total
        CompensationDavid R. Robinson
    
    US$
    6,000
    
    
    US$
    47,048
    
    
    US$53,048David M. Thompson
    
    US$
    51,000
    
    
    
    Nil
    
    
    US$51,000Larry W. Youell
    
    CDN$
    93,803
    
    
    US$
    28,372
    
    
    CDN$93,803
        and US$28,372David G. Wilson
    
    US$
    8,000
    
    
    US$
    7,150
    
    
    US$15,150Barry Stansfield
    
    US$
    20,000
    
    
    
    Nil
    
    
    US$20,000David Harrison
    
    US$
    24,000
    
    
    US$
    5,893
    
    
    US$29,893Total US$
    
    US$
    109,000
    
    
    
    
    
    
    US$197,463Total CDN$
    
    CDN$
    93,803
    
    
    US$
    88,463
    
    
    CDN$93,803(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.Fiscal Year ended December 31,2002

Directors/Officers
    
    Salary
    
    Option Exercise Net
        Market Value(1)
    
    Total
        CompensationDavid R. Robinson
    
    US$
    56,000
    
    
    US$
    50,000
    
    
    US$106,000Larry W. Youell
    
    US$
    18,600
    
    
    US$
    2,384
    
    
    US$20,984Stephen T. Jacobs
    
    
    
    
    
    
    
    
    
    David G. Wilson
    
    
    
    
    
    
    
    
    
    David W. Harrison
    
    $
    77,775
    
    
    US$
    4,000
    
    
    US$4,000
        and CDN$77,775Sameer Hirji
    
    
    
    
    
    US$
    23,800
    
    
    US$23,800Total US$
    
    US$
    74,600
    
    
    
    
    
    
    US$154,784Total CDN$
    
    CDN$
    77,775
    
    
    US$
    80,184
    
    
    CDN$77,775(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.The
Board of Directors may award special remuneration to any Director undertaking
any special services on our behalf other than services ordinarily required of a
Director. Other than indicated below no Director received any compensation for
his services as a Director, including committee participation and/or special
assignments.
Except
for the stock option program discussed below, we have no bonus or profit
sharing plans pursuant to which cash or non-cash compensation is or may be paid
to the our directors or executive officers.
23

Options to Purchase Securities From Company
or Subsidiaries.
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. All of the options granted
to report date, except for those granted to Eastmark Ltd. and Westmark Ltd.,
were granted in accordance with the stock option plan as amended.
Stock Options Granted and Outstanding


Name
    
    Number of
        Common
        Shares
    
    Exercise
        Price
    
    Expiration
        Date
    
    Issue/
        (Exercise)
        (Expired)
        (subsequent
        to Y/E)
    
    BalanceDavid
        Robinson
    
    200,000
    
    $
    0.14
    
    Jan. 17,
        2004
    
    (200,000
    )
    Nil200,000
    
    $
    0.32
    
    Feb. 4,
        2004
    
    (68,750
    )
    Nil500,000
    
    $
    0.08
    
    April 26,
        2008
    
    (85,227
    )
    414,7731,000,000
    
    $
    0.43
    
    April 26,
        2004
    
    Nil
    
    1,000,000$
    0.31
    
    April 26,
        2008
    
    68,182
    
    68,182Larry
        W. Youell
    
    34,060
    
    $
    0.16
    
    Jan. 18,
        2004
    
    (34,060
    )
    Nil1,250,000
    
    $
    0.08
    
    April 26,
        2008
    
    (213,068
    )
    1,036,932$
    0.31
    
    April 28,
        2008
    
    170,455
    
    170,455Barry
        Stansfield
    
    2,000,000
    
    $
    0.08
    
    April 26,
        2008
    
    (340,910
    )
    1,659,090$
    0.31
    
    April 26,
        2008
    
    272,726
    
    272,726David
        G. Wilson
    
    18,200
    
    $
    0.11
    
    April 22,
        2004
    
    (18,200
    )
    Nil5,000
    
    $
    0.11
    
    Nov. 19,
        2004
    
    Nil
    
    5,000500,000
    
    $
    0.08
    
    April 26,
        2008
    
    (85,227
    )
    414,773$
    0.31
    
    April 26,
        2008
    
    68,182
    
    68,182David
        Thompson
    
    1,250,000
    
    $
    0.08
    
    April 26,
        2008
    
    (213,068
    )
    1,036,932$
    0.31
    
    April 26,
        2008
    
    170,455
    
    170,455Riaz Sumar
    
    67,560
    
    $
    0.14
    
    Jan. 17,
        2004
    
    (67,560
    )
    034,970
    
    $
    0.16
    
    Jan. 18,
        2004
    
    (34,970
    )
    0200,000
    
    $
    0.08
    
    April 26,
        2008
    
    
    
    200,000Total
        Officers/Directors(6 persons)
    
    7,259,790Total
        Employees/Consultants
    
    
    
    $
    0.08
    
    Jan. 17,
        2004(5 persons)
    
    380,000
    
    
    
    
    $
    0.15
    
    Mar.15,2005Total
        Officers/Directors/Consultants/
    
    7,639,790
    
    
    
    
    
    
    
    
    6,517,50024

C. 
Board Practices

We
have an audit committee, a compensation committee, and a corporate governance
committee.

Audit
Committee. The audit committee oversees the retention,
performance and compensation of our independent auditors, and the establishment
and oversight of our systems of internal accounting and auditing control.
Members of the audit committee are Larry Youell, David Thompson, Barry
Stansfield, and David Wilson.
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 are Larry Youell, David
Thompson, Barry Stansfield, and David Wilson.
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 of Directors any matters which should be the
subject of either public disclosure or remedial action but also to assist the
Board of Directors 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 are  Larry Youell,
David Wilson, and Barry Stansfield.
D.Employees
As
of December 31, we had no employees located outside of the Philippines..
E.  Share Ownership
The following table lists
as of June 4, 2004, the share ownership of our directors and executive
officers.

The following table sets
forth certain information as of June 4, 2004 regarding the ownership of our
common stock by (i) each beneficial owner more than 5% of our outstanding
common stock, (ii) each of our directors, (iii) each of our named executive
officers and (iv) all of our directors and executive officers as a group.
Except as otherwise indicated, the address of each person identified below is
c/o Forum Energy Corporation, Suite 1400, 700  2nd Street S.W.
Calgary, Alberta T2P 4V5. We believe that ownership of the shares by the persons
identified below is both of record and beneficial and that such persons have
sole voting and investment power with respect to the shares indicated.
Percentage of class in the following table is calculated individually based on
the following formula: (Shares directly or indirectly controlled + shares
issuable on the exercise or conversion of various securities) / (total shares
outstanding + shares issuable on the exercise or conversion of various warrant,
debentures and options by the director or officer). The total shares
outstanding on June 4, 2004 was 141,433,653.
25

Number of
  Shares
  
  Percent
  of Class(i) Name of Registered Shareholder owning 5% or more
  of the outstanding shares:Westmark Limited
  
  32,303,850
  
  23
  %Eastmark Limited
  
  13,173,600
  
  9
  %Autogas Inc
  
  11,500,000
  
  8
  %Propex Incorporated
  
  11,000,000
  
  8
  %Gasolex Incorporated
  
  10,500,000
  
  7
  %GCTS Inc
  
  10,400,000
  
  7
  %Saranova Limited
  
  8,233,140
  
  6
  %(ii) Name of Director and/or Officer and number of
  shares held:David R. Robinson/DRR Capital
  
  20,000/305,000Larry W. Youell/Cindy Youell
  
  50,060/85,273David Thompson/AMS Limited
  
  Nil/352,614Barry Stansfield
  
  68,182David Wilson/Merckwood
  
  35,245(iii) Number of shares held by all Directors and
  Officers as a group:
  
  916,374The
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
        DateLarry Youell
    
    100,000
    
    
    US$  0.25
    
    09/02/04David G. Wilson
    
    74,000
    
    
    US$  0.25
    
    09/02/04David R. Robinson
        (1)
    
    340,000
    
    
    US$  0.25
    
    09/02/04Total Officers/Directors/Employees
    
    514,000
    
    
    US$  0.25
    
    09/02/04(1)     280,000
        share purchase warrants held in the name of DRR CapitalWe
are a publicly-owned corporation, the shares of which are owned by Canadian
residents, US residents, and residents of other countries. Currently, we are
not controlled directly or indirectly by another corporation or any foreign
government.
There
are no arrangements, known to the Company, the operation of which may at a
subsequent date result in a change of control in the Company 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.
26

On
December 31, 2003 the shareholders list showed 534 registered shareholders and
135,821,037 shares outstanding. Of these shareholders 474 were U.S.
residents,  owning 89% of the issued and
outstanding shares
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, US residents, and residents of other countries. We are not
controlled directly or indirectly by another corporation or any foreign
government. The following table provides the names and share ownership of those
parties that have ownership of 5% or more of each class of the Companys voting
securities as of June 4, 2004:

Name
  
  Number of Shares Owned
  
  Percentage of ClassWestmark Limited
  
  32,303,850
  
  
  
  23
  %Eastmark Limited
  
  13,173,600
  
  
  
  9
  %Autogas Inc
  
  11,500,000
  
  
  
  8
  %Propex Incorporated
  
  11,000,000
  
  
  
  8
  %Gasolex Incorporated
  
  10,500,000
  
  
  
  7
  %GCTS Inc
  
  10,400,000
  
  
  
  7
  %Saranova Limited
  
  8,233,140
  
  
  
  6
  %There
are no arrangements, known to the Company, the effect of which may at a
subsequent date result in a change of control in the Company other than as
noted in item
5 Operating and Financial. Overview and Prospects.
As
at June 4,  2004 management is not aware
of any person holding a greater than 5% registered interest in any class of the
Registrants voting securities other than as set forth above. The above listed
organizations and individuals have no special or separate voting rights than
those rights held by our shareholders.

On
June 4, 2004, the shareholders list showed 909 registered shareholders and
141,433,653 shares outstanding. The number of shares held by U.S. residents was
14,449,687, representing 10% of the total issued and outstanding shares.
B. 
Related Party Transactions
During
the year ended December 31, 2003 general and administrative expenses included
fees charged by directors, officers and/or companies controlled by them at what
management believes are market rates under commercial terms totaled $261,117
(2002 - $190,578). Included in accounts payable and accrued liabilities at
December 31, 2003 is $69,673 (December 31, 2002 - $46,373) owed to directors,
officers and/or companies controlled by them.
At
December 31, 2002 we owed short-term loans totaling $83,652 to companies
controlled by our directors and officers. These short loans were non-interest
bearing, unsecured and with no specific repayment terms. These short-term loans
were repaid in entirety during the year ended December 31, 2003.
27

ITEM 8.  FINANCIAL INFORMATION
A. 
Consolidated Financial Statements and Other Financial Information
See Item 17. Financial
Statements.
We
know of no pending legal or arbitration proceedings including those relating to
bankruptcy, governmental receivership or similar proceeding and those involving
any third party against it, nor are we involved as a plaintiff in any material
pending litigation.
We
know of no pending proceedings to which any director, member of senior
management, or affiliate is either a party adverse to us or our subsidiaries or
has a material interest adverse to us or our subsidiaries. We have not declared
any dividends for the last five years, nor do we intend to declare any
dividends for the foreseeable future.

