**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**








**[
                X ]**
            **ANNUAL
                REPORT UNDER SECTION 13 0R 15(****d****)
                OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      fiscal year ended  **December
      31, 2003**





**[  
                ]**
            **TRANSITION
                REPORT UNDER SECTION 13 0R 15(****d****)
                OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      transition period from____________ to____________





Commission
      file number  **000-27753**








**BREK
                ENERGY CORPORATION**(Name
                of Small Business Issuer in its
                charter)








Incorporated
                in the State of Nevada
              (State
                or other jurisdiction of incorporation or organization)
            **98-0206979**
              (I.R.S.
                Employer Identification No.)Third
                Floor, 346 Kensington High Street, London, UK
              (Address
                of principal executive offices)
            W14
                8NS
              (Zip
                Code)





Issuer’s
      telephone number: **011-44-20-7371-6668**








Securities
      registered pursuant to Section 12(b) of the Act:


**Title
                of each class**
            **Name
                of each exchange on which registered**None
            N/A








Securities
      registered pursuant to Section 12(g) of the Act:








**shares
                of common stock****-
                $0.001 par value**(Title
                of Class)





Indicate
      by check mark whether the issuer (1) filed all reports required to be filed
      by
      Section 13 or 15(d) of the Exchange Act during the last 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 if disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. **[ 
      ]**




***Page
          - 1***





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


**[ 
      ] Yes [ X ] No**





State
      issuer’s revenues for its most recent fiscal year.   $
      22,077





State
      the
      aggregate market value of the voting and non-voting common equity held by **non-affiliates** computed
      by reference to the price at which the common equity was sold, or the average
      bid and asked price of such common equity, as of a specified date within the
      past 60 days: **$1,100,207
      as of December 31, 2003 ($0.05 close)**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date.





**Class**
            **Outstanding
                at December 31, 2003**shares
                of common stock - $0.001 par value
            28,713,630





Documents
      incorporated by reference: Exhibit 3.1 (Amended and Restated Articles of
      Incorporation) filed on May 14, 2002 as an Exhibit to Brek’s Form 10-K/A (Annual
      Report); Exhibit 3.2 (By-laws) filed on October 21, 1999 as an Exhibit to Brek’s
      Form 10 (Registration Statement); Exhibit 4.1 (1999 Employee Stock Option /
      Warrant Plan) filed on September 11, 2000 as an Exhibit to Brek’s Form S-8
      (Registration Statement); Exhibit 4.2 (Rights Agreement) filed on March 6,
      2002
      as an Exhibit to Brek’s Form 8-K (Current Report); Exhibit 4.3 (2001 Employee
      Stock Option / Warrant Plan) filed on July 10, 2002 as an Exhibit to Brek’s Form
      S-8 (Registration Statement); Exhibit 10.1 (Stock Purchase Agreement) filed
      on
      March 29, 2000 as an Exhibit to Brek’s Form 10-KSB (Annual Report); Exhibit 10.2
      (Stock Purchase Agreement) filed on September 18, 2002 as an attached Exhibit
      to
      Brek’s Form 10-K/A (Annual Report); Exhibit 10.3 (Purchase Agreement) filed on
      July 31, 2002 as an Exhibit to Brek’s Form 8-K (Current Report); Exhibit 10.4
      (Share Purchase Agreement) filed on November 21 ,
      2005 as
      an Exhibit to Brek’s Form 10-KSB (2002 - Annual Report); and Exhibit 10.5
      (License Agreements) filed on November 21 ,
      2005 as
      an Exhibit to Brek’s Form 10-KSB (2002 - Annual Report).





Transitional
      Small Business Disclosure Format (Check one): **Yes [  ] No [ x ]**





***Page
          - 2***


**PART
      I**





**Item
      1.**  **Description
      of Business.**





**(a)**
            **Business
                Development**





Brek
      Energy Corporation is a Nevada corporation in the oil and gas business. Brek
      was
      in the business of developing electronic payment processing systems from its
      inception until July 2001 when it acquired shares in Gasco Energy, Inc., an
      oil
      and gas exploration company. In July 2002, Brek exchanged its shares in Gasco
      for a leasehold interest in 25% of Gasco’s undeveloped properties in Utah,
      Wyoming and California, which it owns and operates through subsidiaries, and
      sold its electronic payment processing subsidiary. Since then, Brek has focused
      on the development of its natural gas and oil properties. On March 12, 2002,
      Brek acquired shares in Vallenar Energy Corp., an oil and gas exploration
      company. On
      June
      28, 2002, Brek increased its shareholding in Vallenar to 51.53%. See
      “Business of Brek” and “Management’s Discussion and Analysis or Plan of
      Operations” below for more information.





Brek
      has
      an authorized capital of 300,000,000 shares of common stock with a par value
      of
      $0.001 of which 59,498,090 shares are issued and outstanding.





Neither
      Brek nor any of its subsidiaries have been involved in any bankruptcy,
      receivership or similar proceedings. There have been no material
      reclassifications, mergers, consolidations or purchases or sales of a
      significant amount of assets not in the ordinary course of Brek’s
      business.





**(b)**
            **Business
                of Brek**





Brek
      is a
      natural gas and petroleum exploitation, development, and production company
      engaged in the acquisition, operation and development of unconventional
      hydrocarbon prospects, primarily in the Rocky Mountain region. Brek, through
      its
      subsidiaries, conducts its principal business, which is (1) the acquisition
      of
      leasehold interests in petroleum and natural gas rights, either directly or
      indirectly, and (2) the exploitation and development of properties subject
      to
      these leases. Brek is currently focusing on drilling efforts in the Riverbend
      Project located in the Unita Basin of northeastern Utah, targeting the Wasatch,
      Mesaverde and Blackhawk formations. See “Item 2. Description of Property” below
      for more information.





Brek
      is
      also the majority owner of Vallenar Energy Corp., an oil and gas company with
      a
      strategy of structuring and developing an economically viable enhanced oil
      recovery project in Texas. See “Item 2. Description of Property” below for more
      information.





Brek
      is
      in the early stages of development and has insufficient operating history on
      which to base an evaluation of its business and prospects. Any such evaluation
      must be made in light of the risks frequently encountered by companies in their
      early states of development, particularly for companies in high risk sectors
      such as natural gas and oil. Brek’s longer term ability to emerge from the
      development stage depends upon its natural gas and oil properties proving
      sufficient reserves and if sufficient reserves are proved, bringing these
      properties into production.





**Products
      and Services**





The
      discovery of natural gas or oil and the ability to produce either one in
      commercial quantities is very speculative. Even assuming that Brek obtains
      the
      necessary financing for drilling, if Brek or its operator does not discover
      and
      produce commercial quantities of natural gas or oil, it will not have any
      products or services to offer and its business could fail. The principal uses
      for natural gas and oil are heating, manufacturing, power, and
      transportation.





Natural
      gas will be gathered through connections between Brek’s natural gas wells and
      the pipeline transmission system. Natural gas sales are by contract, and Brek,
      through its operator, will enter into a contract with the natural gas company
      that will purchase most of the natural gas produced in the area. Natural gas
      purchasers pay well operators 100% of the sale proceeds of natural gas on or
      about the 25th of each month for the previous month’s sales. The operator is
      responsible for all distributions to the working interest and royalty owners.
      There is no standard price for natural gas and prices will fluctuate with the
      seasons and the general market conditions.





Brek
      primarily produces natural gas, and also produces condensate (oil). During
      the
      fiscal year ended December 31, 2003, Brek produced 5,628.03 Mcf of natural
      gas.
      Brek sells its product to purchasers in the geographic area of the properties.
      Natural gas, after processing, is distributed through pipelines. Brek recognizes
      revenue from the sale of natural gas when it reaches the customer’s point of
      purchase in the gas transmission system. The amount Brek recognizes for each
      well will be based on the percentage of Brek’s net revenue interest in the well,
      and the remainder will be allocated to other persons holding a net revenue
      interest.




***Page
          - 3***





**Market**





Brek
      will
      derive its revenue principally from the sale of natural gas. As a result, Brek’s
      revenues will be determined, to a large degree, by prevailing natural gas
      prices. Brek intends to sell the majority of its natural gas on the open market
      at prevailing market prices. The market price for natural gas is dictated by
      supply and demand, and Brek cannot accurately predict or control the price
      it
      receives for its natural gas.





The
      market for natural gas and oil production is regulated by both the state and
      federal governments. The overall market is mature and, with the exception of
      natural gas, all producers in a producing region will receive the same price.





The
      availability of a ready market for any natural gas or oil produced by Brek
      depends on numerous factors beyond the control of management, including but
      not
      limited to, the extent of domestic production and imports of oil, the proximity
      and capacity of natural gas pipelines, the availability of skilled labor,
      materials and equipment, the effect of state and federal regulation of natural
      gas and oil production, and federal regulation of natural gas sold in interstate
      commerce. Natural gas and oil produced by Brek or its operator in Utah will
      be
      sold to various purchasers who service the areas where Brek’s wells are located.
      During the fiscal year ended December 31, 2003, Brek’s wells were not subject to
      any agreements that prevented Brek from either selling its production on the
      spot market or committing such gas to a long-term contract; however, there
      can
      be no assurance that Brek will have ready access to suitable markets for its
      future natural gas and oil production.





The
      marketability of Brek’s natural gas is not expected to pose a problem for Brek.
      Natural gas can be easily sold wherever it may be produced in the States that
      Brek operates subject to the transportation cost. However, if and when Brek
      starts producing natural gas it could be difficult to sell since transportation
      requires a pipeline. In the areas that Brek is presently pursuing new drilling
      activity for natural gas, other companies have been delayed up to a year because
      of the unavailability of a pipeline. No assurance can be given that natural
      gas
      wells drilled by Brek or its operator will be placed on line within a year
      after
      the well is drilled and completed.





**Distribution
      Methods of Products and Services**





Natural
      gas will be delivered to the purchaser via gathering lines into the main gas
      transmission line. Management anticipates that Brek’s products will be sold to
      any number of purchasers in the area of its properties, however, no assurance
      can be given that Brek will be able to make such sales or that if it does,
      it
      will be able to receive a price that is sufficient to make its operations
      profitable.





**Competition**





Brek’s
      natural gas and oil exploration activities take place in a highly competitive
      and speculative business atmosphere. In seeking suitable natural gas and oil
      properties for acquisition, Brek competes with a number of other companies
      operating in its areas of interest, including large oil and gas companies and
      other independent operators with greater financial resources. Management does
      not believe that Brek’s competitive position in the natural gas and oil industry
      will be significant .





Competition
      in the natural gas and oil exploration industry also exists in the form of
      competition to acquire the most promising acreage blocks and obtaining the
      most
      favorable prices for transporting the product. Brek is relatively small compared
      to other natural gas and oil exploration companies and may have difficulty
      acquiring additional acreage or projects, and may have difficulty arranging
      for
      the transportation of product, if Brek is successful in its exploration
      efforts.





