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

                                    FORM 20-F

      |_|   REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE
            SECURITIES EXCHANGE ACT OF 1934
                                       OR
      |X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                     For Fiscal Year ended December 31, 2004

      |_|   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

             FEC RESOURCES INC (formerly "FORUM ENERGY 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: 174,583,646 Common Stock and 8,239,000 Common Stock Purchase Warrants
and 7,667,500 Common Stock Purchase Options.

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:
                                                                  Yes |x| No |_|

(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


<PAGE>

            FEC RESOURCES, INC (formerly "FORUM ENERGY CORPORATION")
          FORM 20-F ANNUAL REPORT FISCAL 2004, ENDED DECEMBER 31, 2004

                                TABLE OF CONTENTS

                                                                            Page
                                     PART I

Item 1.    Identity of Directors, Senior Management and Advisers              4
Item 2.    Offer Statistics and Expected Timetable                            4
Item 3.    Key Information                                                    4
Item 4.    Information on the Company                                        12
Item 5.    Operating and Financial Review and Prospects                      16
Item 6.    Directors, Senior Management and Employees                        21
Item 7.    Major Shareholders and Related Party Transactions                 28
Item 8.    Financial Information                                             29
Item 9.    The Listing                                                       32
Item 10.   Additional Information                                            33
Item 11.   Quantitative and Qualitative Disclosure About Market Risk         35
Item 12.   Description of Securities other than Equity Securities            35

                                     PART II

Item 13.   Defaults, Dividend Arrearages and Delinquencies                   35
Item 14.   Material Modifications to the rights of Security Holders
             and Use of Proceeds                                             36
Item 15.   Controls And Procedures                                           36
Item 16A.  Audit Committee Financial Expert                                  36
Item 16B.  Code Of Ethics                                                    36
Item 16C.  Principal Accountant Fees And Services                            37

                                    PART III

Item 17.   Financial Statement                                               38
Item 18.   Financial Statements                                              62
Item 19.   Exhibits                                                          62

Signatures                                                                   63
Exhibit Index                                                                64
Certifications                                                               65


                                       2
<PAGE>

              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
<PAGE>

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      Close
--------------------------------------------------------------------------------
Fiscal Year Ended 12/31/04                    1.30      1.40      1.18      1.20
--------------------------------------------------------------------------------
Fiscal Year Ended 12/31/03                    1.40      1.54      1.31      1.30
--------------------------------------------------------------------------------
Fiscal Year Ended 12/31/02                    1.57      1.62      1.51      1.58
--------------------------------------------------------------------------------
Fiscal Year Ended 12/31/01                    1.55      1.60      1.49      1.59
--------------------------------------------------------------------------------
Fiscal Year Ended 12/31/00                    1.49      1.56      1.44      1.50
--------------------------------------------------------------------------------

The current rate of exchange was 1.2283 on June 30,2005.

                                Table No. 3(A)(2)
                           U.S. Dollar/Canadian Dollar

--------------------------------------------------------------------------------
                  01/05      02/05      03/05      04/05      05/05        06/05
--------------------------------------------------------------------------------
High             1.2381     1.2562     1.2463     1.2482     1.2703       1.2263
--------------------------------------------------------------------------------
Low              1.1982     1.2301     1.2017     1.2094     1.2372       1.2578
--------------------------------------------------------------------------------


                                       4
<PAGE>

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)

<TABLE>
<CAPTION>
                                          ------------------------------------------------------------
                                            Year         Year         Year         Year         Year
                                           Ended        Ended        Ended        Ended        Ended
                                          12/31/04     12/31/03     12/31/02     12/31/01     12/31/00
------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>          <C>          <C>
Revenue                                   $     --     $     --     $     --     $      1     $      1
Loss before non-controlling interest      $ (7,228)    $ (1,397)    $ (1,058)    $ (1,195)    $ (1,665)
Net loss                                  $ (7,219)    $ (1,356)    $ (1,058)    $ (1,514)    $ (2,028)
Net loss per share                        $  (0.05)    $  (0.01)    $  (0.10)    $  (0.17)    $  (0.28)
Diluted  Net loss per share               $  (0.05)    $  (0.01)    $  (0.10)    $  (0.17)    $  (0.28)
Dividends per share                       $   0.00     $   0.00     $   0.00     $   0.00     $   0.00
Weighted  Avg. Shares O/S ('000)           149,900      113,700       10,404        8,734        7,338
------------------------------------------------------------------------------------------------------
Working Capital                           $   (998)    $   (283)    $   (587)    $   (574)    $   (281)
Resource Properties (1)                   $  6,217     $  8,951     $     --     $     --     $    149
Long-Term Debt                            $  7,921     $  6,882     $     --     $     --        $ Nil
Shareholders' Equity/ (deficiency)        $ (2,153)    $  1,809     $   (576)    $    242     $    838
Capital Stock Shares (`000)                174,584      135,821       10,511        9,529        7,845
Total Assets                              $  7,271     $  9,109     $     71     $    852     $  1,164
------------------------------------------------------------------------------------------------------
</TABLE>

(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)

<TABLE>
<CAPTION>
                                          ------------------------------------------------------------
                                            Year         Year          Year        Year         Year
                                           Ended        Ended         Ended       Ended        Ended
                                          12/31/04     12/31/03     12/31/02     12/31/01     12/31/00
------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>          <C>          <C>
Revenue                                   $     --     $     --     $     --     $      1     $      1
Loss before non-controlling interest      $ (7,227)    $ (2,832)    $ (1,064)    $ (1,195)    $ (1,665)
Net loss                                  $ (7,218)    $ (2,791)    $ (1,064)    $ (1,785)    $ (2,028)
Net loss per share                        $  (0.05)    $  (0.02)    $  (0.10)    $  (0.20)    $  (0.28)
Fully Diluted Net loss per share          $  (0.05)    $  (0.02)    $  (0.10)    $  (0.20)    $  (0.28)

Dividends per share                       $   0.00     $   0.00     $   0.00     $   0.00     $   0.00
Wgt. Avg. Shares O/S ('000)                149,900      113,700       10,404        8,734        7,338
------------------------------------------------------------------------------------------------------
Working Capital                           $   (998)    $   (283)    $   (598)    $   (221)    $   (281)
Resource Properties                       $  6,217     $  8,951     $     --     $     --     $    149
Long-Term Debt                            $  8,105     $  6,882     $     --     $     --        $ Nil
Shareholders' Equity/(deficiency)         $ (2,205)    $  1,809     $   (876)    $    (51)    $    838
Capital Stock Shares (`000)                174,584      135,821       10,511        9,529        7,845
Total Assets                              $  7,405     $  9,109     $     71     $    852     $  1,164
------------------------------------------------------------------------------------------------------
</TABLE>


                                       5
<PAGE>

B. Risk Factors

GENERAL BUSINESS RISKS

o     We have a history of net losses.

      We sustained  net losses for each of the fiscal  years ended  December 31,
2004,  2003 and 2002 of,  respectively  $7,218,000,  $2,791,000 and  $1,064,000,
respectively.  We also  anticipate  sustaining  a loss from  operations  for the
fiscal year ended December 31, 2005.

o     There  is  doubt  as to our  ability  to  continue  operations  as a 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, 2004 and 2003, and had a $998,315 working capital  deficiency
at December 31, 2004 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).

o     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, need.

      Funds used in  operations  for the fiscal  years ended  December 31, 2004,
2003, and 2002 were $(2,041,941),  $(581,205) and $(715,887),  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.

o     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
<PAGE>

o     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.

o     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.

o     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 30, 2005, we had 174,650,053  common shares
outstanding.  On that date we also had  reserved  18,989,790  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
<PAGE>

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.

o     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

o     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.

o     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
<PAGE>

o     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.

o     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.

o     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
<PAGE>

o     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.

o     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.

o     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.

o     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
<PAGE>

o     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.

o     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.

o     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.

o     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
<PAGE>

o     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.

o     Our  directors  may face  conflicts  of  interest in  connection  with our
      participation  in certain  ventures  because  they are  directors of other
      resource companies.

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

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 in July 2003, to Forum
Energy Corporation. On May 18th 2005 we had a name change to FEC Resources, Inc.
Our  wholly  owned  subsidiaries  are TEPCO  Ltd.  ("TEPCO"),  Tracer  Petroleum
International  Ltd.("TPI"),  a company incorporated in Bermuda to pursue oil and
gas ventures in the Middle East, and Pacific Geothermal Energy Inc. ("Pac Geo").
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 interests 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,


                                       12
<PAGE>

146 Valero Street,  Salcedo  Village,  1227 Makati City,  Philippines with phone
number (632) 893-7019 /21.


                                       13
<PAGE>

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

A Heads of Agreement was signed on January 27, 2005 between the  Corporation and
Sterling  Energy Plc ("SEY") (a UK based Oil and Gas Company) to transfer to the
Corporation  the license in the Philippine  GSEC 101 properties  (including Reed
Bank) in  Exchange  for new  shares  issued  by the  Corporation.  Subsequently,
pursuant to a Transaction  Agreement it was agreed by both companies to transfer
their respective  Philippine  Assets to a newly formed UK Company - Forum Energy
Plc ("FEP"). An extra-ordinary meeting of the shareholders approved the transfer
of assets on May 18th 2005. In May 2005 Forum Energy Plc raised (pound)3,400,000
(gross  proceeds)  of a  pre-IPO  issue and the  Corporation's  share of FEP was
reduced to 57.4%. In July, 2005 an IPO will raise between  (pound)6  million and
(pound)15  million through the issue of additional FEP shares.  At this time the
Corporation  holding of FEP shares will be further  diluted up to  approximately
32% of FEP depending on the price of the offering.  The pre-IPO interim offering
was to provide the  Corporation  with funding  ahead of the IPO so that it could
proceed with its  activities.  Subsequent  to this IPO FEP will be listed on the
AIM market of the London Stock  Exchange.  Also,  effective  May 18th 2005,  the
Corporation changed its name to FEC Resources, Inc.

Subject to shareholder approval,  once this transaction has been completed,  and
funds have been  raised by Forum  Energy Plc under the  Pre-IPO  and the IPO the
subsequent  dilution will result in the Corporation  recognizing the disposition
of the asset and the  receipt of the shares in Forum  Energy Plc as a  Long-Term
Investment.

The  Corporation  and  Sterling  have  retained  UK based Noble & Company as the
Nominated  Advisers,  who have agreed to take Forum Energy Plc to the AIM market
of the London Stock Exchange in July,  2005.  Noble & Company have also assisted
in raising (pound)3.4 million in a pre-IPO phase in May 2005 and are planning to
raise an additional  (pound)6  million to (pound)15  million by the end of July,
2005.

The shares  received  by the  Corporation  in  exchange  for the assets  will be
subject to a one year "lock-up" and then for 6 months thereafter the Corporation
can only trade the shares of Forum Energy Plc through Noble & Company to protect
an orderly market.