B.  Significant
Changes/Developments
(i)
During April 2004 two shareholders arranged to advance up to US$200,000 to FEI
to assist with its working capital requirements. The advance is an
interest-free on-demand note to be issued and guaranteed by us under our
commitment to fund the working capital needs of FEI. The loans are short-term
and expect to be repaid out of proceeds from the new funding as well as
awarding the shareholders bonus shares equivalent to 20% of the amounts
advanced.
(ii)
On April 7, 2004, we announced as part of our objective of diversifying sources of
energy from oil and gas production that we agreed the terms to acquire The
Manguerra Mining and Development Corporation of Cebu, Philippines (Manguerra),
subject to completion of formal due diligence and Department of Energy
approval. The expected cost of this acquisition would be US$200,000.
(iii)
On May 6, 2004 we announced that we had entered into an agreement with Energy
Services Group (ESG) Dubai, for the ongoing management and oversight of the
Corporations exploration and development efforts. ESG has prepared the 2004
Work Programme and Budget for the Corporations operating subsidiary, FEI. The
budget is for a total of US$4.36 million and includes the further exploration
and development of the Corporations Cebu Island contract (SC40) as well as
Manila Bay (SC43) and specifically includes the development of the newly
discovered Maya Field and the Libertad Gas Field. The majority of the 2004 Work
Programme and Budget will be covered through the US$20 million financing that
is being arranged through AIAK Swiss in Kuala Lumpur. If such financing is not
completed, the Work Programme will be delayed until comparable financing can be
obtained.
28

ITEM 9.  THE LISTING
A.  Listing Details
and Markets
Our
common shares originally traded on the Vancouver Stock Exchange (VSE) in
British Columbia, Canada under the symbol TPC. Trading on the VSE commenced
on May 25, 1983. We voluntarily de-listed from the VSE on August 6, 1999. Our
common shares are traded on the NASDAQ SMALL CAP BOARD under the symbol
TCXXF. Trading commenced on NASDAQ on October 30, 1989. Our shares were
de-listed from the NASDAQ SMALL CAP Board on September 22, 1999. Our shares now
trade on the OTC  Bulletin Board under the symbol FRUEF.
The
table below lists the high/low bid/ask prices on NASD/OTC-Bulletin Board for
our shares for each year within the five most recent fiscal years.
NASDAQ Small
Cap/OTC Bulletin Board Stock Annual Price History - Common Shares
(US Dollars)

Year Ended
  
  High
  
  Low12/31/03
  
  $
  0.66
  
  $
  0.0812/31/02
  
  $
  0.61
  
  $
  0.0812/31/01
  
  $
  2.063
  
  $
  0.0912/31/00
  
  $
  3.00
  
  $
  0.3812/31/99
  
  $
  2.75
  
  $
  0.312The
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.
OTC Bulletin Board
Stock Trading Activity - Common Shares
(US Dollars)

Quarter
  Ended
  
  Volume
  
  High
  
  Low12/31/03
  
  2,672,310
  
  $
  0.62
  
  $
  0.1809/30/03
  
  1,548,700
  
  $
  0.30
  
  $
  0.1506/30/03
  
  2,082,200
  
  $
  0.66
  
  $
  0.0803/31/03
  
  1,171,400
  
  $
  0.21
  
  $
  0.08512/31/02
  
  550,000
  
  $
  0.15
  
  $
  0.0809/30/02
  
  1,023,900
  
  $
  0.24
  
  $
  0.1006/30/02
  
  1,373,400
  
  $
  0.25
  
  $
  0.1003/31/02
  
  2,447,800
  
  $
  0.61
  
  $
  0.13The
table below highlights for the most recent six months the high and low market
prices for each month of our common shares on the OTC Bulletin Board.
OTC Bulletin Board
Stock Monthly Price History - Common Shares
(US Dollars)

Month Ended
  
  High
  
  Low
  
  Volume06/30/04
  
  0.66
  
  0.12
  
  1,146,40005/31/04
  
  0.35
  
  0.22
  
  1,139,64004/30/04
  
  0.45
  
  0.31
  
  2,202,68003/31/04
  
  0.52
  
  0.37
  
  336,13602/28/04
  
  0.52
  
  0.38
  
  680,33801/31/04
  
  0.62
  
  0.40
  
  479,67429

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 the common shares.

On
June 4, 2004, the shareholders list showed 909 registered shareholders and
141,433,653 shares outstanding. The number of shares held by U.S. residents was
14,449,687, representing 10% of the issued and outstanding shares. Our shares
are not registered to trade in the US in the form of American Depository
Receipts (ADRs) or similar certificates.
30

ITEM 10.  ADDITIONAL INFORMATION.
A.  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.
B.  Material Contracts.
See Item 4.
Information About the Company.
C.  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.
D.  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.
This
summary does not take into account provincial income tax consequences. The
summary assumes that the publicly announced proposals will be enacted as
proposed with the effective dates set out therein; otherwise, the summary
assumes that there will be no other changes in law whether by judicial or
legislative action.
31
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
the Company (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 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, 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 the
Companys 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 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.
E.  Documents on Display
The
documents concerning us which are referred to in this Report are either annexed
hereto at exhibits (see Item 19) or may be inspected at our principal executive
offices in Calgary.
32
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 transaction risk. The fluctuation of the US
dollar 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.
We incur a
relatively small amount of expenses in Canadian and Philippines currencies.
However, due to the fact that the majority of our financings are completed in
US dollars, 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 oil and gas. In the past oil and gas
prices have been volatile. Prices are subject to wide fluctuations in response
to changes in supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond the control of the Company. We
currently have no significant operating revenue.
ITEM 12.  DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES.
Not
Applicable
PART II
ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES.
None.
33
ITEM 14.
 MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY HOLDERS AND USE OF PROCEEDS.
None.
ITEM 15:
CONTROLS AND PROCEDURES.
The
Board of Directors has overall responsibility for reviewing the 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 our chief financial officer, after evaluating the
effectiveness of the companys disclosure controls and procedures (as defined
in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a
date (the Evaluation Date) within 90 days before filing date of this report,
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.
There
were no significant changes in our internal controls or, to our knowledge, in
other factors that could significantly affect our disclosure controls and
procedures subsequent to the Evaluation Date.
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 reviewing 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 are Larry Youell, David Thompson, Barry
Stansfield, and David Wilson.
Our
Board of Directors has determined that it has at least one financial expert
serving on its Audit Committee. This individual is Mr. David Thompson who has
served as one of our Directors since March 1, 2003. Mr. Thompson is a Certified
Management Accountant.
34
ITEM 16 B: CODE OF ETHICS.
We
have adopted a formal code of ethics applicable to our principal executive
officer, financial officer, 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;
  and5.
  Accountability for adherence to the standards.In
addition we practice corporate governance in accordance with rules and
regulations in Canada.
Corporate
Governance relates to the activities of the Board of Directors who are elected
by and accountable to the shareholders and takes into account the role of
management who are appointed by the Board of Directors and who are charged with
our on-going management. Our Board of Directors  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 is of the view that our corporate
governance policies and practices, outlined below, are appropriate and
substantially consistent with the guidelines for improved corporate governance
in Canada as adopted by the Toronto Stock Exchange.
To
better fulfill and implement the Boards corporate governance policies, a
Corporate Governance Committee has been established. 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 of Directors any matters
which should be the subject of either public disclosure or remedial action but
also to assist the Board of Directors 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 are Larry Youell, Barry Stansfield, and
David Wilson.
ITEM 16
C.  ACCOUNTANTS FEES AND SERVICES
The
companys external auditors, KPMG LLP, charged total fees of Can$60,883 all of
which related to the audit of the annual financial statements for the year
ended December 31, 2003 ($32,809 was charged by Ernst &Young for 2002).
ITEM 16
D.  EXEMPTION FROM THE LISTING STANDARDS
FOR AUDIT COMMITEE
Not
Applicable.
35
ITEM 16 E.

  PURCHASE OF EQUITY SECURITIES BY THE
ISSUER AND AFFILIATED PURCHASERNot
Applicable.
PART
III
ITEM
17.  FINANCIAL STATEMENTS.
The
auditors report, financial statements and notes thereto, schedules thereto, as
required under Item 17 are found immediately below.
Financial
Statements:
Report of Auditors, dated May 21, 2004Disclosure of the Impact
  of Recently Issued Accounting StandardsConsolidated Balance Sheets at December 31, 2003 and
  December 31, 2002Consolidated Statements of Loss and Deficit for the
  Years ended December 31, 2003 and December 31, 2002Consolidated Statements of Cash Flows for the Years
  ended December 31, 2003 and December 31, 2002Notes to the Consolidated Financial StatementsReport of Auditors dated May 27, 2003Consolidated Balance Sheets at December 31, 2002 and
  December 31, 2001Consolidated Statements of Loss and Deficit for the
  Years ended December 31, 2002 and December 31, 2001Consolidated Statements of Cash Flows for the Years
  ended December 31, 2002 and December 31, 2001Notes to the Consolidated Financial Statements36
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders
Forum Energy Corporation (formerly Tracer Petroleum Corporation):
We have audited the
accompanying consolidated balance sheets of Forum Energy Corporation as of
December 31, 2003 and the consolidated statements of loss and deficit and cash
flows for the year then ended.  These
financial statements are the responsibility of the Corporations
management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits
in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Forum Energy Corporation as of
December 31, 2003 and the results of its operations and its cash flows for the
year then ended in accordance with Canadian generally accepted accounting
principles.

Canadian generally accepted
accounting principles vary in certain respects from accounting principles
generally accepted in the United States of America. Information relating to the
nature and effect of such differences is presented in note 14 to the
consolidated financial statements.

The consolidated
financial statements as at December 31, 2002 and 2001 and the years then ended
were audited by other auditors who expressed an opinion without reservation on
those statements in their report dated May 27, 2003
(signed) KPMG LLP
Calgary, Canada
May 21, 2004
COMMENTS
BY AUDITORS FOR U.S READERS ON CANADA  U.S REPORTING DIFFERENCES
In the United States,
reporting standards for auditors require the addition of an explanatory
paragraph (following the opinion paragraph) when the financial statements are
affected by conditions and events that cast substantial doubt on the companys
ability to continue as a going concern, such as those described in note 1 to
the financial statements. Our report to the shareholders dated May 21, 2004 is
expressed in accordance with Canadian reporting standards, which do not permit
a reference to such conditions and events in the auditors report when these
are adequately disclosed in the financial statements.
(signed) KPMG LLP
Calgary, Canada
May 21, 2004
37
FORUM ENERGY CORPORATION
(Formerly Tracer Petroleum Corporation)
CONSOLIDATED BALANCE SHEETS
As at December 31(Presented in Can$)
  
  2003
  
  2002ASSETSCurrent
  assetsCash
  
  $
  27,077
  
  $
  24,376Accounts
  receivable
  
  
  76,220
  
  
  7,510Prepaid
  expenses
  
  
  22,927
  
  
  519Investments
  [note 8]
  
  
  
  
  
  27,776126,224
  
  
  60,181Property,
  plant and equipment [note 4]
  
  
  8,982,789
  
  
  10,613$
  9,109,013
  
  $
  70,794LIABILITIES
  AND SHAREHOLDERS EQUITY (DEFICIENCY)Current
  liabilitiesAccounts
  payable and accrued liabilities [note 7]
  
  $
  409,538
  
  $
  194,647Short-term
  loans [note
  7]
  
  
  
  
  
  83,652Convertible
  loan [note
  6]
  
  
  
  
  
  368,984409,538
  
  
  647,283Long-term
  debt  [note5]
  
  
  6,881,989
  
  
  Non-controlling
  interest
  
  
  8,533
  
  
  6,890,522
  
  
  7,300,060
  
  
  647,283Shareholders
  Equity  (Deficiency)Share capital [note 6]
  
  
  7,239,109
  
  
  4,001,710Contributed surplus
  
  
  526,167
  
  
  Equity component of convertible loan [note 6]
  
  
  
  
  
  21,994Deficit
  
  
  (5,956,323
  )
  
  (4,600,193
  )1,808,953
  
  
  (576,489
  )$
  9,109,013
  
  $
  70,794Going concern [note1]Commitments and contingencies [note9]Subsequent events [note 13]
See Accompanying Notes to the Consolidated Financial
Statements
ON BEHALF OF THE BOARD:
David Robinson
  
  David ThompsonDirector
  
  Director38
FORUM ENERGY CORPORATION
(Formerly Tracer Petroleum Corporation)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
Years ended December 31(Presented in Can$)
  
  2003
  
  2002EXPENSESGeneral
  and administration [note 7]
  
  $
  1,098,703
  
  $
  784,949Depreciation
  
  
  173,658
  
  
  22,065Accretion
  on long-term debt [note 5]
  
  
  153,679
  
  
  Foreign
  exchange gain
  
  
  (39,620
  )
  
  (2,114
  )Interest
  expense (income)
  
  
  11,177
  
  
  (13,953
  )1,397,597
  
  
  790,947OTHER
  EXPENSESLoss
  on sale of investments [note 8]
  
  
  
  
  
  42,000Loss
  on sale of furniture and fixtures
  
  
  
  
  
  9,967Write
  down of investments [note 8]
  
  
  
  
  