The
      natural gas industry is very competitive, particularly with respect to the
      acquisition of drilling rigs and natural gas exploration services from
      independent contractors. Brek
      anticipates a tight market for obtaining drilling rigs and services, and the
      manpower to run them. The current high level of drilling activity in Brek’s
      areas of exploration may have a significant adverse impact on the timing and
      profitability of Brek’s operations. In addition, Gasco Energy, Inc., the
      operator on the properties, will be required to obtain drilling permits for
      its
      wells, and there is no assurance that such permits will be available in a timely
      manner or at all.





The
      price
      of natural gas is affected by continuous shifts in supply and demand and is
      controlled by domestic and world markets. Natural gas is becoming the preferred
      source of energy over other fossil fuels because it is an environmentally
      friendlier source of energy. The demand for natural gas is increasing and
      whether or not their will be an adequate supply is very uncertain. Numerous
      well-established companies are focusing significant resources on exploration.
      These companies may be able to compete more effectively than Brek. Due to these
      factors, Brek expects competition to intensify in the natural gas industry
      in
      general and for the acquisition of drilling rigs and natural gas exploration
      services from independent contractors.




***Page
          - 4***





**Government
      Controls and Regulations**





Brek,
      or
      a venture in which it participates, will be required to obtain local government
      and other permits for drilling oil or gas wells.





Brek
      and
      its operators are subject to stringent federal, state, and local laws and
      regulations governing the discharge of materials into the environment or
      otherwise relating to environmental protection. These laws and regulations
      may
      require the acquisition of permits before drilling commences, limit or prohibit
      operations on environmentally sensitive lands such as wetlands or wilderness
      areas, result in capital expenditures to limit or prevent emissions or
      discharges, and place restrictions on the management of wastes. Failure to
      comply with these laws and regulations may result in the assessment of
      administrative, civil and criminal penalties, the imposition of remedial
      obligations, and the issuance of injunctive relief. Any changes in environmental
      laws and regulations that result in more stringent and costly waste handling,
      disposal or cleanup requirements could have a material adverse effect on our
      operations. While management believes that Brek and its operators are in
      substantial compliance with current environmental laws and regulations and
      that
      continued compliance with existing requirements would not materially affect
      Brek, there is no assurance that this trend will continue in the
      future.





The
      Comprehensive Environmental Response, Compensation and Liability Act, as
      amended, also known as “ **CERCLA** ”
or
      “ **Superfund** ”,
      and
      comparable state laws impose liability without regard to fault or the legality
      of the original conduct, on certain classes of persons who are considered to
      be
      responsible for the release of a hazardous substance into the environment.
      Under
      CERCLA, these “ **responsible
      persons** ”
may
      be
      subject to joint and several liability for the costs of cleaning up the
      hazardous substances that have been released into the environment, for damages
      to natural resources, and for the costs of certain health studies, and it is
      not
      uncommon for neighboring landowners and other third parties to file claims
      for
      personal injury and property damage allegedly caused by the release of hazardous
      substances into the environment.





Brek
      also
      may incur liability under the Resource Conservation and Recovery Act, also
      known
      as “ **RCRA** ”,
      which
      imposes requirements relating to the management and disposal of solid and
      hazardous wastes. While there exists an exclusion from the definition of
      hazardous wastes for “drilling fluids, produced waters, and other wastes
      associated with the exploration, development, or production of crude oil,
      natural gas or geothermal energy”, in the course of Brek’s operations, Brek may
      generate ordinary industrial wastes, including paint wastes, waste solvents,
      and
      waste compressor oils that may be regulated as hazardous waste.





Brek
      currently owns or leases, through its operators, properties that for a number
      of
      years have been used for the exploration and production of natural gas and
      oil.
      Although Brek and its operators have utilized operating and disposal practices
      that were standard in the industry at the time, hydrocarbons or other wastes
      may
      have been disposed of or released on or under the properties owned or leased
      by
      Brek or on or under other locations where such wastes have been taken for
      disposal. In addition, some of these properties may have been operated by third
      parties whose disposal or release of hydrocarbons or other wastes was not under
      Brek’s control. These properties and the wastes disposed thereon may be subject
      to CERCLA, RCRA, and analogous State laws. Under such laws, Brek could be
      required to remove or remediate previously disposed wastes or property
      contamination or to perform remedial operations to prevent future
      contamination.





The
      Federal Water Pollution Control Act of 1972, as amended, also known as the
      “ **Clean
      Water Act** ”
and
      analogous State laws impose restrictions and strict controls regarding the
      discharge of pollutants, including produced waters and other oil and natural
      gas
      wastes, into state or federal waters. The discharge of pollutants into regulated
      waters is prohibited, except in accord with the terms of a permit issued by
      EPA
      or the state. The Clean Water Act provides civil and criminal penalties for
      any
      discharge of oil in harmful quantities and imposes liabilities for the costs
      of
      removing an oil spill.





The
      Clean
      Air Act, as amended (the “ **CAA** ”),
      restricts the emission of air pollutants from many sources, including natural
      gas and oil operations. New facilities may be required to obtain permits before
      work can begin, and existing facilities may be required to incur capital costs
      in order to remain in compliance. In addition, more stringent regulations
      governing emissions of toxic air pollutants are being developed by the EPA,
      and
      may increase the costs of compliance for some facilities.





Under
      the
      National Environmental Policy Act (the “ **NEPA** ”),
      a
      federal agency, in conjunction with a permit holder, may be required to prepare
      an environmental assessment or a detailed environmental impact statement, also
      known as an “ **EIS** ”
before
      issuing a permit that may significantly affect the quality of the environment.
      Brek or its operators are currently in negotiations with the U.S. Bureau of
      Land
      Management or “ **BLM** ”
      regarding the preparation of an EIS in connection with certain proposed
      exploration and production operations in the Uinta Basin of Utah. Brek expects
      that the EIS will take approximately 18 to 24 months to complete. Until the
      EIS
      is completed and issued by the BLM, Brek will be limited in the number of
      natural gas and oil wells that it or its operator can drill in the areas
      undergoing EIS review. While Brek does not expect that the EIS process will
      result in a significant curtailment in future natural gas and oil production
      from this particular area, Brek can provide no assurance regarding the outcome
      of the EIS process.




***Page
          - 5***





Brek
      and
      its subsidiaries are in compliance with the foregoing legislation and will
      continue to comply with the legislation in the future. Management believes
      that
      compliance with the foregoing legislation will not adversely affect Brek’s
      business operations in the future or its competitive position.





**Effect
      of Existing or Probable Governmental Regulations on Brek’s
      Business**





Brek’s
      business is subject to various levels of government controls and regulations,
      which are supplemented and revised from time to time, including various laws
      and
      regulations of the United States, the State of Utah, the State of Wyoming,
      the
      State of California, the State of Texas, and the municipalities in which it
      operates that govern the exploration, development and production of natural
      gas
      and oil. Brek will have to abide and follow the procedures established by the
      entities in those jurisdictions. For instance, the Texas Railroad Commission
      determines all procedures and regulations that concern oil and natural gas
      exploration and production activities in the State of Texas. Brek is unable
      to
      predict what additional legislation or revisions may be proposed that might
      affect its business or when any such proposals, if enacted, might become
      effective. Such changes, however, could require increased capital and operating
      expenditures and could prevent or delay certain operations by Brek or one of
      its
      subsidiaries.





**Dependence
      on One or a Few Major Customers**





Brek
      does
      not independently market its production: it depends entirely upon the operators
      of its wells to market and sell all of its production. As Brek does not yet
      rely
      upon the revenue from its production, an operator’s refusal to market and sell
      the production on Brek’s behalf would not have a material adverse affect on its
      business, except to the extent that Brek does not have storage facilities and
      would be obligated to take delivery of its production. Brek’s management does
      not believe that any of its operators is likely to refuse to market and sell
      its
      production.





**Patents/Trade
      Marks/Licences/Franchises/Concessions/Royalty Agreements or Labour
      Contracts**





Neither
      Brek nor its subsidiaries currently own any patents or trade marks. Also, they
      are not party to any license or franchise agreements, concessions, royalty
      agreements or labor contracts arising from any patents or trade
      marks.





Brek’s
      web site is copyrighted upon loading. www.brekenergy.com is a
      registered domain name of Brek. Brek and its subsidiaries will seek further
      trademark protection for any associated domain names.





**Estimate
      of Research and Development Costs**





Brek
      did
      not perform any research activities in the past two fiscal years ended 2003
      and
      2002. Brek spent $306,485 and $529,906 on exploration and development activities
      during the two fiscal years ended 2003 and 2002 respectively. Also, Brek did
      not
      spend any funds on geological and economical evaluations of its properties
      during the same time period.





**Number
      of Total Employees and Number of Full Time Employees**





As
      of
      December 31, 2003, Brek had no employees.





**RISK
      FACTORS**





Brek
      is
      in the early stages of development and an investment in Brek’s business involves
      a high degree of risk. You should consider each of the following risk factors
      and the other information in this Annual Report, including Brek’s financial
      statements and the related notes, in evaluating Brek’s business and prospects.
      The risks and uncertainties described below are not the only ones that impact
      on
      Brek’s business. Additional risks and uncertainties not presently known to Brek
      or that Brek currently considers immaterial may also impair its business
      operations. If any of the following risks actually occur, Brek’s business and
      financial results could be harmed. In that case, the trading price of Brek’s
      shares of common stock could decline.





***Page
          - 6***


**Risks
      associated with Brek’s business and properties:**





**1.**  **Brek** **is
      in the early stages of development and may not be able to continue as a going
      concern and may not be able to raise additional financing.**








Brek
      has
      a working capital deficiency and has accumulated losses since inception. These
      factors raise substantial doubt about Brek’s ability to continue as a going
      concern These consolidated financial statements have been prepared on a going
      concern basis, which implies that Brek will continue to realize its assets
      and
      discharge its liabilities in the normal course of business. Brek has never
      paid
      any dividends and is unlikely to pay dividends. There is no guarantee that
      Brek
      will be able to raise any equity financing or generate profitable operations.
      As
      of December 31, 2003, Brek had a working capital deficit of $1,550,128 and
      had
      accumulated losses of $61,342,202 since its inception. These factors raise
      substantial doubt regarding Brek’s ability to continue as a going
      concern.





This
      note
      may make it more difficult for Brek to raise additional equity or debt financing
      needed to run its business and is not viewed favorably by analysts or investors.
      Brek urges potential investors to review this report before making a decision
      to
      invest in Brek.