The Philippines

      We are currently  pursuing  exploration and development  opportunities for
oil,  natural gas and coal in the Philippines  through FEI, a Philippines  based
energy  company  with sole  participation  in Service  Contract  40, a petroleum
license based onshore and offshore Cebu Island,  Philippines.  FEI also has sole
application for a petroleum license known as Manila Bay / West Central Luzon.


                                       14
<PAGE>

      In May 2005, we entered into an agreement with Energy Services Group (ESG)
Dubai  (www.esgdubai.com),  for the  ongoing  management  and  oversight  of the
Company's exploration and development efforts.

      In July 2005, FEI applied for a Coal  Operating  Contract with proven coal
reserves, on the island of Cebu, Philippines.

C. Current Exploration/Development

Forum Exploration Inc.

      FEI is focusing on oil and gas  exploration  in the  Philippines  and more
recently Coal Production.  Currently, FEI has applied for and/or currently holds
a 100% interest in two petroleum  contract areas in the Philippines  (the "Forum
Properties")  and has  applied  for sole  rights  to  operate  a Coal  Operating
Contract ("COC") on the Island of Cebu

o     The  application  for  Manila  Bay / West  Central  Luzon  known as 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.

o     The contract  area known as service  contract 40 (SC40),  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.

o     The COC being  applied  for by FEI is made up of four  Coal  Blocks on the
      island of Cebu with a total aerial closure of over 2,500 hectares.

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.


                                       15
<PAGE>

      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.

During  the  year we  decided  not to  pursue  renewing  this  license  with the
resulting recognition of $2,617,821 loss.

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 target  depth 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.

      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.


                                       16
<PAGE>

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 18, 2005 except as to Note 14 which is
as of July 14, 2005)

The following  discussion  and analysis of financial  results  should be read in
conjunction  with the audited  financial  statements of the Company for the year
ended December 31, 2004, together with the notes related thereto. The discussion
contains forward-looking  statements that involve risks and uncertainties.  Such
information,  although considered reasonable by Corporate management at the time
of  preparation,  may prove to be  inaccurate  and  actual  results  may  differ
materially from those anticipated in the statements made.

Fiscal Year Ended December 31, 2004 versus Fiscal Year Ended December 31,2003

      During the year ended December 31, 2004, 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.

The  consolidated  results  for the year ended  December  31, 2004 was a loss of
$7,219,068 or $0.05 per share versus a loss of $1,356,130  for 2003 or $0.01 per
share.  The  results  for the year  ended  December  31,  2004  incorporate  the
activities  of FEI.  The  reason  for the  increased  loss was  attributable  to
recognizing  an  impairment  of the  investment  in Manila Bay  Properties as we
decided  not to  continue  pursuing  the  license.  In  addition  we  recognized
Philippine Operating costs in our expenses and did not capitalize these costs as
the development activity during the year was negligible.

      We have  experienced  significant  operating losses and fund outflows from
operations in the years ended December 31, 2004 and 2003, had a $998,315 working
capital  deficiency at December 31, 2004 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)

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.


                                       17
<PAGE>

      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)

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.


                                       18
<PAGE>

Liquidity and Capital Resources

The working  capital  deficit at December 31, 2004 was $998,315  (2003 - deficit
$283,314)  and   shareholders'   deficit  was   $2,152,807   (2003-  surplus  of
$1,808,953).  During  the year,  we sold  convertible  debt  totaling  $657,008,
obtained  short-term loans from directors and major shareholders of $317,922 and
long-term debt of $246,552.  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.

In October 2004 Pacific Geothermal Energy Inc ("Pacgeo"), a Delaware Corporation
signed a debenture  purchase agreement with HEM Mutual Assurance LLC ("HEM") and
Highgate House LLC to permit Pacgeo to purchase  5-year 1.5%  convertible  notes
totalling US$1,000,000. This convertible debt was sold in six different notes of
which $441,000 was issued under First  Debenture A by HEM, First Debenture B for
$49,000 by Highgate  House,  Second  debenture  for $9,000 and $1,000 by HEM and
Highgate respectively.  First debenture A and B are convertible at the lesser of
$0.10 and 125% of the average of the closing bid price per share of Pacgeo stock
during 5 trading  days  immediately  preceding  the  conversion,  or 100% of the
average  of the three  lowest  closing  bid prices  during  the 40  trading  day
immediately  prior to conversion date (in whole or part).  The second  debenture
has a fixed conversion price of $0.01 per share.  First debenture C for $450,000
and First  debenture  D for  $50,000 in favour of  Highgate  (which has not been
drawn down as the trading price for the shares needed to be above 10 cents for a
continuous 30 trading  days).  In order to  facilitate  the  conversion  process
Pacgeo  lodged  10,000,000  shares with the Escrow  agent for HEM from  treasury
against future conversion.

The  Corporation  incorporated a Delaware,  USA subsidiary  company in September
2004 called Forum Acquisition Corp. Under an Agreement and plan of Merger Pacgeo
and Forum Acquisition Corp, merged and the surviving entity was Pacgeo which now
became a subsidiary  of the  Corporation.  In turn the  Corporation  assumed the
Convertible  debentures  noted  above  against  the assets of Pacgeo,  being the
balance of the bank account and in turn issued  10,000,000 shares of the Company
in favour of HEM and Highgate  House LLC to replace the shares issued by Pacgeo.
The 10,000,000 shares issued by Pacgeo were then returned for cancellation.

On October 22nd 2004 GEM partially  converted the Second  debenture and received
900,000 shares for their $9,000  conversion.  The conversion price on the second
debenture was set at $0.01 per share.  The remaining  debentures are convertible
at the  formula  stated  above.  The  Corporation  has not  purchased  the First
debenture B at this time.

The Corporation may repurchase any unconverted  debentures at any time giving 30
days notice under the agreement and paying an early retirement penalty amount to
the face  amount  of the  Convertible  note  plus 35% of the  face  amount  as a
penalty.  Should the Corporation enter into a financing of over US$5,000,000 the
notes will  become due and  payable at a penalty of the face amount of the notes
plus 50% of the face amount.

A Heads of Agreement was signed on January 27, 2005 between the  Corporation and
Sterling  Energy Plc ("SEY") (a UK based Oil and Gas Company) to transfer to the
Corporation  the license in the Philippine  GSEC 101 properties  (including Reed
Bank) in  Exchange  for new  shares  issued  by the  Corporation.  Subsequently,
pursuant to a Transaction  Agreement it was agreed by both companies to transfer
their respective  Philippine  Assets to a newly formed UK Company - Forum Energy
Plc. An  extra-ordinary  meeting of the  shareholders  approved  the transfer of
assets on May 18th 2005. In May 2005 Forum


                                       19
<PAGE>

Energy Plc raised  (pound)3,400,000  (gross proceeds) of a pre-IPO issue and the
corporation  share of FEP was reduced to 57.4%.  In July, 2005 an IPO will raise
between (pound)6  million and (pound)15  million through the issue of additional
FEP shares.  At this time the Corporation  holding of FEP shares will be further
diluted up to  approximately  32% of FEP depending on the price of the offering.
The pre-IPO interim  offering was to provide the Corporation  with funding ahead
of the IPO so that it could proceed with its activities.  Subsequent to this IPO
FEP will be  listed  on the AIM  market  of the  London  Stock  Exchange.  Also,
effective May 18th 2005, the Corporation changed its name to FEC Resources, Inc.

Subject to shareholder approval,  once this transaction has been completed,  and
funds have been  raised by Forum  Energy Plc under the  Pre-IPO  and the IPO the
subsequent  dilution will result in the Corporation  recognizing the disposition
of the asset and the  receipt of the shares in Forum  Energy Plc as a  Long-Term
Investment.

The  Corporation  and  Sterling  have  retained  UK based Noble & Company as the
Nominated  Advisers,  who have agreed to take Forum Energy Plc to the AIM market
of the London Stock Exchange in July,  2005.  Noble & Company have also assisted
in raising (pound)3.4 million in a pre-IPO phase in May 2005 and are planning to
raise an additional  (pound)6  million to (pound)15  million by the end of July,
2005.

The shares  received  by the  Corporation  in  exchange  for the assets  will be
subject to a one year "lock-up" and then for 6 months thereafter the Corporation
can only trade the shares of Forum Energy Plc through Noble & Company to protect
an orderly market.

In April and May, 2005 the Corporation has raised additional  working capital in
the amount of US$896,000  through the issue of Convertible debt. The debt may be
converted  into shares of the  Corporation  at a  conversion  price of $0.05 per
share, or  alternatively  the Debenture  holder at their option may convert into
shares of Forum Energy Plc at the pre-IPO price. Such shares of Forum Energy Plc
will be exempt from the lockup arrangements described above.

Contractual Obligations

Under an  agreement  with FPI dated  March 2003 as amended  in April  2003,  the
Corporation is responsible for fulfilling the cost of the work programme for FEI
for  calendar  years  2003  and  2004.  The   Corporation  has  fulfilled  those
obligations  through December 31, 2004 and received  confirmation  from FPI. The
Corporation  has  received  confirmation  from the  Department  of Energy of the
Philippine  Government  that the  commitment  to drill  additional  wells in the
Libertad  field can be  deferred to 2006.  The  Corporation  has entered  into a
transaction agreement with Sterling Energy Plc to transfer its Philippine Assets
to a new company which in turn will raise money to meet ongoing commitments.

      We may  still  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."


                                       20
<PAGE>

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.

      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.

      As described in note 7 to the Financial  Statements,  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. Under APB 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  recorded.  In
December 2004 FAS 123 was amended to require that all employee  stock options be
recorded  using the fair value method for all periods  beginning  after December
15,  2005.  Early  adoption of this method was  encouraged  and the  Corporation
adopted  amended  FAS 123 in fiscal  2004  utilizing  the  Modified  Prospective
Method.

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.


                                       21
<PAGE>

Recent Canadian Accounting Related Pronouncements

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. In December
2004 FASB issued amended FAS 123 requiring  that companies  recognize an expense
in the financial  statements  for stock based  payments  based on the fair value
method  of  accounting  beginning  June  15,  2005  with  early  adoption  being
encouraged.  The  Company  adopted  amended FAS 123 for fiscal 2004 and used the
Modified Prospective Method for recording the transition.

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 did not have an
impact on the Financial Statements of our Company.

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.

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.


                                       22
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Name                         Age      Position/Area of Experience/Function
--------------------------------------------------------------------------------------------
<S>                          <C>      <C>
Larry W. Youell (1)          62       Director since June 1998, Chairman April 2003,
                                      CEO effective May 2005
Barry Stansfield (1)(2)(3)   54       Director since April 2003, Chairman effective May 2005
Riaz Sumar (3)               35       Director, CFO since May, 2005
Robert K. Lynch (1)(2)(3)    72       Director since May 2005
Dr. Walter Brown (2)(3)      65       Director since May 2005
--------------------------------------------------------------------------------------------
</TABLE>

      (1)   Member of Audit Committee.