  215,362
  
  
  267,329LOSS
  BEFORE NON-CONTROLLING INTEREST
  
  
  1,397,597
  
  
  1,058,276Non-controlling interest
  
  
  (41,467
  )
  
  NET LOSS
  FOR THE YEAR
  
  
  1,356,130
  
  
  1,058,276Deficit, beginning of the
  year
  
  
  4,600,193
  
  
  3,541,917Deficit,
  end of the year
  
  $
  5,956,323
  
  $
  4,600,193Net loss per common share
       -     Basic and diluted [note 6]
  
  $
  0.01
  
  $
  0.10See Accompanying Notes to the Consolidated Financial
Statements
39
FORUM ENERGY CORPORATION
(Formerly Tracer Petroleum Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31(Presented in Can$)
  
  2003
  
  2002Cash
  provided by (used in)OPERATING
  ACTIVITIESNet loss for the year
  
  $
  (1,356,130
  )
  $
  (1,058,276
  )Non-cash items included
  in lossDepreciation
  
  
  173,658
  
  
  189,055Non-controlling interest
  
  
  (41,467
  )
  
  Write down of investments
  
  
  
  
  
  48,372Accretion on long-term
  debt
  
  
  153,679
  
  
  Loss on sale of
  investments and furniture and fixtures
  
  
  
  
  
  51,967Stock-based compensation
  
  
  526,167
  
  
  52,995Unrealized foreign
  exchange gain
  
  
  (37,112
  )
  
  Changes in working
  capital related to operating activitiesAccounts receivable
  
  
  11,552
  
  
  20,150Prepaid expenses
  
  
  (19,935
  )
  
  (519
  )Accounts payable and
  accrued liabilities
  
  
  107,183
  
  
  (61,364
  )(482,405
  )
  
  (757,620
  )INVESTING
  ACTIVITIESAdditions to properties,
  plant and equipment, net
  
  
  (2,103,347
  )
  
  (1,638
  )Net
  cash paid on business combination [note 3]
  
  
  (94,559
  )
  
  Proceeds
  on sale of investments
  
  
  27,776
  
  
  643,326Investments
  
  
  
  
  
  (154,064
  )(2,170,130
  )
  
  487,624FINANCING
  ACTIVITIESShort-term loans
  
  
  (83,652
  )
  
  83,652Convertible loans
  
  
  
  
  
  20,979Issuance of share
  capital, net of costs [note 6]
  
  
  2,738,888
  
  
  180,3702,655,236
  
  
  285,001Net
  increase in cash
  
  
  2,701
  
  
  15,005Cash  beginning of the
  year
  
  
  24,376
  
  
  9,371Cash   end of the year
  
  $
  27,077
  
  $
  24,376Interest
  paid
  
  $
  899
  
  
  Taxes
  paid
  
  
  
  
  
  See Accompanying Notes to the Consolidated Financial
Statements
40
1.
  GOING
  CONCERNForum Energy Corporation
  (the Corporation) is incorporated under the laws of Alberta and is engaged
  primarily in the business of exploration and development of oil and gas
  reserves and the pursuit of other energy related opportunities. The
  exploration and development of oil and gas reserves involves significant
  financial risks. The success of the Corporation is dependent upon its 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 and political risks,
  fluctuations in the price of oil and gas and other factors beyond the
  Corporations control.These consolidated
  financial statements 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.  The Corporation has
  experienced significant operating losses and cash outflows from operations in
  the years ended December 31, 2003 and 2002, has a $283,314 working capital
  deficiency at December 31, 2003 and has no producing properties. The
  Corporations ability to continue as a going concern is dependent on
  achieving profitable operations and upon obtaining additional financing. The
  outcome of these matters cannot be predicted at this time.If the going concern
  assumption were not appropriate for these consolidated financial statements
  adjustments might be necessary to the carrying values of assets and
  liabilities and the balance sheet classifications used.2.
  SIGNIFICANT
  ACCOUNTING POLICIESThese consolidated
  financial statements have been prepared by management in accordance with
  Canadian generally accepted accounting principles (Canadian GAAP) and, except as outlined in note 14, are in accordance with accounting principles, generally accepted in the United States
(US GAAP). The
  preparation of financial statements in conformity with Canadian GAAP requires
  management to make certain estimates and assumptions that affect the reported
  amounts of assets and liabilities and disclosure of contingent assets and
  liabilities as at the date of the financial statements and the reported
  amounts of revenues and expenses during the reporting period. The most
  significant of these estimates relate to determining the recoverability of
  the Corporations property, plant and equipment. While it is the opinion of
  management that these consolidated financial statements have been properly
  prepared within reasonable limits of materiality and within the framework of
  the significant accounting policies summarized below, actual results could
  differ from the estimates made.(a)
  Basis of
  preparationThese financial
  statements include the accounts of the Corporation and its subsidiaries, Forum
Energy International Ltd. (formerly
  Tracer Petroleum International (TPI)), TEPCO Ltd. (TEPCO) and Forum
  Exploration Inc. (FEI).41
2.
  SIGNIFICANT ACCOUNTING POLICIES (Continued)(b)
  Properties, plant and equipmentThe Corporation follows
  the full cost method of accounting for oil and natural gas operations,
  whereby all costs of exploring for and developing oil and natural gas
  reserves are capitalized and accumulated in country-by-country cost
  centres.  Such costs include land
  acquisition costs, geological and geophysical costs, costs of drilling both
  productive and non-productive wells, interest costs on major development
  projects and overhead charges directly related to acquisition, exploration
  and development activities.The costs (including
  exploratory dry holes) in costs centres from which there has been no
  commercial production are not subject to depletion until commercial
  production commences. The capitalized costs are periodically assessed to
  determine whether it is likely such costs will be recovered in the future. To
  the extent there are costs, which are not likely to be recovered in the
  future, they are written-off.The costs in cost centres
  from which there will be production will be depleted and depreciated on the
  unit of production method based on the estimated proved reserves after
  royalties. Oil and natural gas reserves and production will be converted into
  equivalent units based upon their estimated relative energy content. Costs of
  acquiring and evaluating significant unproved properties are excluded from
  the depletion calculations. These unproved properties are assessed
  periodically to ascertain whether impairment in value has occurred.  When proved reserves are assigned or the
  value of the property is considered to be impaired, the cost of the property
  or the amount of the impairment is added to costs subject to depletion.Oil and natural gas
  properties are subject to a ceiling test for each cost centre and in each
  reporting period to determine that the costs of each cost centre are
  recoverable and do not exceed their estimated future net revenues. Future net
  revenues are estimated based upon the production of proved reserves at period
  end prices plus the costs of unproved properties net of impairment
  allowances, future capital costs, administrative, financing, future removal
  and site restoration costs and income taxes. If the carrying value of the oil
  and natural gas properties exceed the estimated future net revenues, a write
  down is recorded.Proceeds from the sale of
  oil and natural gas properties are applied against capitalized costs, with no
  gain or loss recognized unless such a sale would alter the depletion rate by
  more than 20%.Substantially all of the
  Corporations exploration, development and production activities are
  conducted jointly with others and accordingly these financial statements
  reflect only the Corporations proportionate interest in such activities.The Corporations
  drilling equipment and well logging equipment are recorded at cost upon
  acquisition and depreciated on a straight-line basis over five years.The Corporation
  depreciates its office furniture and fixtures, and transportation equipment
  at the rate of 30% per annum utilizing the declining balance method. It
  provides for a full years amortization of these assets in the year of
  acquisition.42
2.
  SIGNIFICANT ACCOUNTING POLICIES (Continued)(c)
  Future removal and site restoration costs - oil and
  gas propertiesEstimated future removal
  and site restoration costs are provided for using the unit-of-production
  method based upon estimated gross proven reserves.(d)
  Foreign
  currency translationThe accounts of the Corporations
  integrated subsidiary have been translated into Canadian dollars on the
  following basis:Monetary assets and
  liabilities at the exchange rate at year-end.  Non-monetary assets and liabilities at historical exchange
  rates. Exchange gains and losses are credited or charged to income in the
  year incurred.(e)
  Stock option planThe Corporation has a
  fixed price stock option plan.  No
  compensation expense is recognized when stock options are issued to or
  exercised by employees, officers, or directors. Any consideration paid on
  exercise of stock options by employees, officers, or directors is credited to
  share capital. Effective January 1, 2002 the Corporation adopted the new
  Canadian accounting standard for stock-based compensation and other
  stock-based payments. The standard requires that the Corporation provide
  pro-forma earnings and pro-forma earnings per share for employee stock option
  granted, as if the fair value method of accounting for stock-based
  compensation had been used. The fair value of any stock option grants to
  non-employees is charged to income during the year.(f)
  Income
  taxesThe Corporation follows
  the liability method to account for income taxes. Under this method, future
  tax assets and liabilities are determined based on the differences between
  the carrying value and the tax bases of assets and liabilities, and measured
  using the substantively enacted tax rates and laws expected to be in effect
  when the differences are expected to reverse.(g)
  InvestmentsInvestments consist of
  equity securities held for sale and are accounted for using the cost method
  of accounting. The securities are recorded at cost unless there has been a
  loss in value that is other than a temporary decline, at which time the
  investment is written down to market value.43
3.
  BUSINESS
  COMBINATIONOn March 11, 2003, the
  Corporation entered into an agreement to acquire a right to purchase
  66 2/3% of the issued and outstanding shares of FEI, a Philippine
  Corporation that has rights to develop two properties located in the Philippines.
  The Corporation completed this transaction on July 18, 2003 and
  co-terminously the Corporation exercised its right to acquire 66 2/3% of
  FEI. The consideration rendered was the issuance of 100,000,000 common shares
  of the Corporation at an adjusted price of $0.001 per share. The adjusted
  price per share was determined by management based upon the vendors cost of
  the right to purchase, which approximated $100,000, as management believes
  there was not a sufficiently active and liquid market for the Corporations
  shares to support their use. In addition, the Corporation undertook to
  procure funding in the form of an on-demand bridge loan to fund the working
  capital needs of FEI from November 1, 2002 until the completion of the
  acquisition, which amounted to approximately US$500,000. The Corporation also
  agreed to fund FEIs required property work commitments and overhead for 2003
  and 2004 [see
  Note 9].The acquisition has been
  accounted for using the purchase method whereby the assets and liabilities
  were recorded at their fair market values as at the effective date and the
  operating results have been included in these consolidated financial
  statements from the date of acquisition as tabled below:Net Assets Acquired:Current assets (including
  cash $20,203)
  
  $
  102,938Property, plant and
  equipment
  
  
  7,042,487Current liabilities
  
  
  (107,708
  )Long-term debt
  
  
  (6,772,955
  )Non-controlling interest
  
  
  (50,000
  )$
  214,762Consideration Rendered:Issuance of 100,000,000
  common shares
  
  $
  100,000Transaction costs
  
  
  114,762$
  214,76244
4.
  PROPERTY, PLANT AND EQUIPMENTCost
  
  Accumulated
  Depreciation
  
  Net book valueDecember 31, 2003Philippine Based Assets:Oil and gas exploration
  and other costs:Drilling
  equipment
  
  $
  919,309
  
  $
  119,684
  
  $
  799,625Well logging equipment
  & other costs
  
  
  122,908
  
  
  36,873
  
  
  86,035Deferred exploration
  costs
  
  
  8,065,449
  
  
  
  
  
  8,065,4499,107,666
  
  
  156,557
  
  
  8,951,109Office furniture and
  fixtures
  
  
  108,435
  
  
  81,508
  
  
  26,927Transportation equipment
  
  
  5,532
  
  
  779
  
  
  4,753$
  9,221,633
  
  $
  238,844
  
  $
  8,982,789December 31, 2002Office furniture and
  fixtures
  
  $
  75,799
  
  $
  65,186
  
  $
  10,613Deferred exploration
  costs incurred prior to the start of commercial operations, net of incidental
  income. These costs include acquisition costs, direct exploration and
  development costs and an appropriate portion of related overhead
  expenditures, and exclude general overhead or administrative expenditures not
  specifically identified with a particular area of interest. Total overhead
  costs capitalized during the year ended December 31, 2003 totaled $435,546.5.
  LONG-TERM DEBTLong-term debt is non-interest bearing,
  non-recourse, unsecured and relates to previous funding of the deferred
  exploration costs by its former parent company (Forum Pacific Inc.). The
  recovery of these advances is deferred until the Corporation commences to
  earn revenue out of production from its exploration of the SC40 Cebu and Manila
  Bay properties, and then repayment shall be at a rate of 50% of the income
  generated by FEI until fully repaid. The debt has been discounted to a fair
  market value and the face amount of the debt is P372,044,400 (CAN$9,446,483).  The note is subject to accretion and an
  amount of $153,679 has been recognized at December 31, 2003.45
6.
  SHARE CAPITAL(a)
  AuthorizedUnlimited
  number of Common shares without par value; andUnlimited number of Class A
  and Class B preferred convertible redeemable voting shares without par value(b)
  Issued Common SharesNumber
  