**2.**  **Brek
      has a limited operating history and has losses that it expects will continue
      into the future, which may prevent Brek achieving success. If the losses
      continue, Brek will have to suspend operations or cease
      operations.**





Brek
      has
      a limited operating history upon which an evaluation of its future success
      or
      failure can be made. You should be aware of the difficulties normally
      encountered by new natural gas exploration companies similarly situated to
      Brek
      and the high rate of failure of such enterprises. Many of these risks and
      uncertainties are described in more detail elsewhere in this “Risk Factors”
section. Brek’s likelihood of success must be considered in light of the
      problems, expenses, difficulties, complications and delays encountered in
      connection with the exploration of the properties that Brek plans to undertake.
      These potential problems include, but are not limited to, unanticipated problems
      relating to exploration, and additional costs and expenses that may exceed
      current estimates. You should consider the likelihood of Brek’s future success
      to be highly speculative in view of its limited operating history, as well
      as
      the complications frequently encountered by other companies in the early stages
      of development. If Brek realizes problems, additional costs, difficulties,
      complications or delays in connection with its exploration activities, it will
      have a material adverse effect on its business operations, results of operations
      and financial condition, and as a result, its business could suspended or
      fail.





Brek
      has
      incurred significant operating losses since inception and has limited financial
      resources to support it until such time that it is able to generate positive
      cash flow from its business operations. As of December 31, 2003, Brek’s
      accumulated net losses since inception on September 16, 1998 were $61,342,202.
      Based upon its plan of operations for 2004, Brek expects to incur $4,300 per
      month in operating losses for the next 18 months. This will happen because
      there
      are expenses associated with the proposed natural gas and oil exploration
      programs on its properties. See “Management Discussion and Analysis” on page 22
      for more details.





Brek
      cannot guaranty that it will be successful in generating revenues in the future
      or that it will be able to raise any working capital for operating funds.
      Failure to generate revenues or raise any financing may cause Brek to suspend
      or
      cease operations.





Brek’s
      ability to achieve and maintain profitability and positive cash flow is
      dependent upon its ability to generate revenues from its planned business
      operations and to reduce development costs. Without the generation of any
      revenues or any capital being raised in an equity or debt financing, Brek will
      run out of operating funds within one month.





**3.**  **Brek
      has limited control over activities on properties that Brek does not operate
      and
      depends on Gasco Energy, Inc. to manage, drill and operate the wells, which
      could negatively impact on the exploration and development of Brek’s properties
      and on Brek’s business operations.**





Substantially
      all of Brek’s business operations are conducted through joint operating
      agreements under which Brek owns partial interests in natural gas and oil
      properties. If Brek does not operate the properties in which it owns an
      interest, Brek does not have control over normal operating procedures,
      expenditures or future development of underlying properties. The failure of
      an
      operator of Brek’s wells to adequately perform operations, or an operator’s
      breach of the applicable agreements, could reduce Brek’s production and revenues
      and have a negative impact on Brek’s business operations. The success and timing
      of Brek’s drilling and development activities on properties operated by others
      therefore depends upon a number of factors outside of Brek’s control, including
      the operator’s timing and amount of capital expenditures, expertise and
      financial resources, inclusion of other participants in drilling wells, and
      use
      of technology. Because Brek does not have a majority interest in most wells
      that
      Brek does not operate, Brek may not be in a position to remove the operator
      in
      the event of poor performance .




***Page
          - 7***





**4.**  **Brek’s
      partners and third party operators could suffer financial hardship, which could
      negatively impact on the exploration and development of Brek’s
      properties.**





Liquidity
      and cash flow problems encountered by Brek’s partners or the co-owners of Brek’s
      properties may prevent or delay the drilling of a well or the development of
      a
      project. Brek’s partners and working interest co-owners may be unwilling or
      unable to pay their share of the costs of projects as they become due. In the
      case of a farm-out partner, Brek would have to find a new farm-out partner
      or
      obtain alternative funding in order to complete the exploration and development
      of the prospects subject to the farm-out agreement. In the case of a working
      interest owner, Brek could be required to pay the working interest owner’s share
      of the project costs. Brek cannot assure you that it would be able to obtain
      the
      capital necessary to fund either of these contingencies or that Brek would
      be
      able to find a new farm-out partner.





**5.**  **The
      exploration and development of Brek’s oil & gas properties require
      substantial capital, which Brek may not be able to obtain, which in turn could
      lead to a loss of Brek’s interest in certain oil & gas properties and a
      decline in Brek’s natural gas and oil reserves.**





Brek’s
      current operating funds are less than necessary to complete Brek’s proposed oil
& gas exploration programs, and therefore Brek will need to obtain
      additional financing in order to complete each of the proposed oil & gas
      exploration programs. As of December 31, 2003, Brek had cash in the amount
      of
      $2,318. In 2003, Brek had limited operations and had no income. Brek’s natural
      gas and oil exploration programs call for significant expenses in connection
      with the exploration of the respective natural gas and oil properties. As of
      December 31, 2003, Brek did not have sufficient funds to maintain its interest
      in its natural gas and oil properties. Brek will need to raise additional
      capital to participate in all of its current exploration programs on the natural
      gas and oil properties.





Brek
      has
      relied in the past primarily on the sale of equity capital to fund working
      capital and the acquisition of its prospects and related leases. Failure to
      generate operating cash flow or to obtain additional financing could result
      in
      substantial dilution of its property interests, or delay or cause indefinite
      postponement of further exploration and development of its prospects with the
      possible loss of its oil & gas properties.





Brek
      will
      require significant additional capital to fund its future activities and to
      service current and any future indebtedness. In particular, Brek faces
      uncertainties relating to its ability to generate sufficient cash flows from
      operations to fund the level of capital expenditures required for its natural
      gas and oil exploration and production activities and its obligations under
      various agreements with third parties relating to exploration and development
      of
      certain prospects. Brek’s failure to find the financial resources necessary to
      fund its planned activities and service its debt and other obligations could
      adversely affect Brek’s ability to continue as a going concern.





Brek
      can
      provide no assurance that it will be able to find the required capital.
      Obtaining additional and acceptable financing would be subject to a number
      of
      factors, including the market prices for natural gas and oil, investor
      acceptance of Brek’s natural gas and oil properties, and investor sentiment.
      These factors may make the timing, amount, terms or conditions of the financing
      unavailable and unacceptable to Brek. The most likely source of future capital
      presently available to Brek is through the sale of equity capital. However,
      any
      sale of share capital will result in dilution to existing shareholders. The
      only
      other anticipated alternatives for the financing of Brek’s proposed natural gas
      and oil exploration programs exploration would be private loans or the offering
      by Brek of an interest in its natural gas and oil properties to be earned by
      another party or parties carrying out further exploration thereof, which is
      not
      presently contemplated.





**6.**  **Brek’s
      and its operator’s ability to market and transport the natural gas and oil that
      is discovered on Brek’s properties is essential to Brek’s business operations,
      but is subject to certain requirements.**





Several
      factors beyond Brek’s control may adversely affect its ability to market the
      natural gas and oil that it discovers. These factors include the proximity,
      capacity and availability of natural gas and oil pipelines and processing
      equipment, market fluctuations of prices, taxes, royalties, land tenure,
      allowable production, and environmental protection. The extent of these factors
      cannot be accurately predicted, but any one or a combination of these factors
      may result in Brek’s inability to sell its natural gas and oil at prices that
      would result in an adequate return on Brek’s invested capital.




***Page
          - 8***





**7.**  **As
      a result of substantially all of Brek’s producing properties are located in the
      Rocky Mountains, Brek is vulnerable to certain risks associated with primarily
      operating in one geographical area.**





All
      of
      Brek’s production is currently located in, and all of its future production is
      anticipated to be located in, the Rocky Mountain Region of the United States.
      The natural gas prices that Brek and other companies in the Rocky Mountain
      region have received and are currently receiving are at a discount to natural
      gas prices in other parts of the United States. Factors that can cause price
      volatility for natural gas and crude oil within this region are:





•
the
      availability of gathering systems with sufficient capacity to handle local
      production;


•
      seasonal fluctuations in local demand for production;


•
local
      and national gas storage capacity;


•
      interstate pipeline capacity; and


•
the
      availability and cost of gas transportation facilities from the Rocky Mountain
      region.





**8.**  **Brek’s
      business operations could negatively be impacted if there is a shortage of
      supplies, equipment and personnel for the exploration and development on Brek’s
      properties.**





Brek’s
      ability to conduct operations in a timely and cost effective manner depends
      on
      the availability of supplies, equipment and personnel. The natural gas and
      oil
      industry is cyclical and experiences periodic shortages of drilling rigs,
      supplies and experienced personnel. Shortages can delay operations and
      materially increase operating and capital costs, which could negatively impact
      on Brek’s business operations and financial position.





**9.**  **Seasonal
      weather conditions and lease stipulations adversely affect Brek’s ability to
      conduct drilling activities in some of the areas where its properties are
      located.**





Natural
      gas and oil operations in the Rocky Mountains are adversely affected by seasonal
      weather conditions and lease stipulations designed to protect various wildlife.
      In certain areas, including the Uinta Basin, drilling and other natural gas
      and
      oil activities can only be conducted during the spring and summer months. This
      limits Brek’s or its operator’s ability to operate in those areas and can
      intensify competition during those months for drilling rigs, oil field
      equipment, services, supplies and qualified personnel, which may lead to
      periodic shortages. These constraints and the resulting shortages or high costs
      could delay Brek’s or its operator’s operations and materially increase Brek’s
      operating and capital costs.





**10.**  **Brek
      may suffer losses or incur liability for events that Brek or the operator of
      a
      property have chosen not to insure against.**





Although
      management believes the operator of any property in which Brek may acquire
      interests will acquire and maintain appropriate insurance coverage in accordance
      with standard industry practice, Brek may suffer losses from uninsurable hazards
      or from hazards, which Brek or the operator have chosen not to insure against
      because of high premium costs or other reasons. Brek may become subject to
      liability for pollution, fire, explosion, blowouts, cratering and oil spills
      against which Brek cannot insure or against which Brek may elect not to insure.
      Such events could result in substantial damage to natural gas and oil wells,
      producing facilities and other property and personal injury. The payment of
      any
      such liabilities may have a material adverse effect on Brek’s financial position
      and business operations.





**11.**  **Brek
      may not be able manage growth of its business operations effectively, which
      could result in a negative impact on Brek’s business operations and financial
      condition.**





If
      Brek
      is unable to manage growth effectively, its business, financial condition,
      and
      results of operations condition will be negatively affected. Because of Brek’s
      small size, growth in accordance with its plan of operations, if achieved,
      will
      place a significant strain on its financial, technical, operational and
      management resources. As Brek expands its activities and increases the number
      of
      projects it is evaluating or in which it participates, there will be additional
      demands on Brek’s financial, technical and management resources. Brek’s systems,
      procedures or controls may not be adequate to support its business operations
      and Brek’s management may not be able to achieve the execution necessary to
      successfully implement Brek’s plan of operations. The failure to continue to
      upgrade its technical, administrative, operating and financial control systems
      or the occurrence of unexpected expansion difficulties, including the
      recruitment and retention of experienced managers, geoscientists and engineers,
      could have a negative impact on Brek’s business, financial condition, and
      results of operations and its ability to timely execute its plan of
      operations.