      (2)   Member of Compensation Committee

      (3)   Member of the Corporate Governance Committee

      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. David Robinson resigned  effective April 30, 2003 but was re-appointed
a director and President and Chief  Executive  Officer on December 8th, 2003. He
subsequently resigned on May 18th 2005 to join Forum Energy Plc as CEO.

      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.

Following  the  Extra-ordinary  shareholders  meeting of May 18th  2005,  Messrs
Robinson and Thompson  resigned to join the Board and  Executive of Forum Energy
Plc and Mr.  Larry Youell was  appointed  Chief  Executive  Officer and Mr. Riaz
Sumar  Chief  Financial  Officer.  Two new  board  members  joined  to fill  the
vacancies being Mr Robert Lynch, aged 72 and Dr. Walter Brown, aged 65.

Information About our Directors and Officers

Mr. Larry Youell, President, Chief Executive Officer 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.


                                       23
<PAGE>

Mr. Barry Stansfield, Director & Chairman

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

Mr, Riaz Sumar, Director and Chief Financial Officer

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

Dr. Walter Brown, Director

      A  resident  of  Manila,  Philippines,  Dr.  Walter  Brown  has  extensive
experience with resource and public companies and is also currently Chairman and
CEO of TSX listed Philex Gold Corporation.

Mr. Robert Lynch, Director

      A  resident  of New York,  USA,  Robert  Lynch has over 40 years  business
experience.  In addition to being a Director of the Corporation,  Mr. Lynch also
currently  serves as  President  of  American  & Foreign  Enterprises  Inc.  and
President  and Director of Lynch Farms Inc. Mr. Lynch has  extensive  experience
with public  companies and was previously  Director of NASDAQ listed Hadron Inc.
NYSE listed Dames & Moore and NASDAQ listed Data Broadcasting Corporation.

      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.


                                       24
<PAGE>

B. Compensation.

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

                  Larry Youell           US$5,000
                  Barry Stansfield       US$3,000
                  Riaz Sumar             US$5,000
                  Robert K. Lynch        US$1,000
                  Dr. Walter Brown       US$1,000

      In 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.

      The following tables detail the compensation paid during fiscal year ended
December 31, 2004 and 2003 to our Directors  and members of our  administrative,
supervisory or management bodies:

                     Director/Executive Officer Compensation

                       Fiscal Year ended December 31,2004

--------------------------------------------------------------------------------
                                              Option Exercise       Total
Directors/Officers            Salary          Net Market            Compensation
                                              Value(1)
--------------------------------------------------------------------------------
David R. Robinson            US$72,000           US$56,818            US$128,818
Larry W. Youell              US$24,000           US$22,495             US$46,495
David G. Wilson              US$12,000            US$8,820             US$20,820
David M.Thompson             US$72,000           US$17,045             US$89,045
Barry Stansfield             US$12,000           US$27,273             US$39,273
--------------------------------------------------------------------------------
Total US$                   US$192,000           US$132,451           US$324,451
--------------------------------------------------------------------------------

(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.


                                       25
<PAGE>

                       Fiscal Year ended December 31,2003

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

      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.

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.


                                       26
<PAGE>

                      Stock Options Granted and Outstanding

                      Stock Options Granted and Outstanding

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Name                         Number of     Exercise      Expiration Date       Issue/          Balance
                              Common        Price                            (Exercise)
                              Shares                                          (Expired)
                                                                             (subsequent
                                                                               to Y/E)
-------------------------------------------------------------------------------------------------------
<S>                          <C>            <C>         <C>                   <C>             <C>
     David Robinson            500,000     $  0.08       April 26, 2008        (85,227)         414,773
                             1,000,000     $  0.43       April 26, 2004            Nil        1,000,000
                                           $  0.31       April 26, 2008         68,182           68,182
-------------------------------------------------------------------------------------------------------
    Larry W. Youell          1,250,000     $  0.08       April 26, 2008       (213,068)       1,036,932
                                           $  0.31       April 26, 2008        170,455          170,455
                               220,000     $0.0723       January 31, 2010          Nil          220,000
-------------------------------------------------------------------------------------------------------
    Barry Stansfield         2,000,000     $  0.08       April 26, 2008       (340,910)       1,659,090
                                           $  0.31       April 26, 2008        272,726          272,726
                                80,000     $0.0723       January 31, 2010          Nil           80,000
-------------------------------------------------------------------------------------------------------
    David G. Wilson            500,000     $  0.08       April 26, 2008        (85,227)         414,773
                                           $  0.31       April 26, 2008         68,182           68,182
                                80,000     $0.0723       January 31, 2010          Nil           80,000
-------------------------------------------------------------------------------------------------------
     David Thompson          1,250,000     $  0.08       April 26, 2008       (213,068)       1,036,932
                                           $  0.31       April 26, 2008        170,455          170,455
-------------------------------------------------------------------------------------------------------
       Riaz Sumar              200,000     $  0.08       April 26, 2008            Nil          200,000
-------------------------------------------------------------------------------------------------------
    Total Officers,
 Directors, Consultants      7,639,790                                                        6,892,500
-------------------------------------------------------------------------------------------------------
</TABLE>

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,  Barry  Stansfield,  and David  Wilson.
Following  the AGM on June 22, 2005 Mr.  Robert Lynch was appointed to the audit
committee to fill the vacancy  left by Mr.  David Wilson and other  members were
automatically re-elected.

      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,  Barry
Stansfield,  and David  Wilson.  Following  the AGM on June 22, 2005 Mr.  Robert
Lynch was appointed to the audit committee to fill the vacancy left by Mr. David
Wilson and other members were automatically  re-elected.  Mr Youell stepped down
from the  Compensation  Committee  as he is now CEO,  and Dr.  Walter  Brown was
appointe ot fill the vacancy.


                                       27
<PAGE>

      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, Riaz Sumar, 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 30,  2005,  the share  ownership  of our
directors and executive officers.

The following table sets forth certain information as of June 30, 2005 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 30, 2005 was 174,650,053.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(i) Name of Registered Shareholder owning 5% or                 Number of        Percent
more of the outstanding shares:                                   Shares         of Class
-----------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>
Westmark Limited                                                 32,303,850        17.59%
----------------------------------------------------------------------------------------
Langley Park Investment Trust Plc                                27,000,000        15.46%
----------------------------------------------------------------------------------------
William T. Mullins                                               12,000,000         6.87%
----------------------------------------------------------------------------------------
Autogas Inc                                                      11,500,000         6.59%
----------------------------------------------------------------------------------------
GCTS Inc                                                         10,400,000         5.96%
----------------------------------------------------------------------------------------

(ii) Name of Director and/or Officer and number of
shares held:
----------------------------------------------------------------------------------------
David R. Robinson/DRR Capital                                20,000/305,000        --/--
----------------------------------------------------------------------------------------
Larry W. Youell/Cindy Youell                                  50,060/85,273        --/--
----------------------------------------------------------------------------------------
David Thompson/AMS Limited                                   10,000/352,614        --/--
----------------------------------------------------------------------------------------
Barry Stansfield                                                     68,182           --
----------------------------------------------------------------------------------------
David Wilson/Merckwood                                               35,245           --
----------------------------------------------------------------------------------------
(iii) Number of shares held by all Directors and Officers
as a group:                                                         926,374           --
----------------------------------------------------------------------------------------
</TABLE>


                                       28
<PAGE>

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

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

                     Warrants Held by Directors and Officers

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Name                                   Number of share     Exercise Price       Expiration
                                      Purchase Warrants                            Date
------------------------------------------------------------------------------------------
<S>                                         <C>                <C>               <C>
Larry Youell                                100,000            US$0.25           09/02/05
------------------------------------------------------------------------------------------
David G. Wilson                              74,000            US$0.25           09/02/05
------------------------------------------------------------------------------------------
David R. Robinson (1)                       340,000            US$0.25           09/02/05
------------------------------------------------------------------------------------------
Total Officers/Directors/Employees          514,000            US$0.25           09/02/05
------------------------------------------------------------------------------------------
</TABLE>

(1)   280,000 share purchase warrants held in the name of DRR Capital

      We 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.

      On  June  28,  2005,   the   shareholders'   list  showed  926  registered
shareholders and 174,650,053  shares  outstanding.  The number of shares held by
U.S.  residents  was  21,343,358  ,  representing  12% of the total  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 28, 2005:

--------------------------------------------------------------------------------
               Name                 Number of Shares Owned   Percentage of Class
--------------------------------------------------------------------------------
Westmark Limited                          32,303,850               17.59%
--------------------------------------------------------------------------------
Langley Park Investment Trust Plc         27,000,000               15.46%
--------------------------------------------------------------------------------
William T. Mullins                        12,000,000                6.87%
--------------------------------------------------------------------------------
Autogas Inc                               11,500,000                6.59%
--------------------------------------------------------------------------------
GCTS Inc                                  10,400,000                5.96%
--------------------------------------------------------------------------------


                                       29
<PAGE>

      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 28,  2005  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  28,  2005,   the   shareholders'   list  showed  926  registered
shareholders and 174,650,053  shares  outstanding.  The number of shares held by
U.S.  residents  was  21,343,358  ,  representing  12% of the total  issued  and
outstanding shares.

B. Related Party Transactions

      During  the year  ended  December  31,  2004  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 $329,661 (2003 - $261,117; 2002 - $190,578).  Included in accounts
payable and accrued  liabilities at December 31, 2004 is $ 471,609 (December 31,
2003 - $69,673) owed to directors, officers and/or companies controlled by them.

      At  December  31,  2004 we owed  short-term  loans  totaling  $317,922  to
companies  controlled  by our  directors  and  officers.  These short loans were
non-interest bearing, unsecured and with no specific repayment terms.

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.


                                       30
<PAGE>

      (ii) 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.

(iii) On July 21, 2004 the Corporation  entered into a Stock Purchase  Agreement
with Langley Park  Investments  LLC ("Langley") in which the Company could issue
and sell  27,000,000  shares of Common  Stock of the Company in exchange for the
purchase  of Langley  stock  based on the total  purchase  price  divided by the
conversion  rate of the British Pound Sterling  determined on July 31, 2004 (the
"Langley  transaction").  These shares are restricted  shares with a 2 year hold
from  trading.  Under the agreement the exchange rate on that day was $1.8060 to
(pound)1  resulting in the issue of 3,018,172 shares of Langley.  The shares are
subject to a price  protection  in favour of Langley.  Following  the listing of
Langley on the London stock  Exchange,  50% of these shares were released to the
Company for  immediate  use and the balance  held for the two year  period.  The
shares are held at a UK brokerage  Company in Escrow and have been valued at the
lower of market or cost.

In  connection  with the  Langley  transaction  the  company  paid a third party
commission in Langley shares equivalent to 10% of the shares issued.  50% of the
commission  has been paid and the balance will be payable when the second 50% of
Langley shares become available for trading.

During 2004 the  Corporation  sold 201,000 of the shares for proceeds of $95,670
resulting in a loss on sale of $45,565.

At December 31, 2004 an impairment  loss was  recognized to reflect the decrease
in value of the shares during the period in the amount of $950,568.