  AmountBalance December 31, 2001
  
  
  9,529,749
  
  $
  3,714,691Issued pursuant to
  exercise of stock options
  
  
  981,590
  
  
  180,370Options issued for services
  
  
  3⁄4
  
  
  52,995Balance December 31, 2002
  
  
  10,511,339
  
  
  3,948,056Acquisition of rights to acquire 66 2/3% interest of FEI [note 3]
  
  
  100,000,000
  
  
  100,000Issued for cash pursuant
  to private placement [note (bi)]
  
  
  21,538,295
  
  
  2,792,758Issued pursuant to
  exercise of stock options
  
  
  697,831
  
  
  103,201Conversion of ROC Oil
  Loan [note c(ii)]
  
  
  3,073,572
  
  
  398,511Cost of Offering
  
  
  3⁄4
  
  
  (571,319
  )Balance December 31, 2003
  
  
  135,821,037
  
  $
  6,771,207(i)
  On April 2, 2003 the
  Corporation entered into a non-brokered Private Placement to sell 20,000,000
  shares at US$0.10 each to raise US$2,000,000. On June 6, 2003 the offering
  was increased to 24,000,000 shares. On July 31, 2003 the Corporation
  initially closed the Offering at 19,438,295 shares subscribed and on August
  25, 2003 a further 2,100,000 shares were subscribed for a total of 21,538,295
  on September 24, 2003 respectively.(ii)
  On December 15, 2003 ROC
  Oil agreed to convert debt in the Corporation amounting to US$255,944 plus
  interest accrued to date of conversion of US$51,431. In consideration the
  Corporation issued a total of 3,073,572 shares at the conversion price of
  US$0.10 per share, $398,511.(c)
  Warrants$Balance, December 31, 2001
  
  
  3,299,994
  
  
  47,900Issued
  
  
  18,978
  
  
  5,754Balance, December 31, 2002 [note
  c(i)]
  
  
  3,318,972
  
  
  53,654Expired
  
  
  (779,972
  )
  
  Issued [note c
  (ii)]
  
  
  5,700,000
  
  
  414,248Balance, December 31, 2003
  
  
  8,239,000
  
  
  467,902(i)
  Warrants previously issued
  totaling 2,539,000 at an exercise price between $0.25 and $0.90 due to expire
  on March 2, 2004 were further extended to expire on September 2, 2004. During
  the year ended December 31, 2003, the Corporation recorded compensation
  totaling $350,000 relating to the extension of the expiry date of these
  warrants.46
6.
  SHARE CAPITAL (Continued)(c)
  Warrants (continued)(ii)
  In connection with the
  offering mentioned in note 6 (ai) above, the Corporation issued 5,700,000
  purchase warrants which were recognized as an expense of the offering
  totaling  $414,248.(d)
  OptionsThe Corporation 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 Corporations stock on the date of the grant and an options maximum term
  is three years. The options vest immediately. At December 31, 2003 there were
  7,639,790 stock options outstanding to purchase common shares at US$0.08 -
  US$0.43 per share.  These options
  expire on various dates between January 17, 2004 and April 26, 2008.Number of
  Options
  Exercisable
  
  Weighted
  Average
  Exercise
  Price/ShareOutstanding and exercisable December 31, 2001
  
  
  1,732,121
  
  
  $
  0.16Granted
  
  
  1,482,290
  
  
  $
  0.26Exercised
  
  
  (981,590
  )
  
  $
  0.18Cancelled/Expired
  
  
  (325,700
  )
  
  $
  1.28Outstanding and exercisable December 31, 2002
  
  
  1,907,121
  
  
  $
  0.22Granted
  
  
  6,900,000
  
  
  $
  0.18Exercised
  
  
  (697,831
  )
  
  $
  0.11Cancelled/Expired
  
  
  (469,500
  )
  
  $
  0.18Outstanding and exercisable December 31, 2003
  
  
  7,639,790
  
  
  $
  0.18The following table
  summarizes stock options outstanding and exercisable at December 31, 2003:Exercise
  Price
  
  Number of
  Options
  
  Weighted
  Average
  Remaining Life (in years)$
  0.10
  
  
  
  5,900,000
  
  
  
  4$
  0.14
  
  
  
  53,200
  
  
  
  1$
  0.18
  
  
  
  367,560
  
  
  
  1$
  0.19
  
  
  
  50,000
  
  
  
  1$
  0.21
  
  
  
  69,030
  
  
  
  1$
  0.41
  
  
  
  200,000
  
  
  
  1$
  0.56
  
  
  
  1,000,000
  
  
  
  47,639,790
  
  
  
  447
6.
  SHARE CAPITAL (Continued)(d)
  Options
  (continued)The following table
  provides pro forma measures of loss and loss per common share had stock
  options granted to employees, officers and directors in 2003 been recognized
  as compensation expense based on the estimated fair value of the options on
  the grant date.2003
  
  2002Loss for the year as
  reported
  
  $
  1,356,130
  
  $
  1,058,276Compensation expense
  
  
  765,897
  
  
  250,188Pro-forma loss for the
  year
  
  $
  2,122,027
  
  $
  1,308,464Loss per common share as
  reported
  
  $
  0.01
  
  $
  0.10Pro-forma loss per common
  share
  
  $
  0.02
  
  $
  0.13The fair value of all
  options including those disclosed as pro forma compensation expense and
  warrants were estimated using a Black Scholes option-pricing model and based
  on the following assumptions:2003Dividend yield (%)
  
  
  0.0Expected stock price
  volatility (%)
  
  
  185Risk free interest rate
  (%)
  
  
  4.9Expected life of options
  (years)
  
  
  1At December 31, 2003,
  15,878,790 shares of common stock were reserved including 7,639,790 shares
  reserved for issuance under stock option agreements and 8,239,000 reserved
  for issuance in conjunction with outstanding warrants.Subsequent to December
  31, 2003, 1,391,040 options were exercised and 937,500 further options were
  issued with an expiry of April 26, 2008 at an exercise of $0.32 (see note
  13). A further 231,250 options expired unexercised.(e)
  Per share amountsThe loss per common share
  computations is based on the weighted average number of shares outstanding,
  which was 113.7 millions (2002  10.4million). Diluted earnings per share
  amounts are not recorded, as these amounts would be anti- dilutive.48
7.
  RELATED
  PARTY TRANSACTIONS AND BALANCES(a)
  Management and consulting
  fees:During the year ended
  December 31, 2003 general and administrative expenses included fees charged
  by directors, officers and/or companies controlled by them at what management
  believes are market rates under commercial terms totaling $261,117 (2002 -
  $190,578).  Included in accounts
  payable and accrued liabilities at December 31, 2003, is $69,673 (December
  31, 2002 - $46,373) owed to directors, officers and/or companies controlled
  by them.(b)
  At December 31, 2002 the
  Corporation owed short-term loans totaling $83,652 to companies controlled by
  directors and officers of the Corporation. These short loans were
  non-interest bearing, unsecured and with no specific repayment terms. These
  short-term loans were repaid in entirety during the year ended December 31,
  2003.8.
  INVESTMENTS(a)
  Investment
  in joint venture:During
  the year ended December 31, 2002 the Corporation entered in to a joint
  venture agreement to participate in a project in southwestern Turkmenistan
  and had advanced to the joint venture $154,064. As a result of political
  unrest the Corporation decided not to pursue the project and a write down
  totaling $154,064 was recorded during the year ended December 31, 2002.(b)
  Investment
  in Transmeridian Exploration Inc.During
  the year ended December 31, 2002 the Corporation recorded a write down
  totaling $48,372 with respect to its investment in 1,500,000 common shares of
  Transmeridian Exploration Inc. as management had determined that the carrying
  value of this investment has become permanently impaired.  During the year ended December 31, 2002
  the Corporation had sold 1,350,000 common shares of Transmeridian Exploration
  Inc. for net proceeds totaling $643,326 and recorded a loss on disposal
  totaling $42,000.  During the year
  ended December 31, 2003 the Corporation sold its remaining interest in
  Transmeridian Exploration Inc. consisting of 150,000 common shares for net
  proceeds totaling $27,776 resulting in no gain and no loss.49
9.
  COMMITMENTS AND CONTINGENCIESIn 2002 the Corporation,
  assigned its office lease to a third party. 
  The Corporation is liable for any defaults on payments by this party.
  The lease expires on May 31, 2004 and the maximum exposure if a default occurred
  is $16,954 for the remaining lease period from January 1, 2004 to May 31,
  2004.The Corporation must
  fulfill its commitment to fund 100% of the overheads of FEI plus the
  implementation of the work program agreed between FEI and the Department of
  Energy of the Philippines for calendar years 2003 and 2004. This work program
  for SC40 covers the drilling of another well in the first year plus two
  additional wells in the second year. Furthermore the Corporation has
  committed itself to commence development of the Libertad Gas Field. The
  budget for this development for 2004 for SC40 is approximately US$2 million.10.
  INCOME
  TAX LOSSES CARRIED FORWARDThe Corporation has
  incurred losses for Canadian income tax purposes in the amount of
  approximately $5,390,000, which, together with accumulated resource and
  equipment cost pools of approximately $1,190,031, may be carried forward to
  offset future taxable income. The benefit, if any, of these income tax losses
  and resource pool balances carried forward has not been reflected in the
  consolidated financial statements. The income tax losses carried forward
  expire as follows: 2006 - $1,960,000; 2007- $1,100,000; 2008 -$850,000; 2009
  - $850,000; 2010  $630,000.The Corporation has
  incurred expenditures in various jurisdictions, which are subject to tax
  authority approval. Any future tax asset would be offset by a valuation
  allowance due to the uncertainty surrounding the future utilization of the
  tax pools by the Corporation.11.
  FINANCIAL
  INSTRUMENTS(a)
  Foreign currency exchange
  risk:The Corporation is
  exposed to foreign currency fluctuations as many of the Corporations
  expenditures are in U.S. dollars and Philippine pesos.(b)
  Credit risk:The Corporations
  accounts receivable are primarily customers in the oil and gas industry and
  government agencies and are subject to normal industry credit risks.(c)
  Fair value of financial
  instruments:Financial instruments of
  the Corporation consist mainly of cash, accounts receivable, accounts payable
  and accrued liabilities, short-term loans, long-term debt and convertible
  loans. As at December 31, 2003, there were no significant differences between
  the carrying amounts of these financial instruments reported on the balance
  sheet and their estimated fair values.50
12.
  COMPARATIVE
  INFORMATIONCertain amounts for prior
  years have been reclassified to conform to the current years
  presentation.13.
  SUBSEQUENT
  EVENTS(i)
  During April 2004 two
  shareholders of the Corporation arranged to advance up to US$200,000 to FEI
  to assist with their working capital requirements.  The advance is an interest free on demand note to be issued and
  guaranteed by the Corporation under its commitment to fund the working capital
  needs of FEI.  The loans are
  short-term and expect to be repaid out of proceeds from the new funding as
  well as awarding the shareholders bonus shares equivalent to 20% of the
  amounts advanced.(ii)
  On April 7, 2004, the
  Corporation announced as part of its objective of diversifying sources of energy from oil
  and gas production, that the company has agreed the terms to acquire The
  Manguerra Mining and Development Corporation of Cebu, Philippines
  (Manguerra), subject to completion of formal due diligence and Department of
  Energy approval. The expected cost of this acquisition would be
  US$200,000.(iii)
  On April 22 2004, the
  Corporation announced that it had entered into an agreed with AIAK Group to raise
  $20 million for the development of the Corporations petroleum and coal
  assets. Under the proposed
  agreement the Corporation will transfer its existing petroleum assets as well
  as the potential coal mining assets in the Philippines into a new Special
  Purpose Vehicle (SPV). A valuation of these assets will then be undertaken by
  independent engineering firms. Based upon this valuation, clients of AIAK
  Swiss will then purchase a minority interest in the SPV in exchange for US$20
  million. It is intended that the SPV will be listed on a  stock exchange.(iv)
  On May 6, 2004 the Corporation announced that it
  has entered into an agreement with Energy Services Group (ESG) Dubai, for the
  ongoing management and oversight of the Corporations exploration and
  development efforts. ESG has prepared the 2004 Work Programme and Budget for
  the Corporations operating subsidiary, FEI. The budget is for a total of
  US$4.36 million, and includes the further exploration and development of the
  Corporations Cebu Island contract (SC40) as well as Manila Bay (SC43), and
  specifically includes the development of the newly discovered Maya Field and
  the Libertad Gas Field. The majority of the 2004 Work Programme and Budget
  will be covered through the US$20 million financing that is being arranged
  through AIAK Swiss in Kuala Lumpur, which was announced in a press release of
  April 22nd 2004.(v)
  In May 2004 the members of
  the Board of Directors sold 975,000 of their $0.08 options, which were then
  exercised by a third party to raise additional working capital for the
  Corporation. In recognition, the Corporation has issued an additional 975,000
  new options with a price of $0.32 per share.51
14.
  DIFFERENCES
  BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLESThe Corporations
  consolidated financial statements have been prepared in accordance with
  Canadian GAAP, which differs in certain respects from US GAAP as follows:Financial statement
presentation
Statements of Loss
  (Presented in CAN$)
  