***Page
          - 9***


**Risks
      associated with Brek’s industry:**





**12.**  **Due
      to the speculative nature of natural gas exploration, there is substantial
      risk
      that Brek will be unable to locate commercial quantities of natural gas, which
      in turn will negatively impact Brek’s business operations.**





The
      search for commercial quantities of natural gas as a business is extremely
      risky. The properties may not contain commercially exploitable quantities of
      natural gas. The exploration expenditures to be made by Brek may not result
      in
      the discovery of commercial quantities of natural gas. Problems such as unusual
      or unexpected formations and other conditions are involved in natural gas
      exploration and often result in unsuccessful exploration efforts. Brek may
      not
      be able to discover and produce commercial quantities of natural gas from its
      properties. If Brek does not discover and produce commercial quantities of
      natural gas, it will not have any products or services to offer and its business
      could fail.





**13.**  **The
      natural gas and oil markets are volatile markets that have a direct impact
      on
      Brek’s revenues and profits and the market conditions will effect whether Brek
      will be able to continue its operations.**





Brek’s
      revenues, operating results, cash flow and future rate of growth are very
      dependent upon prevailing prices for natural gas and oil. Historically, natural
      gas and oil prices and markets have been volatile and not predictable, and
      they
      are likely to continue to be volatile in the future. Prices for natural gas
      and
      oil are subject to wide fluctuations in response to relatively minor changes
      in
      the supply of and demand for natural gas and oil, market uncertainty and a
      variety of additional factors that are beyond our control,
      including:





•
      political conditions in both natural gas and oil producing and exporting
      countries


•
the
      supply and price of both domestic and foreign natural gas and oil


•
the
      worldwide and regional demand for energy


•
the
      effect of domestic and foreign government regulation of production and
      transportation


•
the
      price and availability of alternative energy sources


•
weather
      conditions


•
acts
      of
      war, terrorism and vandalism


•
market
      manipulation





Lower
      natural gas and oil prices may not only decrease Brek’s revenues on a per unit
      basis but also may reduce the amount of natural gas and oil that Brek can
      produce economically. A substantial or extended decline in natural gas and
      oil
      prices may materially and adversely affect Brek’s business operations, financial
      condition, and ability to finance planned capital expenditures.





**14.**  **Competition
      in the** **natural
      gas and oil industry is intense and Brek may not be able to compete effectively
      with its competitors.**





Brek’s
      ability to acquire additional natural gas and oil properties and develop new
      and
      existing properties in the future will depend on its ability to conduct
      operations, to evaluate and select suitable properties, to attract qualified
      personnel, and to consummate transactions in this intensely competitive
      environment. Brek
      competes with other natural gas and oil companies and other independent
      operators possessing greater financial resources and technical facilities than
      Brek in connection with the acquisition of natural gas and oil properties and
      in
      connection with the recruitment and retention of qualified personnel. There
      is
      significant competition for the limited number of natural gas and oil
      opportunities and, as a result, Brek may be unable to acquire an interest in
      attractive natural gas and oil exploration properties on terms it considers
      acceptable on a continuing basis. Brek
      also
      competes for the equipment and labor required to operate and to develop natural
      gas and oil properties. Management believes that Brek’s competitive position in
      the natural gas and oil industry is significant at this time.





Also,
      larger competitors may be able to absorb the burden of any changes in federal,
      state and local laws and regulations more easily than Brek can, which would
      adversely affect Brek’s competitive position. Also, these competitors may be
      able to pay more for natural gas and oil properties and may be able to define,
      evaluate, bid for and acquire a greater number of properties than Brek can.
      In
      addition, some of Brek’s competitors have been operating in the natural gas and
      oil industry for a much longer time than Brek and have demonstrated the ability
      to operate through industry cycles.




***Page
          - 10***





**15.**  **Brek
      is subject to complex laws and regulations, including environmental regulations,
      which could negatively impact the business operations and financial condition
      of
      Brek.**





Development,
      production and sale of natural gas and oil in the United States are subject
      to
      extensive laws and regulations, including environmental laws and regulations.
      Brek may be required to make large expenditures to comply with environmental
      and
      other governmental regulations. Matters subject to regulation
      include:





•
      location and density of wells


•
the
      handling of drilling fluids and obtaining discharge permits for drilling
      operations


•
      emissions into the environment


•
      accounting for and payment of royalties on production from state, federal and
      Indian lands


•
bonds
      for ownership, development and production of natural gas and oil
      properties


•
      transportation of natural gas and oil


•
storage
      and disposition of hazardous waste


•
      operation of wells and reports concerning operations


•
      taxation





Under
      the
      various complex laws and regulations, Brek could be liable for personal
      injuries, property damage, oil spills, discharge of hazardous materials,
      remediation and clean-up costs and other environmental damages. Failure to
      comply with these laws and regulations also may result in the suspension or
      termination of Brek’s operations and subject Brek to administrative, civil and
      criminal penalties. Moreover, these laws and regulations could change in ways
      that substantially increase Brek’s costs. Accordingly, any of these liabilities,
      penalties, suspensions, terminations or regulatory changes could negatively
      impact Brek’s business operations and financial condition.





**16.**  **The
      natural gas and oil industry involves numerous uncertainties and operating
      risks
      that could negatively impact Brek’s business operations and financial
      condition.**





Brek’s
      development, exploitation and exploration activities may be unsuccessful for
      many reasons, including weather, cost overruns, equipment shortages and
      mechanical difficulties. Moreover, the successful drilling of a natural gas
      well
      or an oil well does not ensure a profit on investment. A variety of factors,
      both geological and market-related, can cause a well to become uneconomical
      or
      only marginally economical. In addition to their cost, unsuccessful wells can
      impede Brek’s efforts to replace reserves.





The
      natural gas and oil business involves a variety of operating risks,
      including:


•
      fires


•
      explosions


•
blow-outs
      and surface cratering


•
      uncontrollable flows of oil, natural gas, and formation water


•
natural
      disasters, such as adverse weather conditions


•
pipe,
      cement, or pipeline failures


•
casing
      collapses


•
embedded
      oil field drilling and service tools


•
abnormally
      pressured formations


•
      environmental hazards, such as natural gas leaks, oil spills, pipeline ruptures,
      and discharge of toxic gases





If
      Brek
      or its operators experience any of these problems, it could affect well bores,
      gathering systems and processing facilities, which could adversely affect Brek’s
      or the operator’s ability to conduct operations. Brek could also incur
      substantial losses as a result of:


•
injury
      or
      loss of life


•
severe
      damage to and destruction of property, natural resources, and
      equipment


•
pollution
      and other environmental damage


•
clean-up
      responsibilities


•
regulatory
      investigation and penalties


•
suspension
      of business operations


•
repairs
      to
      resume business operations





Brek
      does
      not carry business interruption insurance at levels that would provide enough
      funds for it to continue operating without access to other funds. For some
      risks, Brek may not obtain insurance if management believes the cost of
      available insurance is excessive relative to the risks presented. In addition,
      pollution and environmental risks generally are not fully insurable. If a
      significant accident or other event occurs and is not fully covered by
      insurance, it could negatively impact Brek’s business operations enough to force
      Brek to cease business operations.




***Page
          - 11***





**Risks
      associated with Brek and its subsidiaries:**





**17.**  **Brek’s
      stock price is volatile and may fluctuate, which will have a direct impact
      on
      your investment in Brek.**





The
      stock
      markets in general, and the stock prices of natural gas and oil companies in
      particular, have experienced extreme volatility that often has been unrelated
      to
      the operating performance of any specific public company. Brek’s stock price may
      be impacted by factors that are unrelated or disproportionate to its operating
      performance and the
      trading price of Brek’s shares of common stock may not be an accurate reflection
      of their value . The
      market price of Brek’s common stock may fluctuate significantly in response to a
      number of factors, some of which are beyond Brek’s control, such as interest
      rates, increased competition, general economic, political and market conditions, recessions,
      or changes in government regulations, including environmental
      regulations ,
      and
      some of which are within Brek’s control, such as actual
      or
      anticipated variations in Brek’s operating
      results, announcements of new projects and properties, new customers,
      acquisition of potential natural gas and oil entities and prospects, Brek’s
      ability or inability to generate new revenues ,
      and
      results of exploration and development. These
      market fluctuations may adversely affect the market price of Brek’s shares of
      common stock.





**18.**  **A
      small number of Brek’s stockholders own a substantial amount of Brek’s shares of
      common stock, and if such stockholders were to sell those shares in the public
      market within a short period of time, the price of Brek’s shares of common stock
      could drop significantly.**





Because
      a small
      number of Brek’s stockholders own a substantial amount of Brek’s shares of
      common stock, those shareholders will be able to significantly decide who will
      be directors and any other stockholders may not be able to elect any directors.
      Also, sales of a large number of shares of Brek’s shares of common stock or even
      the availability of a substantial number of shares of common stock for sale
      could have the effect of reducing the price per share of Brek’s common stock,
      especially if the shares of common stock continue to be thinly
      traded.





As
      of
      December 31, 2003, 28,713,630 shares of common stock were issued and
      outstanding, of which 13,267,976 shares were freely tradeable and 13,292,061
      shares were, to the best of Brek’s knowledge, subject to Rule 144. The remaining
      2,153,593 shares of common stock were restricted from trading. As of December
      31, 2003, 1,843,682 share purchase warrants exercisable into one share of common
      stock each were outstanding; and 1,580,000 stock options, exercisable into
      one
      share of common stock each, were outstanding. An additional 3,320,000 stock
      options could be granted under Brek’s 2001 Stock Option Plan. At December 31,
      2003, if all the share purchase warrants and all the granted options were
      exercised, the number of issued and outstanding shares of common stock would
      increase by 3,423,682 shares to 32,137,312 shares of common stock.





**19.**  **A
      change of control of Brek can be delayed, impeded or effected by the directors
      and management, who collectively own 12.89% of the outstanding shares or by
      the
      implementation of Brek’s rights agreement by the board of directors.**





As
      of
      December 31, 2003, Brek’s
      directors and management owned an aggregate of 3,701,173 shares of common stock
      and as a result had the ability to influence the vote for a change of voting
      control of Brek or the vote to approve or reject any offer for the purchase
      and
      sale of Brek’s assets.





Also,
      upon the happening of certain events, the board of directors could vote to
      implement Brek’s rights agreement, which would delay, impede or effect a change
      in control of Brek or could impede a merger, consolidation, takeover or other
      business combination involving Brek or discourage a potential acquirer from
      making a tender offer or otherwise attempting to obtain control of
      Brek **.** See
“Dividends” on page 18 and Exhibit 4.2 - Rights Agreement for more
      details





**20.**  **Brek
      may not be able to attract and retain qualified personnel necessary for the
      implementation of its plan of operations and exploration
      programs.**





Brek’s
      current management is inexperienced in operating a natural gas and oil business.
      Brek may need to hire or retain qualified management, employees or consultants
      with expertise in natural gas and oil exploration and development. Brek’s
      success depends on its ability to attract, retain and motivate qualified
      personnel. Key personnel represent a significant asset, and the competition
      for
      these personnel is intense in the natural gas and oil industry. Brek does not
      maintain key person life insurance on any of its personnel. The loss of one
      or
      more of its key employees or its inability to attract, retain and motivate
      qualified personnel could negatively impact Brek’s ability to implement its plan
      of operations and to complete its natural gas and oil programs.