(iv) In  October  2004  Pacific  Geothermal  Energy Inc  ("Pacgeo"),  a Delaware
Corporation  signed a debenture purchase agreement with HEM Mutual Assurance LLC
("HEM")  and  Highgate  House  LLC to  permit  Pacgeo to  purchase  5-year  1.5%
convertible notes totalling US$1,000,000.  This convertible debt was sold in six
different  notes of which  $441,000 was issued  under First  Debenture A by HEM,
First Debenture B for $49,000 by Highgate House, Second debenture for $9,000 and
$1,000 by HEM and Highgate respectively. First debenture A and B are convertible
at the  lesser of $0.20 and 125% of the  average  of the  closing  bid price per
share  of  Pacgeo  stock  during  5  trading  days  immediately   preceding  the
conversion, or 100% of the average of the three lowest closing bid prices during
the 40 trading day immediately  prior to conversion date (in whole or part). The
second  debenture  has a fixed  conversion  price  of  $0.01  per  share.  First
debenture C for $450,000 and First debenture D for $50,000 in favour of Highgate
(which has not been drawn down as the trading  price for the shares needed to be
above 10 cents for a continuous 30 trading  days).  In order to  facilitate  the
conversion process Pacgeo lodged 10,000,000 shares with the Escrow agent for HEM
from treasury against future conversion.


                                       31
<PAGE>

The  Corporation  incorporated a Delaware,  USA subsidiary  company in September
2004 called Forum Acquisition Corp. Under an Agreement and plan of Merger Pacgeo
and Forum Acquisition Corp, merged and the surviving entity was Pacgeo which now
became a subsidiary  of the  Corporation.  In turn the  Corporation  assumed the
Convertible  debentures  noted  above  against  the assets of Pacgeo,  being the
balance of the bank account and in turn issued  10,000,000 shares of the Company
in favour of HEM and Highgate  House LLC to replace the shares issued by Pacgeo.
The 10,000,000 shares issued by Pacgeo were then returned for  cancellation.

On October 22nd 2004 GEM partially  converted the Second  debenture and received
900,000 shares for their $9,000  conversion.  The conversion price on the second
debenture was set at $0.01 per share.  The remaining  debentures are convertible
at the  formula  stated  above.  The  Corporation  has not  purchased  the First
debenture  B at this  time.  The  Corporation  may  repurchase  any  unconverted
debentures  at any time giving 30 days notice under the  agreement and paying an
early retirement  penalty amount to the face amount of the Convertible note plus
35% of the face  amount  as a  penalty.  Should  the  Corporation  enter  into a
financing  of over  US$5,000,000  the notes  will  become  due and  payable at a
penalty of the face amount of the notes plus 50% of the face amount.

(v) In January 2005, the Company entered into  discussions  with SEY regarding a
possible Joint Venture whereby Sterling would sell the Reed Bank Asset (GSEC101)
to Forum Energy Plc ("FEP",  a new company  registered  in the UK) and FEC would
sell its Philippine asset to FEP. In addition it was proposed that FEP should be
admitted to AIM in the United  Kingdom  which has shown support for other junior
international energy companies who have successfully raised funds there. FEP has
engaged a Nominated Adviser and Broker,  Noble & Company, to take the Company to
AIM and is currently  engaged in preparing the necessary  documentation for this
listing.

In March,  2005 FEC  appointed  PGS to evaluate  the Oil and Gas reserves of the
Forum  Exploration  Assets as well as GSEC 101. In addition  FEC  appointed  CSA
Group  Limited to valuate the coal  reserves of the coal  properties  which were
awarded to FEI in February  2005. The result of these reports will not only give
FEC a base  valuation of its  properties  but also will form part of the Initial
Public Offering document for Newco when it seeks admission to AIM in the UK.

The Transactions  resulted in FEC receiving 71.4% of the shares initially issued
in FEP in exchange for its 66.67%  investment  in Forum  Exploration  Inc (FEC's
equity position will be diluted , as will the 28.6% equity position of SEY, upon
completion of the FEP Pre-IPO and IPO placings). The executive management of FEC
will move to the  executive  management  of FEP and FEP will  assume the name of
Forum Energy Plc. FEC will continue its evaluation of the redomicile of FEC from
Canada to another  jurisdiction.  Finally FEC will be renamed FEC  Resources PLC
and continue to source and develop natural resources investments.

The EGM was held on May  18th  2005  and all  these  motions  were  passed  by a
majority of shareholders


                                       32
<PAGE>

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           Low
                 ---------------------------------------
                  12/31/04         $ 0.62         $ 0.07
                  12/31/03         $ 0.66         $ 0.08
                  12/31/02         $ 0.61         $ 0.08
                  12/31/01         $2.063         $ 0.09
                  12/31/00         $ 3.00         $ 0.38
                 ---------------------------------------

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

            OTC Bulletin Board Stock Trading Activity - Common Shares
                                  (US Dollars)

           ------------------------------------------------------
           Quarter Ended       Volume           High         Low
           ------------------------------------------------------
              12/31/04        3,483,400         0.26         0.07
              9/30/04         1,417,800         0.34         0.14
              6/30/04         3,504,820         0.45         0.21
              3/31/04         1,496,148         0.62         0.37
           ------------------------------------------------------
              12/31/03        2,672,310        $0.62       $ 0.18
              09/30/03        1,548,700        $0.30       $ 0.15
              06/30/03        2,082,200        $0.66       $ 0.08
              03/31/03        1,171,400        $0.21       $0.085
           ------------------------------------------------------

      The 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          Volume
           ------------------------------------------------------
            06/30/05          0.09          0.05        1,676,900
            05/31/05         0.095         0.065          798,200
            04/30/05          0.10          0.05        4,749,600
            03/31/05          0.15         0.048        5,247,500
            02/28/05          0.17          0.10        1,459,500
            01/31/05          0.11         0.055        3,005,100
           ------------------------------------------------------


                                       33
<PAGE>

      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  28th  2005,  the   shareholders'   list  showed  926  registered
shareholders and 174,650,053  shares  outstanding.  The number of shares held by
U.S.  residents was 21,343,358  representing  12% 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.

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.


                                       34
<PAGE>

      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.

      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.


                                       35
<PAGE>

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

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

Interest Rate Sensitivity

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

Commodity Price Sensitivity

      Our future revenue and profitability  will be dependant,  to a significant
extent,  upon prevailing spot market prices for 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.


                                       36
<PAGE>

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, , 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. Larry Youell who
has served as one of our Directors since March 1, 2003.

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;


                                       37
<PAGE>

3.    Compliance with applicable governmental laws, rules and regulations;

4.    The  prompt  internal  reporting  of  violations  of the  standards  to an
      appropriate person or persons identified in the standards; and

5.    Accountability for adherence to the standards.

      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$90,635 all of which related to the audit of the annual financial  statements
for the year ended  December 31, 2004 Our Auditors have informed us that they do
not wish to stand for  re-election  following  the AGM. This is primarily due to
the change in business of the Company and  Management  following  the EGM on May
18th 2005. The Shareholders have approved the Board to seek other auditing firms
to assume this role.

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

      Not Applicable.

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

      Not Applicable.


                                       38
<PAGE>

                                    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 18, 2005
         Consolidated Balance Sheets at December 31, 2004 and December 31, 2003
         Consolidated Statements of Loss and Deficit for the Years ended
         December 31, 2004, December 31, 2003, and December 31, 2002
         Consolidated Statements of Cash Flows for the Years ended December 31,
         2004, December 31, 2003, and December 31, 2002
         Notes to the Consolidated Financial Statements


                                       39
<PAGE>

                      Consolidated Financial Statements of

              FEC RESOURCES INC (FORMERLY FORUM ENERGY CORPORATION)

         As at and for the years ended December 31, 2004, 2003 and 2002


                                       40
<PAGE>

Report of Independent Registered Public Accounting Firm

To the Directors of FEC Resources Inc. (formerly Forum Energy Corporation)

We have audited the  accompanying  consolidated  balance sheets of FEC Resources
Inc.  (formerly  Forum Energy  Corporation) as of December 31, 2004 and 2003 and
the  consolidated  statements of loss and deficit and cash flows for each of the
years in the  two-year  period  ended  December  31,  2004.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  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.   We  believe  that  our  audits  provide  a
reasonable basis for our audit opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of FEC Resources Inc.
as of December 31, 2004 and 2003 and the results of its  operations and its cash
flows for each of the years in the two-year  period  ended  December 31, 2004 in
accordance with Canadian generally accepted accounting principles.

Canadian generally accepted  accounting  principles vary in certain  significant
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 15 to the consolidated financial statements.

The consolidated  financial statements for the year ended December 31, 2002 were
audited by other auditors who expressed an opinion without  reservation on those
statements in their report dated May 27, 2003.

(Signed) "KPMG LLP"

Chartered Accountants
Calgary, Canada
May 18, 2005, except as to note 14 which is as of July 14, 2005


                                       41
<PAGE>

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 18,
2005,  except  as to note  14  which  is as of July  14,  2005 is  expressed  in
accordance with Canadian reporting standards, which do not permit a reference to
such events and  conditions  in the auditors'  report when these are  adequately
disclosed in the financial statements.

In the United States,  reporting  standards for auditors require the addition of
an  explanatory  paragraph  (following  the opinion  paragraph)  when there is a
change in accounting  principles that has a material effect on the comparability
of the Company's financial statements, such as the change described in note 3 to
the consolidated  financial  statements as at December 31, 2004 and for the year
then ended. Our report to the shareholders  dated May 18, 2005 except as to note
14  which  is as of July 14,  2005 is  expressed  in  accordance  with  Canadian
reporting  standards,  which do not  require  a  reference  to such a change  in
accounting  principles  in the  auditors'  report  when the  change is  properly
accounted for and adequately disclosed in the financial statements.