  2003
  $
  
  2002
  $Loss for the year -
  Canadian basis
  
  (1,356,130
  )
  (1,058,276
  )Beneficial conversion
  feature (a)
  
  
  
  (13,441
  )Stock option repricing (c)
  
  
  
  7,502Convertible loan inducement
  
  (1,434,533
  )
  0Loss and comprehensive
  loss for the year - U.S. basis
  
  (2,790,663
  )
  (1,064,215
  )Loss per common share
  (basic and diluted)  Canadian basis
  
  (0.01
  )
  (0.10
  )Loss and comprehensive
  loss per common share (basic and diluted) - U.S. basis
  
  (0.02
  )
  (0.10
  )2003
  
  2002Balance Sheet
  
  Canadian
  GAAP
  $
  
  U.S.
  GAAP
  $
  
  Canadian
  GAAP
  $
  
  U.S.
  GAAP
  $Convertible loan (b)
  
  
  
  
  
  368,984
  
  390,978Shareholders equity (deficiency)
  
  1,808,953
  
  1,808,953
  
  (576,489
  )
  (875,965
  )The cumulative effect of
  these adjustments on consolidated shareholders equity (deficiency) is as
  follows:Shareholders Equity
     2003Shareholders Equity - Canadian GAAP
     $1,808,953U.S. GAAP AdjustmentsRetained earnings (deficit)Beneficial conversion feature
     ($58,584
        )Stock option repricing
     ($218,898
        )Convertible loan inducement
     ($1,434,533
        )Contributed surplusStock option repricing
     $218,898Additional paid in capital
     $1,493,117Shareholders Equity - U.S. GAAP
     $1,808,953Shareholders Equity
     2002Shareholders Equity - Canadian GAAP
     ($576,489
        )U.S. GAAP AdjustmentsRetained earnings (deficit)Beneficial conversion feature
     ($58,584
        )Stock option repricing
     ($218,898
        )Equity component of convertible loan
     ($21,994
        )Shareholders Equity - U.S. GAAP
     ($875,965
        )(1)
  The statement of loss for
  2002 prepared in accordance with U.S. GAAP has been restated to reflect the
  following:i)
  recognition of the
  beneficial conversion feature on the convertible loan at inception of $45,143
  [see (a) below]52

(a)
  Under US GAAP, the terms
  of the convertible loans provide the lenders with an in-the-money variable
  conversion rate. A beneficial conversion feature on the convertible loan is
  calculated at issuance based on the difference between the effective
  conversion price of the allocated proceeds and the market price of the common
  stock. The amount of the beneficial conversion feature at inception was
  $45,143, however, because of the variability of the conversion ratio, it is
  remeasured each reporting period until conversion, extinguishment or
  maturity. The remeasurement at December 31, 2002 resulted in an increase in the amount

allocated
  to the beneficial conversion feature of $13,441.
  Under US GAAP loan inducements result in a gain or loss in the statements of Loss and
  Deficit. During the year ended December 31, 2003 the convertible loan was converted
  to shares through an inducement resulting in a loss totalling $1,434,533.(b)
  Under Canadian GAAP, the
  amount allocated to the convertible loan has been segregated into debt and
  equity components based on their respective fair values (note 9).  Under U.S. GAAP

the amount allocated to
  the convertible loan would not be bifurcated and was shown as a liability.(c)
  Under APB Opinion 25 the
  repricing of outstanding stock options under a fixed price stock option plan
  results in these options being recognized as variable price options from the
  date of the modification until they are exercised, forfeited or expire.
  Accordingly, changes in the intrinsic value of the stock options from the
  modification date to the period end date would be recognized in the
  consolidated statements of loss as adjustments to general and administrative
  expense. For the year ended December 31, 2002, income would increase by
  $7,502, as the market value of the Corporations common shares at December
  31, 2002 was higher than the revised exercise price. For the year ended December 31, 2003
  income would decrease by NIL.(d)
  As described in note 6,
  the Corporation has granted stock options to selected employees, directors
  and officers. For US GAAP purposes, Financial Accounting Standard (FAS)
  123, Accounting for Stock-Based Compensation, requires that an enterprise
  recognize, or at its option, disclose the impact of the fair value of stock
  options and other forms of stock-based compensation cost by the intrinsic value
  method set out in Accounting Principles Board (APB) Opinion 25. As options
  are granted at exercise prices based on the market value of the Corporations
  shares at the date of grant, there is no compensation expense relating to ABP
  Opinion 25.New pronouncements
a)
  In August 2001, the
  Financial Accounting Standards Board approved FAS 144, Impairment of
  Long-Lived Assets. FAS 144 requires that in cases where undiscounted
  expected cash flows associated with long-lived assets are less than their
  carrying value, an impairment provision is recognized in an amount by which
  the carrying value exceeds the estimated fair value of such assets. FAS 144
  will be applicable for fiscal years beginning after December 15, 2003.The adoption of this
  standard will not have any impact on the Corporations current financial
  position or results of operations; however, the impact of this standard in future
  years could be material.b)
  Under U.S. GAAP full cost
  accounting, the carrying value of petroleum and natural gas properties and
  related facilities, net of deferred income taxes, is limited to the present
  value of after tax future net revenue from proven reserves, discounted at 10%
  (based on prices and costs at the balance sheet date), plus the lower of cost
  and fair value of unproven properties. Under Canadian GAAP, an impairment
  loss exists when the carrying amount of a companys PP&E exceeds the
  estimated undiscounted future net cash flows associated with the companys
  proved reserves. If an impairment loss is determined to exist, the costs
  carried on the balance sheet in excess of the discounted future net cash
  flows associated with the companys proved and probable reserves are charged
  to income.53

Where the amount of an
  impairment test write-down under Canadian GAAP differs from the amount of the
  write-down under U.S. GAAP, the charge for depletion, depreciation,
  amortization and accretion will differ in subsequent years.The Corporations oil and
  gas exploration costs were undeveloped as of December 31, 2003.c)
  SFAS 133, Accounting for
  Derivative Instruments and Hedging Activities establishes accounting and
  reporting standards for derivative instruments and for hedging activities.
  This statement requires an entity to establish, at the inception of a hedge,
  the method it will use for assessing the effectiveness of the hedging
  derivative and the measurement approach for determining the ineffective
  aspect of the hedge. Those methods must be consistent with the entitys
  approach to managing risk.We had no derivative and
  hedging activities in the reporting period so the SFAS 133 is not applicable.d)
  In May 2003, the FASB
  issued Statement of Financial Accounting Standards No. 150 (FAS 150), Accounting for Certain Financial Instruments with
  Characteristics of Liabilities and Equity.In December 2003, the
  FASB issued Revised FASB Interpretation No. 46, Consolidation of Variable Interest

Entities.These accounting
  standards do not have a material impact on the company at this time. We will
  continue to monitor the relevance of all accounting standards and will
  measure the impact when they are determined to apply.54

AUDITORS REPORT

To the Shareholders ofTracer
Petroleum Corporation

We have audited the
consolidated balance sheets of Tracer Petroleum Corporation as at December
31, 2002 and 2001 and the consolidated statements of loss and deficit and cash
flows for each of the years in the three-year period ended December 31,
2002.  These financial statements are
the responsibility of the Corporations management.  Our responsibility is to

express an opinion on these financial
statements based on our audits.
We conducted our audits
in accordance with Canadian and United States generally accepted auditing standards. 

Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. 
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.  An audit also includes assessing

the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Corporation as at December 31, 2002 and 2001 and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2002 in accordance with Canadian generally
accepted accounting principles.
SIGNATURECalgary, CanadaMay 27, 2003
  Chartered Accountants55

Tracer Petroleum Corporation

CONSOLIDATED BALANCE
SHEETS(See Basis of Presentation  Note 1)
As at December 31

(Presented in Can$)
  
  2002
  $
  
  2001
  $ASSETSCurrentCash
  
  24,376
  
  9,371Accounts receivable
  
  7,510
  
  27,660Prepaid expenses
  
  519
  
  Investments [note 6]
  
  27,776
  
  60,181
  
  37,031Investments [note 6]
  
  
  
  761,474Properties and equipment [note 3]
  
  10,613
  
  53,93470,794
  
  852,439LIABILITIES
  AND SHAREHOLDERS EQUITYCurrentAccounts payable and accrued liabilities [note 5]
  
  194,647
  
  296,252Short term loans [note 5]
  
  83,652
  
  Convertible loan [note 9]
  
  368,984
  
  314,650647,283
  
  610,902Commitments and contingencies [note 7]Shareholders
  equity (deficiency)Share capital [note 4]
  
  4,001,710
  
  3,762,591Equity component of convertible loan [note 9]
  
  21,994
  
  20,863Deficit
  
  (4,600,193
  )
  (3,541,917
  )(576,489
  )
  241,53770,794
  
  852,439See accompanying notes
On behalf of the Board:David
  Thompson
  Barry
  StansfieldDirector
  Director56

Tracer Petroleum Corporation
CONSOLIDATED STATEMENTS
OF LOSS AND DEFICIT
Years ended December 31

(Presented in Can$)
  
  2002
  $
  
  2001
  $
  
  2000
  $REVENUE
  
  
  
  1,494
  
  943EXPENSESDepletion, depreciation and amortization
  
  
  
  
  
  55,846Administrative expenses [notes 5 and 8]
  
  782,835
  
  1,196,014
  
  1,609,501Other
  
  
  
  
  
  142782,835
  
  1,196,014
  
  1,655,489Operating
  loss
  
  (782,835
  )
  (1,194,520
  )
  (1,664,546
  )OTHER
  REVENUE AND EXPENSESLoss on sale of investments [note 6]
  
  (42,000
  )
  
  
  Loss on sale of furniture and fixtures
  
  (9,967
  )
  
  
  Gain on sale of oil and gas properties
  
  
  
  
  
  28,075Interest and miscellaneous income
  
  13,953
  
  679
  
  25,400Write down of investments [note 6]
  
  (48,372
  )
  (283,050
  )
  (367,375
  )Amortization and writedowns
  
  (189,055
  )
  (37,020
  )
  (49,560
  )(275,441
  )
  (319,391
  )
  (363,460
  )Loss
  for the year
  
  (1,058,276
  )
  (1,513,911
  )
  (2,028,006
  )Deficit, beginning of the year
  
  (3,541,917
  )
  (2,028,006
  )
  (35,009,518
  )Deficit elimination [note 4]
  
  
  
  
  
  35,009,518Deficit,
  end of the year
  
  (4,600,193
  )
  (3,541,917
  )
  (2,028,006
  )Loss
  per common share  basic and diluted [note 4]
  