***Page
          - 12***





**21.**  **Brek’s
      officers and directors have conflicts of interest in that they are officers
      and
      directors of other companies that will prevent them from devoting full-time
      to
      Brek’s business operations, which may negatively impact on Brek’s business
      operations.**





Brek’s
      officers and directors have conflicts of interest in that they are officers
      and
      directors of other companies. Management’s other activities will prevent them
      from devoting full-time to Brek’s business operations. This will impede Brek’s
      growth and business operations and may reduce its financial results because
      of
      the slow down in operations.





**22.**  **Brek
      has not and does not expect to pay dividends in the foreseeable
      future.**





Brek
      has
      never paid cash dividends on its shares of common stock and has no plans to
      do
      so in the foreseeable future. Brek intends to retain earnings, if any, to
      develop and expand its business operations.





**23.**  **“Penny
      Stock” rules may make buying or selling Brek’s shares of common stock difficult,
      and severely limit their market and liquidity.**





Trading
      in Brek’s shares of common stock is subject to certain regulations adopted by
      the SEC commonly known as the “penny stock” rules. Currently, Brek’s shares of
      common stock qualify as penny stocks and are covered by Section 15(g) of the
      Securities Exchange Act of 1934, which imposes additional sales practice
      requirements on broker/dealers who sell the shares of common stock in the
      aftermarket. The “penny stock” rules govern how broker-dealers can deal with
      their clients and “penny stocks”. For sales of Brek’s shares of common stock,
      the broker/dealer must make a special suitability determination and receive
      from
      you a written agreement prior to making a sale to you.





These
      additional burdens imposed upon broker-dealers by the “penny stock” rules may
      discourage broker-dealers from effecting transactions in Brek’s shares of common
      stock, which could severely limit their market price and liquidity of its shares
      of common stock. This could prevent you from reselling your shares and may
      cause
      the price of the shares to decline. See “Penny Stock rules” on page 21 for more
      details.





**Item
      2.**  **Description
      of Property** .





**Corporate
      Headquarters**





As
      of
      December 31, 2003, Brek operated from its principal executive office at c/o
      7 th Floor,
      Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong. Brek’s office
      telephone number was 011-852-2528-1267. The office space was provided to Brek
      by
      Ian Robinson on a rent-free basis. There was no written agreement in existence
      for this rental arrangement.





**Property**





**A.**
            **Petroleum
                and Natural Gas Properties**





Riverbend
      Project, Utah





As
      of
      December 31, 2003, the Riverbend Project comprised approximately 113,681 gross
      acres in the Uinta Basin of northeastern Utah, of which Brek hold interests
      in
      approximately 13,611 net acres as of December 31, 2003. Brek can also earn
      interests in additional acreage in this area under farm-out and other
      agreements. The amount of additional acreage changes from time to time as Brek’s
      leasehold interests change. Brek’s engineering and geologic focus is
      concentrated on three tight-sand formations in the Uinta basin: the Wasatch,
      Mesaverde and Blackhawk formations.





Greater
      Green River Basin Project, Wyoming





As
      of
      December 31, 2003, Brek had a leasehold interest in approximately 110,743 gross
      acres and 21,759 net acres in this area. Brek held a non-operated interest
      in
      one non-producing well in this area and a non-operated interest in one producing
      well in this area. Brek was considering additional options for this area such
      as
      the farm-out of some of its acreage and other similar type
      transactions.





***Page
          - 13***


Crocker
      Canyon Prospect, California





As
      of
      December 31, 2003, Brek had a leasehold interest in approximately 3,868 gross
      acres and 802 net acres in Kern and San Luis Obispo Counties of Southern
      California. Brek had no drilling or development plans for this acreage during
      2003 and planned to continue paying leasehold rentals and other minimum
      geological expenses to preserve Brek’s acreage positions on these
      prospects.





Rocksprings
      Prospect, Edwards County, Texas





In
      March
      2002, Brek acquired 2,512,500 shares of common stock of Vallenar Energy Corp.
      which, together with the 733,333 shares of common stock issuable upon conversion
      of preferred stock of Vallenar Energy Corp. held by Brek, represents
      approximately 25% of Vallenar Energy Corp.’s equity. On June 28, 2002, Brek
      acquired an additional 2 million shares of common stock of Vallenar Energy
      Corp.
      from third parties for $10,000 and subscribed for an additional 800,000 shares
      of common stock of Vallenar Energy Corp. at $0.50 per share ($400,000). At
      December 31, 2002, Brek held a 51.53% equity interest in Vallenar Energy Corp.
      For as long as at least one-half of the preferred stock is outstanding, it
      is
      entitled as a class to at least 29.69% of the total voting power of Vallenar
      Energy Corp. Brek is entitled to designate one director who must sit on the
      executive committee of the board or additional voting rights accrue to the
      preferred stock. All decisions of this executive committee must be unanimous.
      Brek has been playing an active role in the management of Vallenar Energy Corp.
      since 2002.





Vallenar
      Energy Corp. holds leases covering approximately 51,194 gross and 8,865 net
      acres in the Rocksprings Prospect, which is located in central Edwards County,
      Texas, and is a part of the Geronimo Creek Prospect. The Geronimo Creek Prospect
      is a shallow, heavy oil play within the Cretaceous aged Glen Rose limestone
      and
      Travis Peak sandstone. It is a north-south oriented, faulted anticline having
      approximately 75 feet of closure covering approximately 29,500 acres. During
      2002, Vallenar drilled one well, the results were inconclusive, and no further
      work has been performed.





**B.**
            **Oil
                and Gas Operations**







Brek
      did
      not participate in any drilling programs during 2003.







**C.**
            **Volumes,
                Prices and Operating
                Expenses**





The
      following table presents information regarding the production volumes, average
      sales prices received and average production costs associated with Brek’s sales
      of natural gas for the periods indicated. Brek had no sales of natural gas
      production prior to its fiscal year ended December 31, 2002.





For
                the Years Ended December 312003
            
            
            2002
            
            
            2001Natural
                gas production (Mcf)
            
            
            5,628
            
            
            n/a
            
            
            n/aAverage
                sales price per Mcf
            
            $
            3.95
            
            
            n/a
            
            
            n/aOil
                production (Bbl)
            
            
            25.14
            
            
            n/a
            
            
            n/aAverage
                sales price per Bbl
            
            $
            32.78
            
            
            n/a
            
            
            n/aExpenses
                per Mcf:Lease
                Operating
            
            
            nil
            
            
            n/a
            
            
            n/aGeneral
                and administrative
            
            $
            51.01
            
            
            n/a
            
            
            n/aDepletion
                and impairment
            
            
            nil
            
            
            n/a
            
            
            n/a





**D.**
            **Development,
                Exploration and Acquisition Capital
                Expenditures**





During
      the year ended December 31, 2003, Brek spent $306,485 **** in
      development and exploration activities, including property acquisition costs.
      During the year ended December 31, 2002, Brek spent $2,032,860 in development
      and exploration activities, including property acquisition costs net of
      impairment charges of $16,634,187. As of December 31, 2003, Brek held a 25%
      working interest in 228,292 gross acres and 36,172 net acres located in Utah,
      Wyoming and California. Brek also owns a 51.53% interest in 51,194 gross acres
      and 8,865 net acres located in Edwards County, Texas.





***Page
          - 14***


The
      following table presents information regarding Brek’s net costs incurred in the
      purchase of proved and unproved properties and in exploration and development
      activities:





For
                the Years Ended December 312003
            
            
            2002
            
            
            2001Property
                Acquisition Costs:Unproved
            
            $
            18,137,138
            
            $
            18,137,141
            
            
            nilProved
            
            
            nil
            
            
            nil
            
            
            nilExploration
                and Development Costs:
            
            $
            836,394
            
            $
            529,906
            
            
            nilImpairment
                Charges:
            
            
            ($16,634,187
            )
            
            ($16,634,187
            )
            
            nilTotal
            
            $
            2,339,345
            
            $
            2,032,860
            
            
            nil





**E.**
            **Productive
                Wells and Acreage**





As
      of
      December 31, 2003, Brek had two producing gas wells and one shut-in gas well
      on
      its properties. Productive
      wells are producing wells and wells capable of production. Shut-in wells are
      wells that are capable of production but are currently not producing. Gross
      wells are the total number of wells in which the Company has an interest. Net
      wells are the sum of Brek’s fractional interests owned in the gross
      wells.





**F.**
            **Undeveloped
                Acreage**





The
      following table sets forth the undeveloped and developed leasehold acreage,
      by
      area, held by Brek as of December 31, 2003. Undeveloped acres are acres on
      which
      wells have not been drilled or completed to a point that would permit the
      production of commercial quantities of oil and gas, regardless of whether or
      not
      such acreage contains proved reserves. Developed acres are acres, which are
      spaced or assignable to productive wells. Gross acres are the total number
      of
      acres in which Brek has a working interest. Net acres are the sum of Brek’s
      fractional interests owned in the gross acres. The table does not include
      acreage that Brek has a contractual right to acquire or to earn through drilling
      projects, or any other acreage for which Brek has not yet received leasehold
      assignments. In certain leases, Brek’s ownership is not the same for all depths;
      therefore, the net acres in these leases are calculated using the greatest
      ownership interest at any depth. Generally this greater interest represents
      Brek’s ownership in the primary objective formation.





Undeveloped
                Acres
            Developed
              AcresGross
            Net
            Gross
            NetUtah
            113,681
            13,611
            nil
            nilWyoming
            110,743
            21,759
            nil
            nilCalifornia
            3,868
            802
            nil
            nilTexas
            51,194
            8,865
            nil
            nilTotal
                Acres
            279,486
            45,037
            nil
            nil





**G.**
            **Drilling
                Activity**





The
      following table sets forth Brek’s drilling activity during the years ended
      December 31, 2003 and December 31, 2002. Brek had no drilling activity during
      the fiscal year ended December 31, 2001.





In
      the
      table, “gross” refers to the total wells in which Brek has a working interest,
      and “net” refers to gross wells multiplied by Brek’s working interest. A
      productive well is an exploratory or a development well that is not a dry
      well.