(Signed) "KPMG LLP

Chartered Accountants
Calgary, Canada
May 18, 2005, except as to note 14 which is as of July 14, 2005


                                       42
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                           CONSOLIDATED BALANCE SHEETS

Canadian Funds

<TABLE>
<CAPTION>
As at December 31
----------------------------------------------------------------------------------------------
                                                                      2004             2003
----------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>
ASSETS

Current assets
   Cash                                                          $     25,076     $     27,077
   Accounts receivable                                                 76,697           76,220
   Prepaid expenses                                                     4,986           22,927
   Investments [note 9]                                               397,471               --
                                                                 -----------------------------
                                                                      504,230          126,224
                                                                 -----------------------------

   Property, plant and equipment [note 5]                           6,248,346        8,982,789
   Investments [note 9]                                               518,346               --
                                                                 -----------------------------
                                                                 $  7,270,922     $  9,109,013
                                                                 =============================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current liabilities
   Accounts payable and accrued liabilities [note 8a]            $  1,184,623     $    409,538
   Short-term loans [note 8b]                                         317,922               --
                                                                 -----------------------------
                                                                    1,502,545          409,538
                                                                 -----------------------------

   Long-term debt  [note 6]                                         7,456,570        6,881,989
   Convertible debentures payable, net [note 10]                      464,614

   Non-controlling interest                                                --            8,533

                                                                 -----------------------------
                                                                    9,423,729        7,300,060
                                                                 -----------------------------

Shareholders' Equity  (Deficiency)
   Share capital [note 7 b and c]                                  10,693,033        7,239,109
   Contributed surplus (note 7f)                                    1,246,885          526,167
   Equity portion of convertible debentures payable [note 7b]         188,751               --
   Deficit                                                        (14,281,476)      (5,956,323)
                                                                 -----------------------------
                                                                   (2,152,807)       1,808,953
                                                                 -----------------------------
                                                                 $  7,270,922     $  9,109,013
                                                                 =============================
Future operations [note 1]
Commitments and contingencies [note 11]
Subsequent events [note 14]
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements

ON BEHALF OF THE BOARD:

      "David Robinson"                                    "David Thompson"
----------------------------                        ----------------------------
          Director                                            Director


                                       43
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

Canadian Funds

<TABLE>
<CAPTION>
Years ended December 31
------------------------------------------------------------------------------------------------------
                                                               2004            2003            2002
------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>
EXPENSES
   General and administration [note 8(a)]                  $ 3,069,950     $ 1,098,703     $   784,949
   Depreciation                                                268,185         173,658          22,065
   Accretion on long-term debt [note 6]                        328,029         153,679              --
   Foreign exchange gain                                       (65,632)        (39,620)         (2,114)
   Interest expense                                             13,115          11,177         (13,953)
                                                           -------------------------------------------
                                                             3,613,647       1,397,597         790,947

OTHER EXPENSES
   Loss on sale of investment (note 9)                          45,565              --          42,000
   Loss on write down of investment (note 9)                   950,568              --         215,362
   Impairment of property, plant and equipment (note 5)      2,617,821              --           9,967

LOSS BEFORE NON-CONTROLLING INTEREST                         7,227,601       1,397,597       1,058,276

Non-controlling interest                                        (8,533)        (41,467)             --

                                                           -------------------------------------------
NET LOSS FOR THE YEAR                                        7,219,068       1,356,130       1,058,276

Deficit, beginning of the year, as previously reported       5,956,323       4,600,193       3,541,917
Change in accounting policy (note 3)                         1,106,085              --              --
                                                           -------------------------------------------
Deficit, beginning of years, restated                        7,062,408       4,600,193       3,541,917
                                                           ===========================================
Deficit, end of the year                                   $14,281,476     $ 5,956,323     $ 4,600,193
                                                           ===========================================
Net loss per common share
   - Basic and diluted [note 7]                            $      0.05     $      0.01     $      0.10
                                                           ===========================================
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements


                                       44
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Canadian Funds
Years ended December 31
---------------------------------------------------------------------------------------------------------
                                                                  2004            2003            2002
---------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>             <C>
Cash provided by (used in)
OPERATING ACTIVITIES
Net loss for the year                                         $(7,219,068)    $(1,356,130)    $(1,058,276)

Non-cash items included in loss
   Depreciation                                                   268,185         173,658         189,055
   Non-controlling interest                                        (8,533)        (41,467)             --
   Accretion on long-term debt                                    328,029         153,679              --
   Stock-based compensation                                       458,221         526,167          52,995
   Unrealized foreign exchange gain                               (21,810)        (37,112)             --
   Extension of warrants                                          428,807              --              --
   Shares issued for services                                     102,258              --              --
   Loss on sale of investments                                     45,565              --          51,967
   Impairment of property, plant and equipment                  2,617,821              --              --
   Allocation of equity portion of debt to interest                 8,016              --              --
   Loss on write-down of investment                               950,568              --          48,372
                                                              -------------------------------------------
                                                               (2,041,941)       (581,205)       (715,887)
Changes in working capital related to operating activities
   Accounts receivable                                               (477)         11,552          20,150
   Prepaid expenses                                                17,941         (19,935)           (519)
   Accounts payable and accrued liabilities                       775,085         107,183         (61,364)
                                                              -------------------------------------------
                                                               (1,249,392)       (482,405)       (757,620)
                                                              -------------------------------------------
INVESTING ACTIVITIES
   Additions to properties, plant and equipment, net             (151,563)     (2,103,347)         (1,638)
   Net cash paid on business combination [note 4]                      --         (94,559)
   Investments                                                         --              --        (154,064)
   Proceeds on sale of investments [note 9]                        95,670          27,776         643,326
                                                              -------------------------------------------
                                                                  (55,893)     (2,170,130)        487,624
                                                              -------------------------------------------
FINANCING ACTIVITIES
   Short-term loans                                               317,922         (83,652)         83,652
   Debentures payable                                             657,008              --          20,979
   Issuance of share capital, net of costs [note 7]                81,802       2,738,888         180,370
   Long term debt                                                 246,552              --              --
                                                              -------------------------------------------
                                                                1,303,284       2,655,236         285,001
                                                              -------------------------------------------
Net increase (decrease) in cash                                    (2,001)          2,701          15,005
Cash - beginning of the year                                       27,077          24,376           9,371
                                                              -------------------------------------------
Cash - end of the year                                        $    25,076     $    27,077     $    24,376
                                                              ===========================================
Interest paid                                                 $        --     $       899     $        --
                                                              ===========================================
Taxes paid                                                    $        --     $        --     $        --
                                                              ===========================================
</TABLE>

See Accompanying Notes to the Consolidated Financial Statements


                                       45
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

1.    FUTURE OPERATIONS

      Forum 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, 2004 and 2003,  has a $998,315  working
      capital  deficiency at December 31, 2004 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 POLICIES

      These consolidated  financial  statements have been prepared by management
      in  accordance  with Canadian  generally  accepted  accounting  principles
      ("Canadian 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 preparation

      These financial statements include the accounts of the Corporation and its
      subsidiaries,   Tracer  Petroleum   International   ("TPI");   TEPCO  Ltd.
      ("TEPCO"),   Pacific  Geothermal  Energy,   Inc.  ("PAC  GEO")  and  Forum
      Exploration  Inc. ("FEI") all of which are wholly owned with the exception
      of FEI of which 66?% is owned.


                                       46
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

2.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (b) Property, plant and equipment

      The  Corporation  follows the full cost method of  accounting  for oil and
      natural gas operations, whereby all costs of exploring for and development
      of 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 cost  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.  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.

      Petroleum  and  natural  gas assets are  evaluated  at least  annually  to
      determine that the costs are  recoverable and do not exceed the fair value
      of the properties.  The costs are assessed to be recoverable if the sum of
      the  undiscounted  cash  flows  expected  from the  production  of  proved
      reserves  and the lower of cost and market of unproved  properties  exceed
      the carrying value of the lower of cost and market of unproved  properties
      exceed the carrying value of the petroleum and natural gas assets.  If the
      carrying  value of the petroleum and natural gas assets is not assessed to
      be  recoverable,  an impairment  loss is recognized to the extent that the
      carrying value exceeds the sum of the discounted  cash flows expected from
      the  production of proved and probable  reserves and the lower of cost and
      market of  unproved  properties.  The cash flows are  estimated  using the
      future  product  prices and costs and are  discounted  using the risk-free
      rate.

      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.


                                       47
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

2.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (c) Asset retirement obligation

      Effective  January  1,  2004 the  Corporation  retroactively  adopted  the
      Canadian  Institute  of  Chartered  Accountants  ("CICA") new standard for
      accounting for asset retirement  obligations (ARO). This standard requires
      that the fair value of the  statutory,  contractual  or legal  obligations
      associated  with the  retirement and  reclamation  of tangible  long-lived
      assets be  recorded  when the  related  assets  are put into  use,  with a
      corresponding  increase to the carrying amount of the related assets. This
      corresponding  increase to capitalized costs is amortized to earnings on a
      basis  consistent with  depreciation,  depletion,  and amortization of the
      underlying  assets.  Subsequent changes in the estimated fair value of the
      ARO are  capitalized  and amortized over the remaining  useful life of the
      underlying  asset.  The ARO  liabilities  are carried on the  consolidated
      balance sheet at their discounted present value and are accreted over time
      for the change in their present value, with this accretion charge included
      in depreciation, depletion and amortization.

      As at December  31,  2004,  2003,  and 2002 the  Corporation  had no asset
      retirement obligations.

      (d) Foreign currency translation

      The  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 plan

      The Corporation has a stock-based  compensation  plan as described in note
      7.  Effective  January  1,  2004,  the  Corporation  has  adopted  the new
      accounting standard for stock based  compensation,  which requires the use
      of the fair value method for valuing  stock option  grants  subsequent  to
      January 1, 2002. Under this method,  compensation cost attributable to all
      share  options  granted  is  measured  at fair value at the grant date and
      expensed  over  the  vesting  period  with  a  corresponding  increase  to
      contributed surplus. Upon the exercise of the stock options, consideration
      received  together with the amount  previously  recognized in  contributed
      surplus is recorded as an increase to share capital.

      (f) 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 enacted  substantively  tax rates
      and laws expected to be in effect when these  differences  are expected to
      reverse.

      Future income tax assets are recognized to the extent that  realization of
      such assets is more likely than not.


                                       48
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

2.    SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (g) 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.

      (h) Loss per share

      Basic loss per share is  computed  using the  weighted  average  number of
      shares  outstanding during the year. Diluted loss per share is computed in
      accordance with the treasury stock method. Diluted loss per share reflects
      the dilution  that would occur if  outstanding  stock options and warrants
      were  exercised or converted  into common shares using the treasury  stock
      method. For years ended December 31, 2004, 2003, and 2002 the inclusion of
      the Corporation's stock options and warrants in the computation of diluted
      loss per share  would have an  anti-dilutive  effect on loss per share and
      therefore they are excluded from the computation.

3.    CHANGES IN ACCOUNTING POLICIES:

      (a) Stock based compensation

      Prior to January 1, 2004,  the  Corporation  applied  the fair value based
      method of accounting prescribed by CICA Handbook Section 3870, Stock-based
      Compensation and Other Stock-based Payments, only to stock options granted
      to  non-employees,  and  applied  the  intrinsic  value of  accounting  to
      employees stock options for stock options granted subsequent to January 1,
      2002.

      The CICA  Accounting  Standards  Board has amended CICA  Handbook  Section
      3870,  Stock-based  Compensation and Other Stock-based Payments to require
      entities to account for employee  stock options using the fair value based
      method,  beginning  January 1, 2004.  Under the fair value  based  method,
      compensation  cost is  measured at fair value at the date of the grant and
      is expensed over the awards vesting period.  In accordance with one of the
      transitional  provisions  permitted,  the  Corporation  has  retroactively
      applied the fair value based method to all employee stock options  granted
      on or after January 1, 2002 and prior to January 1, 2004. The  Corporation
      has not  restated  prior  year's  reported  amounts and  accordingly,  has
      adjusted 2004 opening  retained  earnings at January 1, 2004 by $1,106,085
      and contributed surplus by the same amount.