  (0.10
  )
  (0.17
  )
  (0.28
  )See accompanying notes
57

Tracer Petroleum Corporation
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years ended December 31
(Presented in Can$)
  
  2002
  $
  
  2001
  $
  
  2000
  $Cash
  provided by (used in)OPERATING
  ACTIVITIESNet loss for year
  
  (1,058,276
  )
  (1,513,911
  )
  (2,028,006
  )Non-cash items included in lossDepletion, depreciation and amortization
  
  189,055
  
  37,020
  
  105,406Write down of investments
  
  48,372
  
  283,050
  
  367,375Loss on sale of investments and furniture and
  fixtures
  
  51,967
  
  
  
  Options issued to non-employees
  
  52,995
  
  
  
  Gain on sale of oil and gas properties
  
  
  
  
  
  (28,075
  )(715,887
  )
  (1,193,841
  )
  (1,583,300
  )Changes in working capital related to operating
  activitiesAccounts receivable
  
  20,150
  
  (13,493
  )
  7,594Prepaid expenses
  
  (519
  )
  17,806
  
  35,504Accounts payable and accrued liabilities
  
  (61,364
  )
  98,070
  
  (194,893
  )(757,620
  )
  (1,091,458
  )
  (1,735,095
  )INVESTING
  ACTIVITIESAdditions to properties and equipment, net
  
  (1,638
  )
  (3,084
  )
  (302,995
  )Proceeds on sale of investments[note 6]
  
  643,326
  
  
  
  Proceeds on disposal of resource properties and
  other
  
  
  
  
  
  28,075Investments [note 7]
  
  (154,064
  )
  (12,826
  )
  (895,152
  )487,624
  
  (15,910
  )
  (1,170,072
  )FINANCING
  ACTIVITIESShort-term loans
  
  83,652
  
  (127,458
  )
  127,458Convertible loan
  
  20,979
  
  383,413
  
  Issuance of share capital, net of costs
  
  180,370
  
  848,600
  
  1,879,692285,001
  
  1,104,555
  
  2,007,150Net
  increase (decrease) in cash
  
  15,005
  
  (2,813
  )
  (898,017
  )Cash, beginning of year
  
  9,371
  
  12,184
  
  910,201Cash,
  end of year
  
  24,376
  
  9,371
  
  12,184See accompanying notes
58

1. BASIS
OF PRESENTATION
Tracer Petroleum
Corporation (the Corporation or Tracer) is engaged primarily in the
business of exploration and development of oil and gas reserves. The
exploration and development of oil and gas reserves involves significant
financial risks. The success of the Corporation is dependent upon its 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 and political risks, fluctuations
in the price of oil and gas and other factors beyond the Corporations control.
These consolidated
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles on a going concern basis, which presumes the
realization of assets and discharge of liabilities in the normal course of
business for the foreseeable future. The Corporation has experienced
significant operating losses and cash outflows from operations in the years
ended December 31, 2002, 2001, and 2000, has a $587,102 working capital
deficiency and a shareholders deficiency of $576,489 at December 31, 2002, and
has no producing properties.  The
Corporations ability to continue as a going concern is dependent on achieving
profitable operations and upon obtaining additional financing. The outcome of
these matters cannot be predicted at this time. These consolidated financial
statements do not contain any adjustments to the amounts and classifications of
assets and liabilities that might be necessary should the Corporation be unable
to continue in business.
2.
SIGNIFICANT ACCOUNTING POLICIES
These consolidated
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles (Canadian GAAP), which are different from
those in the United States (US GAAP), as explained in Note 10.
a)
Consolidation and use of estimates
These financial statements
include the accounts of the Corporation and its subsidiaries Tracer Petroleum
International (TPI), Tracer Trading Ltd. (TTL), TEPCO Ltd. (TEPCO), and
Tracer Petroleum Iran Limited (TPIL).
The preparation of
financial statements in conformity with Canadian GAAP requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results may differ from these
estimates.

b)
Properties and equipment
The Corporation follows
the full cost method of accounting for its petroleum and natural gas properties
whereby all costs of acquisition of, exploration for, and development of
petroleum and natural gas reserves (net of related government incentives) are
capitalized in separate cost centres on a country-by-country basis. Capitalized
costs are generally limited under ceiling tests. A ceiling test is applied to
ensure that capitalized costs do not exceed the sum of estimated undiscounted
future net revenues from estimated gross proven reserves less the cost incurred
or estimated to develop those reserves, production costs, interest, general and
administration costs, and an estimate for restoration costs and applicable
taxes plus the lower of cost or estimated market value of unproved properties.
Costs are depleted by cost centre using the composite unit-of-production method
based upon gross proved developed reserves estimated by professional engineers.
Reserves are converted to equivalent units on the basis of approximate relative
energy content.
Unproved properties
consist primarily of expenditures for property acquisition, office and
administrative expenses relating specifically to exploration activities, data
processing, drilling and acquisition of seismic data. These properties are
periodically reviewed for evidence of impairment and are carried at cost less
write-down for impairment, if any. These costs are transferred to the
amortization pool on an ongoing basis as the project is evaluated and/or proved
reserves are established.
Certain exploration and
production activities related to petroleum and natural gas are conducted
jointly with others. Only the Corporations proportionate interest in such
activities is reflected in the financial statements.
The Corporation provides
for amortization of its equipment, fixtures and automobile at the rate of 30%
per annum utilizing the declining balance method. It provides for a full years
amortization of these assets in the year of acquisition.

c)
Future removal and site restoration costs - oil and gas properties
Estimated future removal
and site restoration costs are provided for using the unit-of-production method
based upon estimated gross proven reserves.
59

d)
Foreign currency translation
The accounts of the
Corporations integrated wholly-owned subsidiary have been translated into
Canadian dollars on the following basis:
Monetary assets and
liabilities at the exchange rate at year-end. Non-monetary assets and
liabilities at historical exchange rates. 
Exchange gains and losses are credited or charged to income in the year
incurred.
e) Stock
option plan
The Corporation has a
fixed price stock option plan. No compensation expense is recognized when stock
options are issued to or exercised by employees, officers or directors. Any
consideration paid on exercise of stock options by employees, officers or
directors is credited to share capital. Effective January 1, 2002 the
Corporation adopted section 3870 of the Canadian Institute of Chartered
Accountants Handbook for stock-based compensation and other stock-based
payments. The section requires that the Corporation provide pro-forma earnings
and pro-forma earnings per share for employee stock option grants, as if the
fair value method of accounting for stock-based compensation had been
used.  The fair value of any stock
option grants to non-employees is charged to income during the year.
The following table
provides pro forma measures of loss and loss per common share had stock options
granted to employees, officers and directors in 2002 been recognized as
compensation expense based on the estimated fair value of the options on the
grant date.

$Loss for the year as reported
  
  (1,058,276
  )Compensation expense
  
  250,188Pro-forma loss for the year
  
  (1,308,464
  )Loss per common share as reported
  
  (0.10
  )Pro-forma loss per common share
  
  (0.13
  )f) Financial
instruments
Financial instruments of
the Corporation consist mainly of cash, accounts receivable, accounts payable
and accrued liabilities, short-term loans and convertible loans. As at December
31, 2002 and 2001, there were no significant differences between the carrying
amounts of these financial instruments reported on the balance sheet and their
estimated fair values.

g)
Income taxes
The Corporation follows
the liability method to account for income taxes. Under this method, future tax
assets and liabilities are determined based on the differences between the
carrying value and the tax bases of assets and liabilities, and measured using
the substantively enacted tax rates and laws expected to be in effect when the
differences are expected to reverse.
h)
Investments
Investments consist of
equity securities held for sale and are accounted for using the cost method of
accounting. The securities are recorded at cost unless there has been a loss in
value that is other than a temporary decline, at which time the investment is
written down to market value.
60

3.
PROPERTIES AND EQUIPMENT
2002Cost
  $
  
  Accumulated
  Depletion,
  Depreciation and
  Amortization
  $
  
  Net book
  value
  $Equipment and fixtures
  
  75,799
  
  
  65,186
  
  
  
  10,61375,799
  
  
  65,186
  
  
  
  10,6132001Cost$
  
  Accumulated
  Depletion,
  Depreciation and
  Amortization$
  
  Net book
  value$Equipment and fixtures
  
  292,246
  
  
  250,232
  
  
  
  42,014Automobile
  
  25,026
  
  
  13,106
  
  
  
  11,920317,272
  
  
  263,338
  
  
  
  53,934On December 3, 1999 the
Corporation sold all of its oil and gas assets in Indonesia to Tradewinds Oil
and Gas International Inc. (Tradewinds). In addition to initial cash
consideration of US$350,000 on closing, the Corporation is also entitled to the
following:
a)
  Tracer retained a 5% carried interest in the North
  Tanjung Block (NT Block) PSC and will receive preferential recovery of
  US$2,000,000 to be paid out of production from 30% of the cost recovery cash
  flow, net of operating costs. After the preferential recovery of US$2,000,000
  the carried interest will be converted into a working interest. The NT Block
  PSC expired in February 2003. 
  Tradewinds has applied for an extension with the new government body
  BPMIGAS.  The effect of this on
  Tracer's carried interest is not known.b)
  Tracer will receive a 5% carried working interest in
  the Sungai Gelam Technical Assistance Contract, which will be converted to a
  5% working interest upon commerciality being obtained. This is contingent
  upon Tradewinds election to pursue the project.  The Corporation has not yet been

advised whether Tradewinds has
  elected to pursue the project.61

4. SHARE
CAPITAL
a)Authorized:
Unlimited number of Common shares without par valueUnlimited number of Class A and Class B preferred
  convertible redeemable voting shares without par valueIssued
Number
  
  Amount
  $Common
  SharesBalance
  December 31, 1999
  
  5,111,205
  
  35,995,917Stated capital reduction (i)
  
  
  
  (35,009,518
  )5,111,205
  
  986,399Issued for cash pursuant to private placements (ii)
  
  1,610,000
  
  1,113,469Issued pursuant to exercise of stock options
  
  1,123,500
  
  766,223Balance
  December 31, 2000
  
  7,844,705
  
  2,866,091Issued for cash pursuant to private placement (iii)
  
  460,144
  
  280,995Issued pursuant to exercise of stock options
  
  1,224,900
  
  567,605Balance
  December 31, 2001
  
  9,529,749
  
  3,714,691Issued pursuant to exercise of stock options
  
  981,590
  
  180,370Options issued for services
  
  3⁄4
  
  52,995Balance
  December 31, 2002
  
  10,511,339
  
  3,948,056Warrants
  [ii,
  iii and note 9]Balance,
  December 31, 1999 and 2000
  
  2,539,000
  
  Issued
  
  760,994
  
  47,900Balance,
  December 31, 2001
  
  3,299,994
  
  47,900Issued
  
  18,978
  
  5,754Balance,
  December 31, 2002
  
  3,318,972
  
  53,654i)
  On June 29, 2000 at the Corporations annual general
  meeting, the shareholders passed a special resolution authorizing the
  reduction of the Corporations stated capital account by $35,009,518 which
  represented the amount of the Corporations accumulated deficit as recorded
  on the Corporations balance sheet as at December 31, 1999. At that time this
  amount was applied against the Corporations accumulated deficit.ii)
  On March 20, 2000 the Corporation completed a
  non-brokered private placement of 1,540,000 units at US$0.50 per unit. Each
  unit was comprised of one common share and one common share purchase warrant
  which entitled the holder to purchase an additional common share in the
  capital of the Corporation at US$1.00 if exercised on or before March 2, 2001
  and US$1.25 if exercised thereafter up to and including March 2, 2002 at
  which time the warrants were set to expire. 
  On November 16, 2001, the exercise price of all 1,540,000 warrants was
  reduced to US$0.25 per share.  The
  expiry date of these warrants has been extended to September 3, 2003.  A total of $1,119,657 relating to the
  private placement was included in share capital. In addition, share issuance
  costs for the private placement of $97,708 were also charged to share
  capital.A total of 70,000 warrants from a previous private
  placement were exercised during 2000 and net proceeds from the exercise of
  $91,520 were included in share capital.iii)
  On December 19, 2000 the Corporation announced a
  private placement of 687,500 Units at US$0.40 per Unit. Each Unit consisted
  of one common share and one common share purchase warrant exercisable for a
  period of two years at an exercise price of US$0.50 in the first year and
  US$0.65 in the second year. The private placement closed with 460,144 Units
  being issued on May 31, 2001 for net proceeds of $280,995.  On November 16, 2001, the
  exercise price of all 460,144 warrants was reduced to US$0.25 per share.  The warrants expire on May
  31, 2003.62

b) OptionsThe Corporation 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 Corporations stock on the date of the
grant and an options maximum term is three years. The options vest immediately.
At December 31, 2002 there were 1,907,121 (2001- 1,387,121; 2000 - 1,317,321)
stock options outstanding to purchase common shares at US$0.10 - US$0.32 per
share. These options expire on various dates between May 14, 2003 and April 22,
2004.Number of
  Options
  