2003
            2002Gross
            Net
            Gross
            NetExploratory
                WellsProductive
            0.0
            0.0
            3.0
            0.3Dry
            0.0
            0.0
            0.0
            0.0Total
                Wells
            0.0
            0.0
            3.0
            0.3


***Page
          - 15***





Development
                WellsProductive
            0.0
            0.0
            0.0
            0.0Dry
            0.0
            0.0
            0.0
            0.0Total
                Wells
            0.0
            0.0
            0.0
            0.0






***Page
          - 16***





**H.**
            **Present
                Activity**





During
      the year ended December 31, 2003, Brek participated in three exploratory wells,
      two of which were located in the Greater Green River Basin acreage in Wyoming
      and one within the Riverbend Project in Utah.  Overall, Brek had an 8.6%
      net revenue **** interest,
      or net 0.26 wells. All three of these wells were completed and produced natural
      gas in the first quarter of 2003.  One of the Wyoming wells was eventually
      shut-in.





**I.**
            **Delivery
                Commitments**





Brek
      Energy is not obligated to provide a fixed and determinable quantity of oil
      or
      gas in the near future under existing contracts or agreements.





**Item
      3.**  **Legal
      Proceedings.**





As
      of
      December 31, 2003, Brek was not a party to any pending legal proceedings and,
      to
      the best of Brek’s knowledge, none of Brek’s property or assets were the subject
      of any pending legal proceedings, except for the following:





Temporary
      Order - British Columbia Securities Commission





On
      November 14, 2002, Brek became aware that itself, Vallenar Energy Corp., Richard
      Jeffs, and Vallenar Energy Corp’s president and CEO, Jeff Paquin, had been named
      in a Temporary Order and Notice of Hearing regarding certain alleged violations
      of the British Columbia Securities Act (the “BCSA”). This Temporary Order and
      Notice of Hearing (the “Temporary Order”) alleged that Messrs. Jeffs and Paquin,
      together with others, engaged in acts in furtherance of trades of shares of
      Brek
      (and other issuers) and advised persons to purchase shares of Brek (and other
      issuers) without being registered under the British Columbia Securities Act.
      The
      Temporary Order required Messrs. Jeffs and Paquin to resign from their positions
      as officers of Brek and Vallenar Energy Corp., and prohibited them and Brek
      and
      Vallenar Energy Corp. from trading in any securities and from engaging in
      investor relations activities in British Columbia. Management believed that
      neither it nor Vallenar Energy Corp. violated the BCSA or engaged in any
      activity that would require them to be registered under the BCSA.





As
      a
      result of the Temporary Order, Richard N. Jeffs resigned as both the CEO and
      president of Brek on November 20, 2002. On December 5, 2002, the British
      Columbia Securities Commission released a decision not to extend the Temporary
      Order against Brek, Mr. Jeffs, Vallenar Energy Corp. and Mr. Paquin, among
      others, as a result of there being insufficient evidence of any
      wrongdoing.





As
      of
      December 31, 2003, Brek and Vallenar Energy Corp., to the best of management’s
      knowledge, were no longer under investigation by the British Columbia Securities
      Commission. On April 1, 2003, the British Columbia Securities Commission
      withdrew the notice of hearing and has not, to the best of management’s
      knowledge, issued any further notices or orders against Brek or its officers
      or
      directors.





Bermuda
      lawsuit - Transworld Payment Solutions N.V. et al. vs. Brek Energy Corporation
      et al.





On
      February 25, 2003, Transworld Payment Solutions N.V. and First Curacao
      International Bank N.V., the debtor and the guarantor respectively of a note
      receivable, commenced legal action against Brek and others in the Supreme Court
      of Bermuda claiming that Brek and its former subsidiary, First Ecom Systems
      Limited, had promised to develop and supply them with certain software pursuant
      to three license agreements dated October 19, 2001. The plaintiffs were seeking
      rescission of all agreements between the parties or, alternatively, damages
      for
      misrepresentation and breach of agreements. The plaintiffs commenced the lawsuit
      approximately one week before they had to make their first instalment payment
      pursuant to a share purchase agreement dated October 19, 2001. At that time,
      the
      plaintiffs were obligated to make an instalment payment in the amount of
      $1,901,107. The plaintiffs have not made any instalment payments as required
      pursuant to the terms and conditions of the share purchase agreement. See
      Exhibit 10.4 - Share Purchase Agreement and Exhibit 10.5 - License Agreements
      for more details.




Brek
      and
      the other defendants filed a defence and counterclaim on May 8, 2003 with the
      Supreme Court of Bermuda. In their counterclaim, the defendants were seeking
      specific performance of the share purchase agreement or, alternatively, damages
      for breach of contract. Although the directors believed that the plaintiffs’
claims were without merit as there was no condition to develop software for
      the
      plaintiffs, due to lack of financial resources Brek did not pursue its
      counterclaim. No party has taken any further action since Brek filed its defence
      and counterclaim.




***Page
          - 17***





Texas
      lawsuit - Burlington Resources Oil & Gas Company, LP vs. Brek Petroleum
      Inc.





On
      June
      9, 2003, Burlington Resources Oil & Gas Company, LP (“Burlington”) filed a
      Petition in the District Court in Midland County, Texas of the 142 nd Judicial
      District claiming that Brek Petroleum Inc. failed to pay for costs incurred
      by
      Burlington in drilling oil and gas wells located in Midland County, Texas.
      Burlington claimed damages in the amount of $658,831. On July 16, 2003, Brek
      Petroleum Inc. filed its Original Answer to the Petition.





On
      March
      1, 2004, the parties reached a settlement and entered into a Settlement
      Agreement and Release whereby Brek Petroleum Inc. agreed to pay Burlington
      a
      total of $691,874 in 12 equal monthly payments. The total of the settlement
      comprised the original amount claimed for damages, Burlington’s legal fees of
      $3,278, and court-imposed interest. On July 14, 2005, Brek Petroleum Inc.
      delivered the twelfth and final monthly payment to Burlington.


**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**





No
      matter
      was submitted to a vote of security holders, through the solicitation of proxies
      or otherwise, during the fourth quarter of the fiscal year covered by this
      report.





**PART
      II**





**Item
      5.**  **Market
      for Common Equity and Related Stockholder Matters.**





**(a)**  **Market
      Information**





Brek’s
      common stock traded on the Nasdaq National Market System under the symbol “FECC”
from June 6, 2000 until February 19, 2002 when the symbol was changed to “BREK”.
      Prior to that, BREK traded on the NASD OTC Bulletin Board under the symbol
      “FECC” since March 8, 1999. On December 3, 2002, Brek was removed from the
      Nasdaq National Market System for failing to maintain minimum listing
      requirements.





The
      table
      below gives the high and low closing prices for each fiscal quarter for the
      2002
      fiscal year.




Period
                ended
            High
            Low31
                December 2002
            $0.68
            $0.2230
                September 2002
            $0.81
            $0.5530
                June 2002
            $1.13
            $0.6131
                March 2002
            $0.70
            $0.39





Brek’s
      common stock has also traded on the Berlin over-the-counter stock exchange
      since
      January 27, 2000 and has been listed on the Bermuda Stock Exchange since
      December 23, 1999.





Subsequent
      to December 3, 2002, Brek’s shares of common stock were quoted on the NASD OTC
      Bulletin Board under the symbol “BREK”. On May 23, 2003, Brek’s shares of common
      stock ceased to be quoted on the NASD OTC Bulletin Board and Brek’s shares of
      common stock were quoted on the gray market under the same symbol,
“BREK”.





The
      table
      below gives the high and low closing bid information for the one fiscal quarter
      during the 2002 fiscal year for when Brek was quoted on the NASD OTC Bulletin
      Board. The bid information was obtained from Pink Sheets LLC and reflects
      inter-dealer prices, without retail mark-up, mark-down or commission, and may
      not represent actual transactions.




High
                & Low BidsPeriod
                ended
            High
            Low
            Source31
                December 2003
            $0.07
            $0.03
            Pink
                Sheets LLC30
                September 2003
            $0.05
            $0.03
            Pink
                Sheets LLC30
                June 2003
            $0.23
            $0.10
            Pink
                Sheets LLC31
                March 2003
            $0.24
            $0.17
            Pink
                Sheets LLC31
                December 2002
            $0.65
            $0.20
            Pink
                Sheets LLC30
                September 2002
            n/a
            n/a
            n/a30
                June 2002
            n/a
            n/a
            n/a31
                March 2002
            n/a
            n/a
            n/a




***Page
          - 18***





**(b)**  **Holders
      of Record**





As
      of
      December 31, 2003, there were approximately 176 holders of record of Brek’s
      shares of common stock.





**(c)**  **Dividends**





Brek
      has
      never declared or paid dividends on its shares of common stock. Brek intends
      to
      follow a policy of retaining earnings, if any, to finance the growth of the
      business and does not anticipate paying any cash dividends in the foreseeable
      future. The declaration and payment of future dividends on the shares of common
      stock will be the sole discretion of the board of directors and will depend
      on
      Brek’s profitability and financial condition, capital requirements, statutory
      and contractual restrictions, future prospects and other factors deemed relevant
      by the board of directors.





On
      December 5, 2001, the Board of Directors of Brek adopted a shareholder rights
      plan (the “Rights Plan”). The purpose of the Rights Plan is to deter, and
      protect Brek’s shareholders from, certain coercive and otherwise unfair takeover
      tactics and enable the Board of Directors to represent effectively the interests
      of shareholders in the event of a takeover attempt. The Rights Plan does not
      deter negotiated mergers or business combinations that the Board of Directors
      determines to be in the best interests of Brek and its shareholders. In
      connection with the adoption of the Rights Plan, Brek entered into a rights
      agreement with U.S. Bank, N.A. dated as of March 1, 2002.





On
      March
      20, 2002, the Board of Directors declared a dividend of one common share
      purchase right (a “Right”) for each outstanding share of common stock, par value
      $0.001 per share, of Brek. The dividend was payable on March 20, 2002 to the
      stockholders of record on that date. Upon the happening of certain events,
      the
      board of directors could vote to implement Brek’s rights agreement, which would
      delay, impede or effect a change in control of Brek or could impede a merger,
      consolidation, takeover or other business combination involving Brek or
      discourage a potential acquirer from making a tender offer or otherwise
      attempting to obtain control of Brek **.** Once the
      Rights become exercisable, each Right entitles the registered holder to purchase
      from Brek five shares of common stock at a price of $0.01 per share, subject
      to
      adjustment. The description and terms of the Rights are set forth in the rights
      agreement. See Exhibit 4.2 - Rights Agreement for more details.





**(d)**  **Recent
      Sales of Unregistered Securities**





There
      have been no sales of unregistered securities within the last three years that
      would be required to be disclosed pursuant to Item 701 of Regulation S-B, except
      for the following:





2001
      -
      Stock Options Granted





Under
      the
      2001 Stock Option/Warrant Plan, Brek granted the following share purchase
      options to employees, directors and consultants of Brek during the fiscal year
      ended December 31, 2001:


Date
                of Grant
            Number
                of Options
            Exercise
                PriceOctober
                31, 2001
            1,260,000
            $0.40





Brek’s
      2001 stock option/warrant plan provides for the granting of stock options or
      warrants for the purchase of a specific number of common shares at a specific
      price for a specific time period to officers, consultants, directors and key
      employees. All share options/warrants granted under the 2001 option/warrant
      plan
      either vest immediately, at 25% per quarter over a period of one year, or on
      a
      performance basis. All options, if remaining unexercised, expire five years
      after the date of issue.