4.    BUSINESS COMBINATION

      On March 11, 2003, the Corporation  entered into an agreement to acquire a
      right to  purchase  66?% 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?% 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 11].


                                       49
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

4.    BUSINESS COMBINATION - continued

      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)                 $    102,938
      Property, plant and equipment                              7,042,487
      Current liabilities                                         (107,708)
      Long-term debt                                            (6,772,955)
      Non-controlling interest                                     (50,000)
                                                              ------------
                                                              $    214,762
                                                              ============
        Consideration Rendered:
      Issuance of 100,000,000 common shares                   $    100,000
      Transaction costs                                            114,762
                                                              ------------
                                                              $    214,762
                                                              ============

5.    PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             Accumulated
                                                             Depreciation    Net book
December 31, 2004                                  Cost     and impairment    value
                                                --------------------------------------
<S>                                             <C>           <C>           <C>
Philippine Based Assets:
Oil and gas exploration and other costs:
      Drilling equipment                        $  930,756    $  353,702    $  930,756
      Well logging equipment and other costs       120,908        42,951        77,957
      Deferred exploration costs                 8,179,961     2,617,821     5,562,140
                                                --------------------------------------
                                                 9,231,625     3,014,474     6,217,151

Office furniture and fixtures                      121,378        93,294        28,084
Transportation equipment                             5,532         2,421         3,111

                                                --------------------------------------
                                                $9,358,535    $3,110,189    $6,248,346
                                                ======================================

December 31, 2003
Philippine Based Assets:
Oil and gas exploration and other costs:
      Drilling equipment                        $  919,309    $  119,684    $  799,625
      Well logging equipment and other costs       122,908        36,873        86,035
      Deferred exploration costs                 8,065,449            --     8,065,449
                                                --------------------------------------
                                                 9,107,666       156,557     8,951,109

Office furniture and fixtures                      108,435        81,508        26,927
Transportation equipment                             5,532           779         4,753

                                                --------------------------------------
                                                $9,221,633    $  238,844    $8,982,789
                                                ======================================
December 31, 2002
                                                --------------------------------------
Office furniture and fixtures                   $   75,799    $   65,186    $   10,613
                                                ======================================
</TABLE>


                                       50
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

5.    PROPERTY, PLANT AND EQUIPMENT - continued

      Deferred  exploration 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.

      During the year ended  December 31, 2004, the  Corporation  recognized the
      expiration  of  the  GSEC101  license  and  the  resulting  impairment  of
      $2,617,821 of capitalized costs attributed to that license.

      No overhead costs were capitalized during the year ended December 31, 2004
      (2003-$436,000).

6.    LONG-TERM DEBT

      Long-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 using a discount  rate of 10% and the face amount of the
      debt is P370,830,182 (CAN$9,148,206). The debt is subject to accretion and
      an amount of $328,000 has been  recognized for the year ended December 31,
      2004 (2003 - $153,679).

7.    SHARE CAPITAL

      (a) Authorized

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

      (b) Issued Common Shares

<TABLE>
<CAPTION>
                                                                         Number           Amount
                                                                      ----------------------------
<S>                                                                    <C>             <C>
Balance December 31, 2001                                                9,529,749     $ 3,714,691
   Issued pursuant to exercise of stock options                            981,590         180,370
   Options issued for services                                                  --          52,995
                                                                      ----------------------------
Balance December 31, 2002                                               10,511,339       3,948,056
   Acquisition of rights to acquire 66 ?% interest of FEI [note 4]     100,000,000         100,000
   Issued for cash pursuant to private placement [note (i)]             21,538,295       2,792,758
   Issued pursuant to exercise of stock options                            697,831         103,201
   Conversion of ROC Oil Loan [note ii]                                  3,073,572         398,511
   Cost of offering and other financing                                         --        (571,319)
                                                                      ----------------------------
Balance December 31, 2003                                              135,821,037     $ 6,771,207
   Issued pursuant to exercise of stock options                          1,491,040       1,482,615
   Issued for services                                                     371,569         102,258
   Issued for exchange of shares [note iii ]                            27,000,000       2,112,720
   Issued for conversion of debenture                                      900,000          11,229
   Issued to escrow for debenture financing [note iv]                    9,100,000              --
   Return to treasury                                                     (100,000)        (13,218)
   Cost of offering and other financing                                         --        (245,323)
   Allocation of equity portion of debenture for conversion (v)                 --           3,643
                                                                      ----------------------------
Balance December 31, 2004                                              174,583,646     $10,225,131
                                                                      ============================
</TABLE>


                                       51
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

7.    SHARE CAPITAL - continued

      (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.

      (iii)  On July 21,  2004 the  Corporation  entered  into a stock  purchase
      agreement with Langley Park Investments Plc (see Note 9)

      (iv) Shares issued in Escrow to be held against  possible  conversion into
      equity on a Convertible Debenture issued in favour of HEM Mutual Assurance
      LLC and Highgate House LLC (see note 10).

      (v) The amount  allocated to the  convertible  debenture  (see note 10) of
      $644,419  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 on issuance  was  $192,394  and on December 31, 2004 the amount was
      reduced to $188,751 as a result of a credit to share capital in the amount
      of $3,643 reflecting a conversion of a portion of the debenture.

      The  difference  between the recorded  value of the debt component and the
      face value of the  debenture  is  amortized to income over the term of the
      debenture. During the year ended December 31, 2004 $3,207 was amortized.

      (c) Warrants

                                                          Number         Amount
                                                        ------------------------
          Balance, December 31, 2001                     3,299,994     $  47,900
          Issued                                            18,978         5,754
                                                        ------------------------
          Balance, December 31, 2002 [note (i)]          3,318,972        53,654
          Expired                                         (779,972)           --
          Issued [note c (i) and (ii)]                   5,700,000       414,248
                                                        ------------------------
          Balance, December 31, 2003 and 2004            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.

      (ii) In connection with the offering mentioned in note 7 (a)(i) above, the
      Corporation issued 5,700,000 purchase warrants which were recognized as an
      expense of the offering totaling  $414,248.  The warrants have an exercise
      price of US$0.08 per share and expire April 26, 2008.

      (iii) Warrants  previously issued totaling  2,539,000 at an exercise price
      between  $0.25 and $0.90 due to expire on  September  2, 2004 were further
      extended to expire on September 2, 2005.  The fair value of the  extension
      of the warrants was  calculated  using the  Black-Scholes  option  pricing
      model with the following assumptions


                                       52
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

7.    SHARE CAPITAL - continued

          Dividend yield (%)                            0.0
          Expected stock price volatility (%)           208
          Risk free interest rate (%)                   2.5
          Expected life of options (years)               2

      (d) Options

      The 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 five years.
      The options vest  immediately.  At December 31, 2004 there were  7,667,500
      stock options  outstanding to purchase  common shares at US$0.08 - US$0.43
      per share. These options expire on various dates to December 9, 2009.

<TABLE>
<CAPTION>
                                                        Number of Options     Weighted Average
                                                           Exercisable      Exercise Price/Share
                                                        ----------------------------------------
<S>                                                         <C>                     <C>
      Outstanding and exercisable December 31, 2001          1,732,121              $0.16
        Granted                                              1,482,290              $0.26
        Exercised                                             (981,590)             $0.18
        Cancelled/Expired                                     (325,700)             $1.28
                                                           ------------------------------
      Outstanding and exercisable December 31, 2002          1,907,121              $0.22
        Granted                                              6,900,000              $0.18
        Exercised                                             (697,831)             $0.11
        Cancelled/Expired                                     (469,500)             $0.18
                                                           ------------------------------
      Outstanding and exercisable December 31, 2003          7,639,790              $0.18
        Granted                                              1,750,000              $0.19
        Exercised                                           (1,491,040)             $0.11
        Cancelled/Expired                                     (231,250)             $0.24
                                                           ------------------------------
      Outstanding and exercisable December 31, 2004          7,667,500              $0.18
                                                           ==============================
</TABLE>

      The following table summarizes  stock options  outstanding and exercisable
      at December 31, 2004:

                                                      Weighted Average Remaining
      Exercise Price           Number of Options            Life (in years)
      --------------------------------------------------------------------------

          $0.08                    4,862,500                         3
          $0.10                    1,000,000                         5
          $0.11                        5,000                         0
          $0.15                       50,000                         0
          $0.31                      750,000                         3
          $0.43                    1,000,000                         3
                                 -------------------------------------
                                   7,667,500                         3
                                 =====================================


                                       53
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

7.    SHARE CAPITAL (Continued)

      (d) Options (continued)

      All  incentive   stock  options   granted  in  2004  were   recognized  as
      compensation  expense based on the estimated fair values of the options on
      the grant date.

      The fair value of all options and warrants  were  estimated  using a Black
      Scholes option-pricing model and based on the following assumptions:

                                                       2004       2003      2002
                                                       -------------------------

      Dividend yield (%)                                0.0        0.0       0.0
      Expected stock price volatility (%)               208        185       186
      Risk free interest rate (%)                       2.5        4.9       4.9
      Expected life of options (years)                    2          1         2
                                                       -------------------------

      At December 31,  2004,  15,906,500  shares of common  stock were  reserved
      including  7,667,500  shares  reserved  for  issuance  under stock  option
      agreements  and  8,239,000  reserved  for  issuance  in  conjunction  with
      outstanding warrants.

      Subsequent  to  December  31,  2004,  no  options  were  exercised  and no
      additional   options  were  issued.   A  further  50,000  options  expired
      unexercised.

      (e) Per share amounts

      The loss per common share  computations  is based on the weighted  average
      number  of shares  outstanding,  which  was  149.9  million  (2003 - 113.7
      million; 2002 - 10.4 million).  Diluted earnings per share amounts are not
      recorded, as these amounts would be anti- dilutive.

      (f) Contributed surplus

<TABLE>
<S>                                                                            <C>
      December 31, 2003                                                        $    526,127
      Prior period adjustment related to stock based compensation (Note 3a)       1,106,085
      Stock based compensation                                                      458,221
      Extension of warrants (note 7(c)(iii))                                        428,807
      Transferred to share capital on exercise of options                        (1,272,355)
                                                                               ------------
                                                                               $  1,246,885
                                                                               ============
</TABLE>

8.    RELATED PARTY TRANSACTIONS AND BALANCES

      (a) Management and consulting fees:

      During  the year  ended  December  31,  2004  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  $329,661  (2003 - $261,117;  2002 - $190,578).
      Included in accounts payable and accrued  liabilities at December 31, 2004
      is $471,609 (2003 - $69,673;  2002 - $46,373) owed to directors,  officers
      and/or companies controlled by them.

      (b) At December 31, 2004 the Corporation  owed  short-term  loans totaling
      $317,922  to  companies  controlled  by  directors  and  officers  of  the
      Corporation.  These short loans are  non-interest  bearing,  unsecured and
      with no specific repayment terms. On repayment the lenders are entitled to
      receive  up to 20% of the  value  of the  loan in  additional  fully  paid
      shares.