  Weighted
  Average
  Exercise
  Price/ShareOutstanding
  and exercisable January 1, 2000
  
  488,000
  
  
  $
  0.79Granted
  
  2,565,821
  
  
  $
  1.11Exercised
  
  (1,123,500
  )
  
  $
  0.68Canceled/Expired
  
  (313,000
  )
  
  $
  2.00Outstanding
  and exercisable December 31, 2000(1)
  
  1,617,321
  
  
  $
  0.86Granted
  
  1,727,000
  
  
  $
  0.67Exercised
  
  (1,224,900
  )
  
  $
  0.46Canceled/Expired
  
  (387,300
  )
  
  $
  1.28Outstanding
  and exercisable December 31, 2001(2)
  
  1,732,121
  
  
  $
  0.16Granted
  
  1,482,290
  
  
  $
  0.26Exercised
  
  (981,590
  )
  
  $
  0.18Canceled/Expired
  
  (325,700
  )
  
  $
  1.28Outstanding
  and exercisable December 31, 2002
  
  1,907,121
  
  
  $
  0.22(1)
  On November 15, 2000 the Corporation

re-priced a
  total of 675,921 outstanding stock options to US$0.68 per share.(2)
  During 2001 the Corporation re-priced
  all of its outstanding stock options to US$0.10 per share.At December 31, 2002, 5,226,093 shares of common
  stock were reserved including 1,907,121 shares reserved for issuance under
  stock option agreements and 3,318,972 reserved for issuance in conjunction
  with outstanding warrants. Subsequent to December 31, 2002, the expiry date
  of 2,539,000 of these warrants was extended to September 2, 2003.  On November 16,
  2001 all but 150,000 outstanding warrants which are exercisable at US$0.90 were repriced to
  US$0.25.c)
  Subsequent to December 31, 2002 11,600,000 stock
  options were issued with an exercise price of US$0.08 and 50,000 stock
  options were issued with an exercise price of U.S.$0.15.  A total of 17,850 options

were exercised
  in the period from January 1 2003 to May 27, 2003 for proceeds of US$1,785
  and 619,500 options expired unexercised or were cancelled.d)
  The loss per common share computations are based on
  the weighted average number of shares outstanding which was 10,404,169 (2001
  - 8,733,625; 2000 - 7,337,553). Diluted earnings per share amounts are not
  recorded, as these amounts would be anti-dilutive.5.
RELATED PARTY TRANSACTIONS
Management, consulting
and investor relations fees and benefits in the amount of $190,578 (2001 -
$255,267; 2000 - $286,364) were paid or credited to five (2001 - six; 2000 -
seven) directors or officers or companies controlled by them. Included in
accounts payable and accrued liabilities at December 31, 2002, is $46,373
(2001 - $142,400) owed to directors, officers and companies controlled by them.
All transactions were recorded at the exchange amounts.

At December 31, 2002 the
Corporation owed D.R.R Capital Corporation $59,730 and Canadian International
Royalty Corporation $14,442 for short-term loans. D.R.R. Capital Corporation
and Canadian International Royalty Corporation are wholly owned by David
Robinson, Chairman of the Board of Directors. The Corporation also owed AMS
Limited $9,480 for a short-term loan. AMS Limited is owned by David Thompson, a
current Director of the Corporation. 
The loans are non-interest bearing with no specified repayment terms.
63

6. INVESTMENTS

a)
  On February 5, 2002 the Corporation reported that it
  had entered into a Joint Venture Agreement (JVA) with privately-held
  Canneft Inc. (Canneft) of Houston, TX, whereby the Corporation agreed to
  participate with Canneft in the development of the Adzhiyap project in
  southwestern Turkmenistan. Under the terms of the JVA between the Corporation
  and Canneft, Tracer would advance US$150,000 to the Joint Venture during the
  5 month period ended September 30, 2002, to cover the remaining estimated
  costs to secure the PSA. At December 31, 2002, the Corporation had advanced
  US$100,000 and as a result of political unrest decided not to pursue the
  project any further. A write down of $154,064 was recorded as a result.b)
  On April 3, 2000 the Corporation purchased a 4.5%
  equity interest in Open Joint Stock Company Caspi Neft (OJSCCN) from
  Transmeridian Exploration Inc. (TMEI) for US$614,158 ($895,152) cash.
  OJSCCN owns the exploration and production rights for the South Alibek field
  in the Aktyubinsk region of the Republic of Kazakhstan.On March 16, 2001 the Corporation sold its interest
  in OJSCCN to TMEI for US$1.5 million of convertible preferred shares of TMEI
  plus 1 million warrants exercisable at US$1.00 per share for a period of two
  years. The preferred shares were convertible at the Corporations option into
  1.5 million common shares of TMEI at a deemed value of US$1.00 per share at
  any time within 5 years. The sale was recorded at the carrying value of the
  assets given up being the shares of OJSCCN which were carried at $895,152
  plus the capitalized resource property costs which were $149,372.  The total carrying

value of $1,044,524 was
  allocated to the preferred shares and included in investments. At December
  31, 2001 the Corporation recorded a write down on its investment of $283,050
  and on December 31, 2002 a further write down of $48,372 was recorded. TMEI
  commenced trading on the NASDAQ OTC-BB market on March 6, 2002. The
  Corporation elected to convert its preferred shares into 1,500,000 common
  shares of TMEI on the commencement of trading. By December 31, 2002, the
  Corporation had sold 1,350,000 shares of TMEI for proceeds of $643,326, net
  of commissions and recorded a loss on disposal of $42,000. The balance of the
  Corporations TMEI shares were sold on February 21, 2003 for proceeds of
  $27,776 net of commissions.  All of
  the warrants expired, unexercised on March 16, 2003.c)
  On January 19, 2001 the Corporation announced that
  it had entered into a joint venture agreement with A. Brown Company Inc.
  (ABC) in the Philippines. The joint venture known as A. Brown Energy Inc.
  (ABEI) was set up in order to market and trade crude oil and petroleum
  products in the Philippines and other countries in the Far East and
  Australia. To earn its full interest the Corporation had to advance US$50,000
  and issue 50,000 common shares to ABC. On May 7, 2001 the joint venture
  agreement was terminated with the Corporation having advanced a total of
  US$8,500 ($12,826). This amount was included in amortization and write-downs.d)
  The Corporation wrote off its investment in eZuz
  Inc., with a book value of $367,375, in 2000 due to market conditions for
  Internet based stocks and the fact that no public market was established for
  the shares.7.
COMMITMENTS AND CONTINGENCIES
During the year the
Corporation, assigned its office lease to a third party.  The Corporation is liable for

any defaults
on payments by this party.

64

8.
ADMINISTRATIVE EXPENSES
Administrative expenses
were comprised of the following:
2002
  $
  
  2001
  $
  
  2000
  $Engineering and geological consulting
  
  (3,820
  )
  21,453
  
  65,264Foreign exchange loss (gain)
  
  (2,114
  )
  17,290
  
  (27,761
  )Interest and bank charges [note 9]
  
  73,562
  
  13,940
  
  2,155Investor relations (note 5)
  
  193,160
  
  111,721
  
  82,600Shareholder information
  
  27,583
  
  40,339
  
  51,860Management fees (note 5)
  
  112,804
  
  199,503
  
  213,173Consulting fees (note 5)
  
  56,434
  
  203,355
  
  354,355Office and miscellaneous
  
  65,049
  
  250,904
  
  239,697Personnel
  
  
  
  83,184
  
  70,293Professional fees
  
  124,999
  
  127,149
  
  204,494Compensation expense
  
  52,995
  
  3⁄4
  
  3⁄4Travel
  
  82,183
  
  127,176
  
  353,371782,835
  
  1,196,014
  
  1,609,5019.
CONVERTIBLE LOAN
On May 24, 2001 the
Corporation announced that it had entered into an agreement with Roc Oil
Company Limited (ROC) by which ROC agreed to provide the Corporation with
staged financing over 15 months up to a discretionary maximum of US$4,000,000.
The financing was by way of a series of convertible loans. ROC was initially loaning
funds to the Corporation during a due diligence period ending February 28, 2002
with the option to lend further funds to the Corporation beyond that date,
subject to the Corporation meeting certain project milestones. Under the
agreement the Corporation granted ROC the right of first refusal to
participate, up to a 25% equity level, with the Corporation in upstream
development opportunities in Iran. ROC had the option of appointing up to 3
members of the Board of Directors of Tracer depending upon the level of funding
provided. Under the terms of the agreement, ROC was also provided an the option
of providing further funding to the Corporation directly or converting the loan
and accrued interest into either a 50% interest in TEPCO Ltd., the wholly-owned
subsidiary of Tracer was to hold the Iranian projects or into a direct 50%
interest in the projects. ROC would then be required to provide further funding
to TEPCO, via either loans or direct investment in the projects for a total of
US$3,765,000.

65

If ROC elected not to
convert its loan amounts and accrued interest into a direct interest in TEPCO
Ltd. or into a direct interest in the projects, it had the option to provide
funding of up to US$4,000,000 directly to the Corporation. Until the maturity
date of May 1, 2003, ROC would also have the option of converting any and all
amounts of this funding and accrued interest into shares of Tracer at a
conversion price which is the lesser of US$0.20 per share or 80% of the
weighted average closing price for the previous 20 trading days, subject to a
floor price of US$0.05 per share. ROC will also receive up to 5,000,000 share
purchase warrants exercisable at US$0.20 per share on or before May 1, 2003.
The final number of warrants issued to ROC was 319,828.  All of the warrants expired

unexercised.
The loan agreement
contains certain non-financial covenants restricting the Corporation from
certain activities such as paying dividends, adopting any shareholders rights
plan where the rights of ROC would be adversely affected, sale of assets other
than in the normal course of business, restricting the use of proceeds received
under the loan agreement and prohibiting the amalgamation, consolidation or
merger of the Corporation with another entity. To be in compliance with these
covenants Tracer must provide ROC with advance notification of any such
anticipated activity. Failure to meet the covenants would result in the loan
becoming immediately repayable. As at December 31, 2002 the Corporation had met
all covenants.
To December 31, 2002 ROC
had advanced US$255,944 ($404,392) (2001  US$240,762 ($383,413)) on which
$31,992 (2001 - $12,272) of interest expense has been accrued. The gross
proceeds received as of December 31, 2002 have been allocated to the
convertible loan and warrants based on the relative fair value of each
security. Accordingly, $350,738 (2001 - $335,513) was allocated to the notes
and $53,654 (2001 - $47,900) was allocated to the 319,828 (2001 - 300,850)
issuable warrants. The fair value of the warrants was estimated using the
Black-Scholes option-pricing model. The $53,654 discount for the warrants will
be accrued and recorded as interest expense over the term of the loan. For the
year ended December 31, 2002 $40,241 (2001 - $nil) has been accrued.