On
      October 31, 2001, Brek approved the granting of new options to employees and
      directors with a new exercise price of $0.40 per share providing the holders
      first rescinded their existing grants of options and warrants (if any). Holders
      of 825,000 options granted under the 1999 Stock Option Plan and 235,000 warrants
      granted on March 29, 2001 elected to rescind their existing grants and these
      were replaced with new grants totalling 765,000 options.





On
      October 31, 2001, Brek also granted new options to employees, directors and
      consultants to purchase up to 495,000 shares of Brek’s common stock at a price
      of $0.40 per share. The options vested immediately and expire on October 31,
      2006. 285,000 of these options were granted to consultants of Brek.





***Page
          - 19***


March
      2002 - $0.50 Offering





On
      or
      about April 9, 2002, Brek issued 2,845,000 shares of common stock at $0.50
      per
      share producing aggregate proceeds of $1,397,500, which was net of related
      share
      issue cost of $25,000, received by Brek. The sales were to 14 investors, of
      which 12 were non-US persons outside the United States and two were accredited
      investors in the United States. Of these investors, one was a director and
      executive officer of Brek, one was a director of Brek, and one was an executive
      officer of Brek. The issuances and sales were exempt under Section 4(2) under
      the Securities Act of 1933, and Regulations S and D thereunder. All expenditures
      of proceeds were for normal overhead and other general corporate
      purposes.





July
      31, 2002 - Purchase Agreement with Gasco Energy, Inc.





On
      July
      31, 2002, Brek issued an aggregate 4,125,000 common shares in exchange for
      an
      undivided interest in oil and gas properties at a deemed value of $2,862,750.
      Brek issued 1,237,500 shares of common stock to Richard N. Jeffs, 1,237,500
      shares of common stock to Wet Coast Management Corp., a company controlled
      by
      Mr. Jeffs, 825,000 shares of common stock to Nicolas Mathys, and 825,000 shares
      of common stock to Ralph Fuoss in exchange for an undivided interest in Gasco
      Energy, Inc’s undeveloped mineral leases. Brek relied upon Section 4(2) of the
      Securities Act of 1933 and Rule 903 of Regulation S promulgated pursuant to
      that
      Act by the Securities and Exchange Commission. Management is satisfied that
      the
      requirements of the exemption from the registration and prospectus delivery
      requirements of the Securities Act of 1933 have been fully complied with. The
      offering was not a public offering and was not accompanied by any general
      advertisement or any general solicitation. No offer was made or accepted in
      the
      United States and the share certificates representing the shares were legended
      with the applicable trading restrictions. See Exhibit 10.3 - Purchase Agreement
      for more details.





August
      23, 2002 - Penalty Payment





On
      August
      23, 2002, Brek issued 80,000 common shares, at a deemed value of $56,800, to
      certain subscribers of the March 28, 2002 private placement as a 10% penalty
      for
      failing to make its S-3 Registration Statement effective within 120 days, as
      required under the terms of their private placement agreements. Brek issued
      68,000 shares of common stock to Warwick Ventures Ltd. and 12,000 shares of
      common stock to Ultratech Capital Management.





September
      10, 2002 - Severance





On
      September 10, 2002, Brek issued 100,000 common shares at a price of $0.70 to
      Gregory Pek, Brek’s former Chief Executive Officer, as part of his severance
      package. See Item 10 - “Executive Compensation” below for more
      information.





September
      24, 2002 - Settlement of accrued bonuses





On
      September 24, 2002, Brek issued 50,000 shares of common stock at $0.68 per
      share
      to each of two directors and an officer of Brek in settlement of $102,000 in
      accrued bonuses payable. Brek issued 50,000 shares of common stock to Ian
      Robinson, 50,000 shares of common stock to Ravi Daswani, and 50,000 shares
      of
      common stock to Kenneth Telford. See Item 10 - “Executive Compensation” below
      for more information.





October
      3, 2002 - Exercise of stock options





On
      September 19, 2002, 50,000 employee stock options, issued under the 2001 stock
      option warrant plan, were exercised at $0.40 per share for cash proceeds of
      $20,000. Upon receipt of the exercise price in full, Brek issued 50,000 shares
      of common stock to Steve Corbin on October 3, 2002.





2002
      -
      Stock Options Granted





Under
      the
      2001 Stock Option/Warrant Plan, Brek granted the following share purchase
      options to employees, directors and consultants of Brek during the fiscal year
      ended December 31, 2002:





Date
                of Grant
            Number
                of Options
            Exercise
                PriceJuly
                15, 2002
            420,000
            $0.55





On
      July
      15, 2002, Brek granted options to employees and directors to purchase up to
      370,000 shares of Brek’s common stock at a price of $0.55 per share. The options
      vested immediately and expire on July 15, 2007.





On
      July
      15, 2002, Brek also granted options to officers to purchase up to 50,000 shares
      of Brek’s common stock at a price of $0.55 per share. The options vested at 25%
      every 6 months and expire 3 months after termination of employment. These
      options expired during the first quarter of 2003.




***Page
          - 20***





April
      14, 2003 - $0.18 Offering





O n
      March
      20, 2003, the board of directors authorized the issuance of up to 277,776 shares
      of common stock at an offering price of $0.18 per share. The offering price
      was
      arbitrarily set by Brek and had no relationship to its assets, book value,
      revenues or other established criteria of value. All the restricted shares
      issued in this offering were issued for investment purposes in a “private
      transaction”.





On
      April
      14, 2003, Brek raised $49,999 in cash from this offering and issued an aggregate
      277,776 restricted shares to four non-US investors outside the United States,
      one of which was an executive officer of Brek.





Brek
      relied upon Section 4(2) of the Securities Act of 1933 and Rule 903 of
      Regulation S promulgated pursuant to that Act by the Securities and Exchange
      Commission. Management is satisfied that the requirements of the exemption
      from
      the registration and prospectus delivery requirements of the Securities Act
      of
      1933 have been fully complied with. The offering was not a public offering
      and
      was not accompanied by any general advertisement or any general solicitation.
      Brek received from each subscriber a completed and signed subscription agreement
      containing certain representations and warranties, including, among others,
      that
      (a) the subscriber was not a U.S. person, (b) the subscriber subscribed for
      the
      shares for their own investment account and not on behalf of a U.S. person,
      and
      (c) there was no prearrangement for the sale of the shares with any buyer.
      No
      offer was made or accepted in the United States and the share certificates
      representing the shares have been legended with the applicable trading
      restrictions.





April
      14, 2003 - $0.18 Shares for Debt Offering





O n
      March
      20, 2003, the board of directors approved a debt offering at a settlement price
      of $0.18 per share. The settlement price was arbitrarily set by Brek and had
      no
      relationship to its assets, book value, revenues or other established criteria
      of value. All the restricted shares of common stock issued in this debt
      settlement were issued for investment purposes in a “private
      transaction”.





On
      April
      14, 2003, Brek settled $337,647 of debt by issuing an aggregate 1,875,817 shares
      of common stock at a settlement price of $0.18 per share of common stock to
      15
      non-US creditors outside the United States, five of which were directors and/or
      executive officers of Brek.





For
      this
      shares for debt offering, Brek relied upon Section 4(2) of the Securities Act
      of
      1933 and Rule 903 of Regulation S promulgated pursuant to that Act by the
      Securities and Exchange Commission. Management is satisfied that the
      requirements of the exemption from the registration and prospectus delivery
      requirements of the Securities Act of 1933 have been fully complied with. The
      offering was not a public offering and was not accompanied by any general
      advertisement or any general solicitation. Brek received from each creditor
      a
      completed and signed subscription agreement containing certain representations
      and warranties, including, among others, that (a) the creditor was not a U.S.
      person, (b) the creditor subscribed for the shares for their own investment
      account and not on behalf of a U.S. person, and (c) there was no prearrangement
      for the sale of the shares with any buyer. No offer was made or accepted in
      the
      United States and the share certificates representing the shares have been
      legended with the applicable trading restrictions.





**(e)**
            **Penny
                Stock Rules**





Trading
      in Brek’s shares of common stock is subject to the “penny stock” rules. The SEC
      has adopted regulations that generally define a penny stock to be any equity
      security that has a market price of less than $5.00 per share, subject to
      certain exceptions. These rules require that any broker-dealer who recommends
      Brek’s shares of common stock to persons other than prior customers and
      accredited investors, must, prior to the sale, make a special written
      suitability determination for the purchaser and receive the purchaser’s written
      agreement to execute the transaction. Unless an exception is available, the
      regulations require the delivery, prior to any transaction involving a penny
      stock, of a disclosure schedule explaining the penny stock market and the risks
      associated with trading in the penny stock market. In addition, broker-dealers
      must disclose commissions payable to both the broker-dealer and the registered
      representative and current quotations for the securities they offer. The
      additional burdens imposed upon broker-dealers by such requirements may
      discourage broker-dealers from effecting transactions in Brek’s shares of common
      stock, which could severely limit their market price and liquidity of Brek’s
      shares of common stock.




***Page
          - 21***





The
      “penny stock” rules also imposes additional sales practice requirements on
      broker/dealers who sell penny stock. These rules require a one page summary
      of
      certain essential items. The items include the risk of investing in penny stocks
      in both public offerings and secondary marketing; terms important to in
      understanding of the function of the penny stock market, such as “bid” and
“offer” quotes, a dealers “spread” and broker/dealer compensation; the
      broker/dealer compensation, the broker/dealers duties to its customers,
      including the disclosures required by any other penny stock disclosure rules;
      the customers rights and remedies in causes of fraud in penny stock
      transactions; and, the NASD’s toll free telephone number and the central number
      of the North American Administrators Association, for information on the
      disciplinary history of broker/dealers and their associated
      persons.





**Item
      6.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





The
      following is a discussion and analysis of the consolidated financial condition
      and results of operations of Brek Energy Corporation for the fiscal years ended
      December 31, 2003 and 2002. You should read the following in conjunction with
      the consolidated financial statements and related notes appearing elsewhere
      herein.





**OVERVIEW**





Until
      2002, we focused our operations on the electronic payment processing business.
      During 2001 and 2002, we disposed of our electronic payment processing
      businesses. In July, 2002, we acquired a 25% working interest in the undeveloped
      oil and gas leases owned by Gasco Energy, Inc. in Utah, Wyoming and California,
      and we acquired a 51.53% non-dilutable voting interest in Vallenar Energy Corp.,
      a company engaged in oil and gas exploration in Texas.