                                       54
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

9.    INVESTMENTS

      On July 21, 2004 the Corporation  entered into a Stock Purchase  Agreement
      with Langley Park  Investments  LLC ("Langley") in which the Company could
      issue  and sell  27,000,000  shares  of  Common  Stock of the  Company  in
      exchange  for the  purchase of Langley  stock based on the total  purchase
      price  divided  by the  conversion  rate  of the  British  Pound  Sterling
      determined on July 31, 2004 (the "Langley transaction").  These shares are
      restricted shares with a 2 year hold from trading. Under the agreement the
      exchange  rate on that day was $1.8060 to (pound)1  resulting in the issue
      of  3,018,172  shares  of  Langley.  The  shares  are  subject  to a price
      protection  in favour of Langley.  Following the listing of Langley on the
      London stock  Exchange,  50% of these shares were  released to the Company
      for immediate use and the balance held for the two year period. The shares
      are held at a UK  brokerage  Company in Escrow and have been valued at the
      lower of market or cost.

      In connection with the Langley  transaction the company paid a third party
      commission in Langley shares  equivalent to 10% of the shares issued.  50%
      of the  commission  has been paid and the balance will be payable when the
      second 50% of Langley shares become available for trading.

      During 2004 the  Corporation  sold  201,000 of the shares for  proceeds of
      $95,670 resulting in a loss on sale of $45,565.

      At December  31, 2004 an  impairment  loss was  recognized  to reflect the
      decrease  in value of the  shares  during  the  period  in the  amount  of
      $950,568.

      In 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.

      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.

10.   CONVERTIBLE DEBENTURE

      In October  2004  Pacific  Geothermal  Energy Inc  ("Pacgeo"),  a Delaware
      Corporation,  signed  a  debenture  purchase  agreement  with  HEM  Mutual
      Assurance LLC ("HEM") and Highgate  House LLC to permit Pacgeo to purchase
      5-year 1.5%  convertible  notes totalling  US$1,000,000.  This convertible
      debt was sold in six  different  notes of which  $441,000 was issued under
      First  Debenture A with HEM,  First  Debenture B for $49,000 with Highgate
      House,  Second  debenture  for  $9,000 and  $1,000  with HEM and  Highgate
      respectively.  First  debenture A and B are  convertible  at the lesser of
      $0.10 and 125% of the average of the closing bid price per share of Pacgeo
      stock during 5 trading days immediately preceding the conversion,  or 100%
      of the  average  of the three  lowest  closing  bid  prices  during the 40
      trading day immediately  prior to conversion date (in whole or part).  The
      second debenture has a fixed conversion price of $0.01 per share.


                                       55
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

10.   CONVERTIBLE DEBENTURE - continued

      First debenture C for $450,000 and First debenture D for $50,000 in favour
      of Highgate  (which has not been drawn down as the  trading  price for the
      shares needed to be above 10 cents for a continuous 30 trading  days).  In
      order to facilitate the conversion process Pacgeo lodged 10,000,000 shares
      with the Escrow agent for HEM from treasury against future conversion.

      The  Corporation  incorporated  a  Delaware,  USA  subsidiary  company  in
      September 2004 called Forum  Acquisition Corp. Under an Agreement and plan
      of Merger  Pacgeo and Forum  Acquisition  Corp,  merged and the  surviving
      entity was Pacgeo which now became a  subsidiary  of the  Corporation.  In
      turn the  Corporation  assumed  the  Convertible  debentures  noted  above
      against the assets of Pacgeo, being the balance of the bank account and in
      turn issued 10,000,000 shares of the Company in favour of HEM and Highgate
      House LLC to replace the shares issued by Pacgeo.  The  10,000,000  shares
      issued by Pacgeo were then returned for cancellation.

      On October 22nd 2004 GEM  partially  converted  the Second  debenture  for
      $10,000 and  received  900,000  shares for their  $9,000  conversion.  The
      conversion  price on the second  debenture was set at $0.01 per share. The
      remaining  debentures are  convertible  at the formula  stated above.  The
      Corporation has not purchased the First debenture B at this time.

      The  Corporation  may  repurchase any  unconverted  debentures at any time
      giving 30 days notice under the agreement  and paying an early  retirement
      penalty amount equal to the face amount of the  Convertible  note plus 35%
      of the face  amount as a  penalty.  Should  the  Corporation  enter into a
      financing of over  US$5,000,000 the notes will become due and payable at a
      penalty of the face amount of the notes plus 50% of the face amount.

11.   COMMITMENTS AND CONTINGENCIES

      Under the agreement  with Forum  Pacific Inc.  ("FPI") dated March 2003 as
      amended in April 2003, the  Corporation is responsible  for fulfilling the
      cost of the work  programme for FEI for calendar  years 2003 and 2004. The
      Corporation has fulfilled those obligations  through December 31, 2004 and
      received  confirmation from FPI. The Corporation has received confirmation
      from  the  Department  of  Energy  of the  Philipine  Government  that the
      commitment to drill additional wells in the Libertad field can be deferred
      to 2006.  The  Corporation  has entered into a Transaction  Agreement with
      Sterling  Energy Plc to transfer  its  Philippine  Assets to a new company
      which in turn will raise money to meet ongoing commitments (see subsequent
      event notes).

12.   INCOME TAX LOSSES CARRIED FORWARD

      The  Corporation  has incurred  losses for Canadian income tax purposes in
      the amount of approximately  $6,670,000,  which, together with accumulated
      resource and  equipment  cost pools of  approximately  $1,174,348,  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 and 2011 -
      $1,101,000.


                                       56
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

12.   INCOME TAX LOSSES CARRIED FORWARD - continued

      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.

13.   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, 2004, there were
      no significant differences between the carrying amounts of these financial
      instruments reported on the balance sheet and their estimated fair values.

14.   SUBSEQUENT EVENTS

      A  Heads  of  Agreement  was  signed  on  January  27,  2005  between  the
      Corporation  and  Sterling  Energy  Plc  ("SEY")  (a UK based  Oil and Gas
      Company) to transfer to the Corporation the license in the Philippine GSEC
      101 properties  (including Reed Bank) in Exchange for new shares issued by
      the Corporation.  Subsequently, pursuant to a Transaction Agreement it was
      agreed by both companies to transfer their respective Philippine Assets to
      a newly formed UK Company - Forum Energy Plc. An extra-ordinary meeting of
      the shareholders on May 18th 2005 approved the transfer of assets.  In May
      2005 Forum  Energy  Plc  raised  (pound)3,400,000  (gross  proceeds)  of a
      pre-IPO issue and the  corporation  share of FEP was reduced to 57.4%.  In
      July,  2005 an IPO will  raise  between  (pound)6  million  and  (pound)15
      million  through  the issue of  additional  FEP  shares.  At this time the
      Corporation   holding  of  FEP  shares  will  be  further  diluted  up  to
      approximately  32% of FEP  depending  on the  price of the  offering.  The
      pre-IPO interim offering was to provide the Corporation with funding ahead
      of the IPO so that it could  proceed with its  activities.  Subsequent  to
      this  IPO FEP  will  be  listed  on the AIM  market  of the  London  Stock
      Exchange.  Also, effective May 18th 2005, the Corporation changed its name
      to FEC Resources, Inc.

      Subject to shareholder approval, once this transaction has been completed,
      and funds have been  raised by Forum  Energy Plc under the Pre-IPO and the
      IPO the subsequent dilution will result in the Corporation recognizing the
      disposition of the asset and the receipt of the shares in Forum Energy Plc
      as a Long-Term Investment.

      The Corporation and Sterling have retained UK based Noble & Company as the
      Nominated  Advisers,  who have agreed to take Forum  Energy Plc to the AIM
      market of the London Stock  Exchange in July,  2005.  Noble & Company have
      also assisted in raising (pound)3.4 million in a pre-IPO phase in May 2005
      and are  planning to raise an  additional  (pound)6  million to  (pound)15
      million by the end of July, 2005.


                                       57
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

14.   SUBSEQUENT EVENTS - continued

      The shares  received by the Corporation in exchange for the assets will be
      subject  to a one year  "lock-up"  and then  for 6 months  thereafter  the
      Corporation  can only trade the shares of Forum Energy Plc through Noble &
      Company to protect an orderly market.

      In April and May,  2005 the  Corporation  has  raised  additional  working
      capital in the amount of US$896,000 through the issue of Convertible debt.
      The debt may be converted  into shares of the  Corporation at a conversion
      price of $0.05 per share, or  alternatively  the Debenture holder at their
      option may convert into shares of Forum  Energy Plc at the pre-IPO  price.
      Such  shares  of  Forum   Energy  Plc  will  be  exempt  from  the  lockup
      arrangements described above.

      On February 27th, 2005 Forum  Exploration,  Inc announced that it had been
      awarded  two coal  License in the island of Cebu,  one  located in central
      Cebu and the other in  southern  Cebu.  The  Corporation  has  obtained an
      independent  Competent  Person  report on the coal assets which has valued
      them  conservatively  at 4.9  million  tonnes  of coal.  This  coal can be
      extracted commercially and the Corporation intend to pursue development of
      the coal  licenses.  It will need to obtain  an  environmental  compliance
      certificate before commercial operations can be started.

      On  January  6th 2005,  GEM  filed  notice  to  convert a further  $36,000
      convertible  debenture at an average price of $0.06 per share and received
      601,611 shares from Escrow (see note 10).