The amount allocated to
the convertible loan of $350,738 (2001 - $335,513) has been segregated into
debt and equity components based on their respective fair values. The equity
component represents the holder conversion right. It will continue to be
disclosed separately in shareholders equity until the loan is either converted
or repaid at which time it will be transferred to share capital.  The amount allocated

to equity as at
December 31, 2002 was $21,994 (2001 - $20,863).
The loan matured on May
1, 2003, however presently remains outstanding.  The Corporation is presently in

discussions regarding possible
conversion of the loan, however at the present time the outcome is not known.
66

10.
  DIFFERENCES BETWEEN CANADIAN AND
  UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLESThe Corporations
consolidated financial statements have been prepared in accordance with
Canadian GAAP, which differs in certain respects from US GAAP as follows:
Financial
statement presentation
2002
  $
  
  2001
  $
  
  2000
  $Statements of Loss
  
  (restated)(1)Loss for the year - Canadian basis
  
  (1,058,276
  )
  (1,513,911
  )
  (2,028,006
  )Beneficial conversion feature (a)
  
  (13,441
  )
  (45,143
  )
  Stock option repricing (c)
  
  7,502
  
  (226,400
  )
  Loss and comprehensive loss for the year - U.S.
  basis
  
  (1,064,215
  )
  (1,785,454
  )
  (2,028,006
  )Loss per common share (basic and diluted)  Canadian
  basis
  
  (0.10
  )
  (0.17
  )
  (0.28
  )Loss and comprehensive loss per common share (basic
  and diluted) - U.S. basis
  
  (0.10
  )
  (0.20
  )
  (0.28
  )2002
  
  2001Balance Sheet
  
  Canadian
  GAAP
  $
  
  U.S.
  GAAP
  $
  
  Canadian
  GAAP
  $
  
  U.S.
  GAAP
  $Convertible loan (b)
  
  368,984
  
  390,978
  
  314,650
  
  335,513Shareholders equity (deficiency)
  
  (576,489
  )
  (875,965
  )
  241,537
  
  (50,869
  )67

The cumulative effect of
these adjustments on consolidated shareholders equity (deficiency) is as
follows:

2002
  $
  
  2001
  $Shareholders
  equity (deficiency) using Canadian GAAP
  
  (576,489
  )
  241,537Beneficial conversion feature (a)
  
  (58,584
  )
  (45,143
  )Equity component of convertible loan (b)
  
  (21,994
  )
  (20,863
  )Stock option repricing (c)
  
  (218,898
  )
  (226,400
  )Shareholders
  equity (deficiency) using U.S. GAAP
  
  (875,965
  )
  (50,869
  )(1)The
statement of loss for 2001 prepared in accordance with U.S. GAAP has been
restated to reflect the following:
i)
  a restatement of the loss for the

year  Canadian
  basis from $1,226,706 to $1,513,911 to reflect the  balance as presented in the 2001

statement of loss and deficitii)
  recognition of the beneficial

conversion feature on
  the convertible loan at inception of $45,143 [see (a) below]a)
  Under US GAAP, the terms of the

convertible notes
  provide the lenders with an in-the-money variable conversion rate. A
  beneficial conversion feature on the convertible loan is calculated at
  issuance based on the difference between the effective conversion price of
  the allocated proceeds and the market price of the common stock. The amount
  of the beneficial conversion feature at inception was $45,143, however,
  because of the variability of the conversion ratio, it is remeasured each
  reporting period until conversion, extinguishment or maturity. The
  remeasurement of the beneficial conversion feature at December 31, 2001 did
  not result in any change to the amount originally calculated.  The remeasurement at

December 31, 2002
  resulted in an increase in the amount allocated to the beneficial conversion
  feature of $13,441.b)
  Under Canadian GAAP, the amount

allocated to the
  convertible loan has been segregated into debt and equity components based on
  their respective fair values (note 9). 
  Under U.S. GAAP the amount allocated to the convertible loan would not
  be bifurcated.68

c)
  Under APB Opinion 25 the repricing of

outstanding
  stock options under a fixed price stock option plan results in these options
  being recognized as variable price options from the date of the modification
  until they are exercised, forfeited or expire. Accordingly, changes in the
  intrinsic value of the stock options from the modification date to the period
  end date would be recognized in the consolidated statements of loss as
  adjustments to general and administrative expense. For the year ended
  December 31, 2002, income would increase by $7,502 (2001  decrease by
  $226,400; 2000 - $nil), as the market value of the Corporations common
  shares at December 31, 2002 was higher than the revised exercise price.d)
  As described in note 4, the

Corporation has granted
  stock options to selected employees, directors and officers. For US GAAP
  purposes, Financial Accounting Standard (FAS) 123, Accounting for
  Stock-Based Compensation, requires that an enterprise recognize, or at its
  option, disclose the impact of the fair value of stock options and other
  forms of stock-based compensation cost by the intrinsic value method set out
  in Accounting Principles Board (APB) Opinion 25. As options are granted at
  exercise prices based on the market value of the Corporations shares at the
  date of grant, there is no compensation expense relating to ABP Opinion 25.
  Had the Corporation followed FAS 123, there would be no material impact on
  the loss for the year or loss per common share.New
pronouncements
In August 2001, the
Financial Accounting Standards Board approved FAS 144, Impairment of
Long-Lived Assets. FAS 144 requires that in cases where undiscounted expected
cash flows associated with long-lived assets are less than their carrying
value, an impairment provision is recognized in an amount by which the carrying
value exceeds the estimated fair value of such assets. FAS 144 will be
applicable for fiscal years beginning after December 15, 2003.
The adoption of this standard
will not have any impact on the Corporations current financial position or
results of operations; however, the impact of this standard in future years
could be material.

11.
INCOME TAX LOSSES CARRIED FORWARD
The Corporation has
incurred losses for Canadian income tax purposes in the amount of approximately
$3,925,585, which, together with accumulated resource and equipment cost pools
of approximately $803,719, may be carried forward to offset future taxable
income. The benefit, if any, of these income tax losses and resource pool
balances carried forward has not been reflected in the accounts. The income tax
losses carried forward expire as follows: 
2006 - $1,958,105; 2007 - $1,113,394; 2008 -$854,086; 2009 - $675,748.
The resource pool balances may be carried forward indefinitely.
12.
COMPARATIVE INFORMATION
Certain amounts for prior
years have been reclassified to conform to the current years presentation.
13.
SUBSEQUENT EVENTS
a)
  The Corporation entered into a Share Purchase
  Agreement dated March 11, 2003 among Forum Pacific, Inc. (Forum), Mullins
  Group/ Eastmark Limited 
  (Mullins/Eastmark) and the Corporation, providing for the purchase
  by the Corporation of 66 2/3% of the issued and outstanding shares of
  Forum Exploration, Inc., a Philippines corporation.  The Share Purchase Agreement was

amended by a Share Purchase
  Amending Agreement dated March 21, 2003.Forum Exploration, Inc. is the legal and beneficial
  holder of 100% interests in two upstream oil and gas contract areas in the
  Philippines.  The first contract is a
  Geophysical Survey and Exploration Contract covering the Manila Bay area, and
  the second contract is a Service Contract covering the northern half of Cebu
  Island in the Philippines.  The
  Corporation conducted extensive due diligence with respect to the corporate
  status of Forum Exploration, Inc., in addition to the status of the
  underlying assets, including the Geophysical Survey and Exploration Contract
  for Manila Bay and the Service Contract for Cebu Island.  After extensive due

diligence, it was
  determined that the Corporation would proceed with the acquisition, subject
  to certain deficiencies having been rectified.  The deficiencies were rectified, and

the Corporation decided to
  proceed.On April 28, 2003, the Corporation closed the
  acquisition of 125,000,000 shares in the capital of Forum Exploration, Inc.,
  representing 66 2/3% of the issued and outstanding shares of Forum
  Exploration, Inc.  The remaining
  33 1/3% of the shares of Forum Exploration, Inc. was retained by
  Forum.  The transfer of the
  125,000,000 shares of Forum Exploration, Inc. to the Corporation was
  confirmed by final regulatory approval and transfer of Stock Certificates on
  May 23, 2003.69

The consideration to be paid
  by the Corporation for the acquisition of the 125,000,000 shares of Forum
  Exploration, Inc. is to be the issuance of 100,000,000 common shares of the
  Corporation at a deemed value of US$0.10 per share for total consideration of
  US$10,000,000.  While the issuance of
  the 100,000,000 common shares of the Corporation has been approved by the Board
  of Directors of the Corporation, and while the Corporation has received all
  of the consideration that is due, the Corporation awaits final confirmation
  and executed subscription forms from Mullins/Eastmark with respect to the
  treasury instructions for the issuance of the 100,000,000 common shares of
  the Corporation.b)
  Subsequent to December 31,
  2002 the Corporation announced a private placement of 20,000,000 common
  shares at US$0.10 per common share. 
  The Corporation has received US$328,284 to date from the private
  placement.70

ITEM 18.  FINANCIAL

STATEMENTS.
The Company has elected
to report under Item #17.
ITEM 19.  EXHIBITS
1.1
  Certificate of Continuance
  of the Registrant (incorporated by reference to Exhibit 3.1 to the
  Registrants Registration Statement on Form F-1, File No. 33-81290 (the
  Registration); *1.2
  By-Laws of the Registrant
  (incorporated by reference to Exhibit 3.2 to the Registration Statement); *4.1
  Consulting Agreement dated
  March 1st 2004 between the Company and David Robinson (filed
  herewith);4.2
  Consulting Agreement dated
  March 1st 2004 between the Company and Barry Stansfield (filed
  herewith);4.3
  Consulting Agreement dated
  November 23rd  2003 between
  the Company and Larry Youell (filed herewith);4.4
  Consulting Agreement dated
  March 1st 2004 between the Company and David Wilson (filed
  herewith);4.5
  Consulting Agreement dated
  March 1st 2004 between the Company and David Thompson (filed
  herewith);4.6
  Exchange and Release
  Agreement between Tracer Petroleum Corporation and Transmeridian Exploration,
  Inc., dated March 16, 2001; *4.7
  Share Purchase Agreement
  dated March 11, 2003, as amended by agreements dated March 21, and April 2,
  2003; *4.8
  Amendment dated March 21,
  2003 to Share Purchase Agreement dated March 11, 2003 as amended by an
  agreement dated April 2, 2003; *4.9
  Amendment dated April 2,
  2003 to Share Purchase Agreement dated March 11, 2003 as amended by agreement
  dated March 21, 2003; *9.
  List of Subsidiaries
  (filed herewith);11.1
  Code of Ethics (filed
  herewith);12.1
  Certification by the Chief
  Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
  (filed herewith);12.2
  Certification by the Chief
  Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
  (filed herewith);13.1
  Certification by the Chief
  Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
  (filed herewith);13.2
  Certification by the Chief Financial Officer
  pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith);*
Previously filed
71

SIGNATURES

The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.

Date: July 15, 2004
  
  FORUM ENERGY CORPORATION(Registrant)/s/ David R.
  RobinsonPresident and Chief
  Executive Officer72

FORUM ENERGY CORPORATION

ANNUAL REPORT ON FORM 20F

FOR THE YEAR ENDED
DECEMBER 31, 2003

EXHIBIT INDEX

1.3
  Certificate of Continuance
  of the Registrant (incorporated by reference to Exhibit 3.1 to the
  Registrants Registration Statement on Form F-1, File No. 33-81290 (the
  Registration); *1.4
  By-Laws of the Registrant
  (incorporated by reference to Exhibit 3.2 to the Registration Statement); *4.1
  Consulting Agreement dated
  March 1st 2004 between the Company and David Robinson (filed
  herewith);4.2
  Consulting Agreement dated
  March 1st 2004 between the Company and Barry Stansfield (filed
  herewith);4.3
  Consulting Agreement dated
  November 23rd 2003 between the Company and Larry Youell (filed
  herewith);4.4
  Consulting Agreement dated
  March 1st 2004 between the Company and David Wilson (filed
  herewith);4.5
  Consulting Agreement dated
  March 1st 2004 between the Company and David Thompson (filed
  herewith);4.10
  Exchange and Release
  Agreement between Tracer Petroleum Corporation and Transmeridian Exploration,
  Inc., dated March 16, 2001; *4.11
  Share Purchase Agreement
  dated March 11, 2003, as amended by agreements dated March 21, and April 2,
  2003; *4.12
  Amendment dated March 21,
  2003 to Share Purchase Agreement dated March 11, 2003 as amended by an
  agreement dated April 2, 2003; *4.13
  Amendment dated April 2,
  2003 to Share Purchase Agreement dated March 11, 2003 as amended by agreement
  dated March 21, 2003; *9.
  List of Subsidiaries
  (filed herewith);11.1
  Code of Ethics (filed
  herewith);12.1
  Certification by the Chief
  Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
  (filed herewith);12.2
  Certification by the Chief
  Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
  (filed herewith);13.2
  Certification by the Chief
  Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
  (filed herewith);13.3
  Certification by the Chief
  Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
  (filed herewith);* Previously filed
73