      On  January  25th  2005,  GEM filed  notice to  convert a further  $36,000
      convertible  at an average  price of $0.06 per share and received  610,923
      shares from Escrow (see note 10)

15.   DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY   ACCEPTED
      ACCOUNTING PRINCIPLES

      The  Consolidated  Financial  Statements  have been prepared in accordance
      with accounting  principles generally accepted in Canada ("Canadian GAAP")
      which,  in most  respects,  conform  to  accounting  principles  generally
      accepted in the United States ("US GAAP"). Significant differences between
      Canadian and US GAAP are as follows:

Financial statement presentation

<TABLE>
<CAPTION>
Statements of Loss                                                                  2004           2003           2002
                                                                                      $              $              $
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>            <C>
Loss for the year - Canadian basis                                               (7,219,068)    (1,356,130)    (1,058,276)
Beneficial conversion feature (d)                                                        --             --        (13,441)
Interest charge on accretion of equity portion of convertible debt (b)                8,016             --             --
Stock option re-pricing (e)                                                              --             --          7,502
Amortization of deferred financing costs (c)                                         (6,984)            --             --
Convertible loan inducement (d)                                                          --     (1,434,533)            --
-------------------------------------------------------------------------------------------------------------------------
Loss and comprehensive loss for the year - U.S. basis                            (7,218,036)    (2,790,663)    (1,064,215)
=========================================================================================================================

Loss per common share (basic and diluted) - Canadian basis                            (0.05)         (0.01)         (0.10)
Loss and comprehensive loss per common share (basic and diluted) - U.S. basis         (0.05)         (0.02)         (0.10)
=========================================================================================================================
</TABLE>


                                       58
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

15.   DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY   ACCEPTED
      ACCOUNTING PRINCIPLES - continued

Balance Sheet

<TABLE>
<CAPTION>
                                                                         As Reported
                                                                        under Canadian        Increase
               As at December 31, 2004                      Note             GAAP            (Decrease)          US GAAP
---------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>                <C>                <C>
Assets
    Deferred financing costs                                 (c)                   --       $    132,703       $    132,703
Liabilities
    Convertible debentures payable                           (b)         $    464,614       $    184,378       $    648,992
Shareholders' equity
    Share capital                                          (c)(b)        $ 10,693,033       $    136,044       $ 10,829,077
    Contributed surplus                                    (a)(d)        $  1,246,885       $    605,930       $  1,852,815
    Equity portion of convertible debentures payable         (b)         $    188,751       $   (188,751)                --
    Retained earnings                                     (a)(b)(d)      $(14,281,476)      $   (604,898)      $(14,886,374)
===========================================================================================================================

<CAPTION>
                                                                         As Reported
                                                                        under Canadian        Increase
               As at December 31, 2003                      Note             GAAP            (Decrease)          US GAAP
---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>                <C>                <C>
Shareholders' equity
    Share Capital                                            (d)         $  7,239,109                 --       $  7,239,109
    Contributed surplus                                      (d)         $    526,167       $  1,712,015       $  2,238,182
    Retained earnings                                        (d)         $ (5,956,323)      $ (1,712,015)      $ (7,668,338)
===========================================================================================================================
</TABLE>

      a) Prior to 2004 the Company used the fair value method of accounting  for
      stock options  granted to  non-employees  as prescribed by FAS 123 and the
      intrinsic  method of accounting  for stock options issued to employees for
      US GAAP purposes.  Under Canadian GAAP, the  Corporation  applied the fair
      value based method of accounting prescribed by CICA Handbook Section 3870,
      Stock-based  Compensation and Other  Stock-based  Payments,  only to stock
      options  granted to  non-employees,  and  applied the  intrinsic  value of
      accounting to employees stock options for stock options granted subsequent
      to January 1, 2002.  On January 1, 2004 the Company  changed its method of
      accounting  for  stock  options  to the  fair  value  method  for US  GAAP
      purposes. While US GAAP continues to allow the use of either the intrinsic
      method,  as prescribed by APB 25, or the fair value method,  as prescribed
      by SFAS 123,  the Company  has  elected to adopt the fair value  method of
      accounting  for stock  options  for US GAAP  purposes  using the  Modified
      Prospective Method as prescribed under FAS 148 "Accounting for Stock-Based
      Compensation--Transition  and  Disclosure--an  amendment of FASB Statement
      No. 123." Under this transition provision the Corporation is only required
      to record  compensation  for options  issued in 2004 and  consequently  an
      adjustment to retained earnings for 2002 and 2003 options is not required.
      Under Canadian GAAP the adoption of the new accounting  standard  required
      the use of the fair value method for all stock options granted  subsequent
      to January 1, 2002 and an  adjustment  to retained  earnings of $1,106,085
      was recorded for 2002 and 2003 options.

      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 and 2002 been recognized as  compensation  expense based
      on the estimated fair value of the options on the grant date.


                                       59
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

15.   DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY   ACCEPTED
      ACCOUNTING PRINCIPLES - continued

                                                      2003               2002
                                                   -----------------------------
      Loss for the year as reported                $1,356,130         $1,058,276
      Compensation expense                            765,897            250,188
                                                   -----------------------------
      Pro-forma loss for the year                  $2,122,027         $1,308,464
                                                   =============================
      Loss per common share as reported            $     0.01         $     0.10
                                                   =============================
      Pro-forma loss per common share              $     0.02         $     0.13
                                                   =============================

      b) Convertible debentures:

      Under Canadian GAAP, the  conversion  option  embedded in the  convertible
      debentures is presented  separately as a component of shareholders' equity
      and the amount  allocated to the equity component is then accreted back to
      debentures payable as a charge to interest over the life of the debenture.
      Under  U.S.  GAAP,  the  embedded  conversion  option  is not  subject  to
      bifurcation and is thus presented as a liability along with the balance of
      the convertible debentures.  As a result under US GAAP, the net loss would
      have decreased by the amount of the interest  expense  charged as a result
      of the  accretion  of the equity  component,  which is $8,016,  debentures
      payable would  decrease by that same amount,  share capital would decrease
      by $3,643  which is the amount  allocated  from the equity  component as a
      result of the exercise of a conversion during the year, and long-term debt
      would increase by $184,378.

      Under US GAAP on the  commitment  date of the  debenture,  the  Company is
      required to assess  whether  there is an intrinsic  beneficial  conversion
      feature in place. The beneficial  conversion feature is represented by the
      excess of fair value of the shares  issuable on conversion over the amount
      of the loan proceeds to be allocated to the common shares upon conversion.
      The Company has determined that there is no beneficial  conversion feature
      intrinsic in the  convertible  debenture..  Canadian GAAP does not require
      the recognition of a beneficial conversion feature.

      c) Under US GAAP the cost of  financing  would be deferred  and  amortized
      over the life of the convertible instrument. The total financing costs for
      the convertible was $139,687 and $6,984 has been amortized for 2004.

      d) 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, 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 totaling $1,434,533.


                                       60
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

15.   DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY   ACCEPTED
      ACCOUNTING PRINCIPLES - continued

      e) 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.

Other Disclosures

      Subtotal in Operating Cash Flows

      The Company  includes a subtotal in cash provided by operating  activities
      in the  statements of cash flows.  The SEC prohibits the inclusion of this
      subtotal.

New pronouncements

      In September 2004 the SEC issued SAB 106 regarding the  application of FAS
      143 by oil and gas entities that follow the full cost  accounting  method.
      SAB 106 states  that after the  adoption  of FAS 143 the future cash flows
      associated with the settlement of asset retirement  obligations accrued on
      the balance sheet should be excluded from the  computation  of the present
      value of  estimated  future net  revenues  for  purposes  of the full cost
      ceiling  test  calculation.  As the  Company  excludes  these  future cash
      outflows  from its present  value of  estimated  future net cash flows and
      does not reduce the capitalized oil and gas costs by the asset  retirement
      obligation reflected on the balance sheet, the adoption of SAB 106 in 2004
      did not have any impact on the Company's financial statements,  nor did it
      have an effect on the results of the ceiling test calculation.

      In 2004,  the FASB issued a new  revised  Statement  No. 123,  Share-Based
      Payment.   FAS  123   establishes  a  standard  for  the   accounting  for
      transactions in which an entity exchanges its equity instruments for goods
      or  services.  FAS 123  requires a public  entity to  measure  the cost of
      employee services received in exchange for an award of equity  instruments
      based  on the  grant-date  fair  value  of the  award.  The  cost  will be
      recognized over the period during which an employee is required to provide
      service in exchange  for the award - usually the vesting  period.  Revised
      FAS 123  eliminates the  alternative to use the intrinsic  value method of
      accounting  that was  provided  in  Statement  123 as  originally  issued.
      Revised FAS 123 is effective  for public  companies as of the beginning of
      the first  interim  reporting  period  after June 15,  2005.  The  Company
      adopted  Revised FAS 123 in 2004, the results of which have been reflected
      above.

      In 2003, the FASB issued  interpretation  No. 46 Consolidation of Variable
      Interest  Entities ("FIN 46"), which became effective January 1, 2004. The
      Canadian  Institute of  Chartered  Accountants  ("CICA")  issued a similar
      accounting  guideline ("AcG 15"). FIN 46 and AcG 15 provide guidance as to
      when a company should  consolidate  another  entity into its  Consolidated
      Financial Statements. A variable interest entity ("VIE") is a corporation,
      partnership,  trust,  or any  other  legal  structure  used  for  business
      purposes that either (i) does not have equity investors with voting rights
      or (ii) has equity  investors  that do not  provide  sufficient  financial
      resources  for the entity to  support  its  activities.  FIN 46 and AcG 15
      require a VIE to be  consolidated  by a company if that company is subject
      to a majority of the risk of loss from the VIE's  activities,  is entitled
      to receive a majority of the VIE's residual returns, or both. If a company
      has previously consolidated


                                       61
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

New pronouncements - continued

      a VIE but is not  subject  to a  majority  of the  risk of the loss of its
      activities  nor  entitled to receive a majority of its  residual  returns,
      such VIE is required to be deconsolidated.  Management has determined that
      this guideline does not impact on the  Corporation's  financial  position,
      operating  results or cash flow.  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.

      In December  2004 the FASB issued FAS 153 which deals with the  accounting
      for the exchanges of non-monetary  assets.  FAS 153 is an amendment of APB
      Opinion 29. APB Opinion 29 requires that exchanges of non-monetary  assets
      should be measured  based on the fair value of the assets  exchanged.  FAS
      153  amends APB  Opinion 29 to  eliminate  the  exception  from using fair
      market value for non-monetary  exchanges of similar  productive assets and
      introduces a broader  exception for exchanges of non-monetary  assets that
      do not have commercial  substance.  FAS 153 is effective for  non-monetary
      asset exchanges occurring in fiscal periods beginning after June 15, 2005.
      The Company does not believe that the  application of FAS 153 will have an
      impact on the financial statements.

      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.


                                       62
<PAGE>

              FEC RESOURCES INC (formerly Forum Energy Corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 2004, 2003 and 2002

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 *;

4.2   Consulting  Agreement  dated March 1st 2004  between the Company and Barry
      Stansfield *;

4.3   Consulting  Agreement  dated  November  23rd 2003  between the Company and
      Larry Youell *;

4.4   Consulting  Agreement  dated March 1st 2004  between the Company and David
      Wilson *

4.5   Consulting Agreement dated March 1st 2004 between the Company and David *;

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; *

8.    List of Subsidiaries *;

11.   Code of Ethics *;

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


                                       63
<PAGE>

                                   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, 2005                      FORUM ENERGY CORPORATION
                                     ---------------------------------
                                               (Registrant)


                                         /s/ Larry W. Youell
                                     -------------------------------------------
                                         President and Chief Executive Officer


                                       64
<PAGE>

                            FORUM ENERGY CORPORATION

                            ANNUAL REPORT ON FORM 20F

                               FOR THE YEAR ENDED
                                DECEMBER 31, 2004

                                  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 *;

4.2   Consulting  Agreement  dated March 1st 2004  between the Company and Barry
      Stansfield *;

4.3   Consulting  Agreement  dated  November  23rd 2003  between the Company and
      Larry Youell *;

4.4   Consulting  Agreement  dated March 1st 2004  between the Company and David
      Wilson *;

4.5   Consulting  Agreement  dated March 1st 2004  between the Company and David
      Thompson *;

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 *;

12.   Code of Ethics *;

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);

13.3  Certification  by the Chief Financial  Officer  pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002 (filed herewith);

*     Previously filed


                                       65