Since
      we
      acquired our oil and gas interests, we have focused our attention on our oil
      and
      gas operations, primarily in Utah and Wyoming. We are not the operator on any
      of
      the properties. The main focus of our oil and gas exploration business is in
      the
      United States.





**Principal
      Activities**





During
      the first quarter of 2003 we began operating as an oil and gas company and
      ceased to be a development stage company.





Since
      inception we have had recurring operating losses and at December 31, 2003 we
      had
      a working capital deficit of $1,550,128. Due to these factors, we have prepared
      the consolidated financial statements on a going concern basis. We believe
      that
      our cash and cash equivalents as of December 31, 2003, are not sufficient to
      satisfy our working capital needs and that we must raise funds through private
      loans, issuance of shares for debt or the private placement of our common shares
      in order to satisfy our operational and working capital requirements for the
      foreseeable future.





As
      of the
      date of this filing, we have participated in the drilling or re-completion
      of
      eleven wells and have ten producing wells in which we have net revenue interests
      of between 8% and 20%. One well, an earning well drilled by Burlington in 2002,
      generated some revenue for two years but is now shut in. We are still paying
      for
      work on one well that was completed during the summer of 2005. We believe that
      this work will increase the production in the well, with a corresponding
      increase in revenue.





We
      have
      farmed out the drilling of six wells. Under the farmout agreements, we agreed
      to
      forfeit 100% of our interest in five wells and wellbores and 75% of our interest
      in one well and wellbore, and to relinquish 70% of our leasehold interest in
      the
      acreage surrounding four wells and 75% in the acreage surrounding two wells
      in
      exchange for the right to back in to a 7.5% working interest in four wells
      and
      wellbores when the farmee has recovered 100% of its drilling and operating
      costs, an over-riding royalty interest in the revenue from one well convertible
      to a wellbore interest when the farmee has recovered 100% of its drilling and
      operating costs, and 7.5% of the revenue that we would have earned from one
      well
      had we not relinquished our well and wellbore interests in the well.





We
      transferred one-half of our interest in two wells and wellbores and all of
      our
      interest in one well and wellbore, all in Utah, to a small drilling fund for
      which the fund paid us its share of the drilling and completion costs. We used
      the recovered funds to invest in drilling other wells. The well in which we
      transferred all of our interest was an earning well.




We
        did
        not consent to the drilling of twenty wells proposed by Gasco. As a result
        of
        our non-consent, Gasco has drilled or will drill the wells bearing 100% of
        the
        costs and is entitled to all of the revenue generated from the sale of oil
        and
        gas until they have recovered 300% of their drilling costs, 150% of the costs
        of
        newly acquired equipment in the well, and 100% of the operating costs and
        the
        costs of any newly acquired surface equipment beyond the wellhead connections,
        at which time we are entitled to our percentage of the revenue. The average
        cost
        of these non-consent wells is approximately $3.5 million, so we do not expect
        to
        see any revenue from them for some time, if ever. We have not, however,
        forfeited any leasehold interests and can participate in future drilling
        that is
        proposed for other locations on the same leases




***Page
          - 22***





**RESULTS
      OF OPERATIONS**





**Revenues**





Oil
      and
      gas revenues from our Wyoming oil and gas properties were $22,077 for the year
      ended December 31, 2003. We did not have any oil or gas revenues during the
      year
      ended December 31, 2002. We do not expect a significant or any increase in
      our
      oil and gas revenues from our two producing wells, as the wells produce only
      moderate amounts of oil and gas. We drilled them to earn additional
      acreage.





Due
      to
      our disposal of First Ecom Systems Limited on September 30, 2002, all revenue
      from the electronic systems payment processing business were reclassified to
      discontinued operations at December 31, 2002.





**Operating
      Expenses**





Our
      operating expenses decreased by $21,929,272 or 99%, from $22,216,412 for the
      year ended December 31, 2002, to $287,140 for the year ended December 31, 2003.
      The decrease was primarily due to decreases of $18,543,307 in charges for
      impairment of certain long-lived assets, and $3,385,965 in general and
      administrative expenses. Our general and administrative expenses declined
      because we closed down most of our operations in Hong Kong and laid off all
      of
      our staff. We did not have any impairment charges during the year ended December
      31, 2003. Impairment charges incurred during the year ended December 31, 2002
      were primarily related to an impairment of $1,901,106 on the installment note
      receivable and an impairment of $16,634,187 on the oil and gas properties.
      We
      expect our administrative costs to increase as we increase our investing and
      financing activities.





**Other
      Items**





Interest
      income decreased to $6,572 during the year ended December 31, 2003 as compared
      to $40,593 during the year ended December 31, 2002. This decrease was due to
      a
      decrease in the average cash balances in the bank accounts during the year
      ended
      December 31, 2003 as compared to the year ended December 31, 2002.





Other
      income was $3,926 at December 31, 2003 as compared to $nil at December 31,
      2002.





**Deferred
      Tax Assets**





We
      recorded a valuation allowance to reduce our deferred tax assets to the amount
      that we believe is more likely than not to be realized. If in the future we
      determine that we can realize our deferred tax assets in excess of their
      recorded amount, we will adjust the deferred tax assets accordingly, which
      will
      increase income in the period the determination is made. Likewise, if we
      determine that we will not be able to realize all or part of our net deferred
      tax assets in the future, an adjustment to the deferred tax asset would be
      charged to income in the period the determination is made.





**Liquidity
      and Capital Resources**





We
      had
      cash of $2,318 and a working capital deficit of $1,550,128 at December 31,
      2003.
      During the year ended December 31, 2003, cash of $255,002 was provided by
      operating activities primarily from the minority interest of $7,314, a decrease
      in other prepaid expenses and deposits of $32,447, an increase in accounts
      payable and accrued liabilities of $365,058 and an increase in amounts due
      to
      related parties of $117,212 offset by a net loss for the year of $261,879 and
      an
      increase in accounts receivable and accrued accounts receivable of
      $5,150.




Of
      the
      $255,002 in cash provided by operations, we invested $306,485 in our oil and
      gas
      properties and financed an additional $50,000 through the issuance of common
      shares.





During
      the year ended December 31, 2003, we issued 1,875,817 shares to settle $337,647
      in debt. Of this amount, $271,972 settled debt to related parties.





Our
      working capital deficit increased by $173,403 due to a decrease in current
      assets of $28,780 and an increase in current liabilities of $144,623. We have
      accumulated a deficit of $61,342,202 since inception and have stockholders
      equity of $723,875.




We
        had no
        contingencies or long-term commitments at December 31, 2003, except for the
        Transworld and Burlington litigation which is disclosed in the commitments
        and
        contingencies note to our December 31, 2003 consolidated financial statements,
        appearing elsewhere herein.




***Page
          - 23***





**Plan
      of Operation for the Twelve Months from the date of this
      Filing**





As
      of
      December 31, 2002, we had either disposed of or discontinued our operations
      in
      all of our payments processing subsidiaries and since then we have focused
      only
      on our oil and gas operations, primarily in Utah and Wyoming. We own a minority
      (25%) working interest in our Utah and Wyoming properties and are not the
      operator. Gasco Production Company owns the majority (75%) working interest
      in
      these and the California properties and is the operator. As a result of this
      arrangement, we are, to a large extent, subject to Gasco’s operating plans. In
      some cases, we and Gasco together own less than 100% of the working interest
      and
      the parties with the remaining interests are the operators: for example, our
      and
      Gasco’s working interests are less than 100% on properties in which Burlington
      has working interests and is the operator.





We
      expect
      that Gasco or the other operators will propose drilling a number of wells during
      the remainder of 2005 and in 2006 and we hope to participate in them. Our
      participation will depend entirely upon our being able to raise the capital
      required. How much capital we will require depends upon, among other things,
      how
      many wells Gasco proposes and the costs of the wells. We anticipate that a
      well
      will cost between $3.5 million and $4.5 million to complete; in most cases,
      our
      portion of the total cost will be 25%. Drilling costs are difficult to
      anticipate at this time, as costs have been rising steadily during the past
      two
      years, in part because of an increase in demand for materials and expertise
      in
      Asia and an increase in drilling activity in the United States and elsewhere
      in
      the world.





We
      have
      nominal revenue-generating operations and do not have the cash, cash equivalents
      or investments required to finance our participation in drilling programs or
      to
      cover our working capital requirements. We are solely dependent upon external
      financing and are considering several options for raising funds to meet our
      future capital and operating requirements. Any projections of future cash needs
      and cash flows are subject to substantial uncertainty. Our capital requirements
      depend on several factors including participation in drilling programs,
      acquisitions of oil and gas interests, the rate of market acceptance, our
      ability to increase revenues, our purchases of equipment, and other factors.
      If
      our capital requirements vary materially from those planned, we may require
      additional financing sooner than anticipated. We are not assured that financing
      will be available in amounts or on terms acceptable to us, if at all. If we
      issue equity securities, stockholders may experience additional dilution or
      the
      new equity securities may have rights, preferences or privileges senior to
      those
      of existing holders of common stock. Debt financing, if available, may involve
      restrictive covenants, which could restrict our operations or finances. If
      we
      cannot raise funds or sell assets, if needed, on acceptable terms, we may not
      be
      able to continue our operations, take advantage of future opportunities, or
      respond to competitive pressures or unanticipated requirements which could
      negatively impact our business, operating results and financial condition.
      We
      are a party to certain agreements pursuant to which others may commence drilling
      oil or gas wells on property in which we own an interest. We cannot control
      the
      timing or the cost of such drilling. If a well is commenced and we cannot or
      choose not to pay our share of the cost of the well, then we will have no rights
      to any production from that well and will lose our rights in the property
      surrounding that well.











**Critical
      Accounting Policies**





Principles
      of Consolidation





Our
      consolidated financial statements include those of our subsidiaries. All
      significant inter-company balances and transactions have been eliminated.





Accounting
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





Our
      financial statements are based on a number of significant estimates, including
      the estimates of the oil and gas reserve quantities that are the basis for
      the
      calculation of depletion and impairment of oil and gas properties.





***Page
          - 24***


Revenue
      Recognition





We
      recognize oil and gas revenue as income when the oil or gas is produced and
      sold.





Long-Lived
      Assets





We
      periodically evaluate our unproved properties for the possibility of potential
      impairment. At December 31, 2002, we recorded impairments of our oil and gas
      properties of $16,634,187, of our note receivable of $1,901,106, and of our
      fixed assets of $8,014. At December 31, 2003 our only long-lived asset was
      our
      oil and gas properties. At December 31, 2003, we determined that the oil and
      gas
      properties reflect their fair value and did not recognize an impairment loss.





Oil
      and
      Gas Properties





We
      follow
      the full-cost method of accounting whereby we capitalize all costs related
      to
      the acquisition of oil and gas leases and acquisition and development of oil
      and
      gas properties into a single cost center (“full-cost pool”). These costs include
      lease acquisition costs, geological and geophysical expenses, overhead directly
      related to exploration and development activities and costs of drilling both
      productive and non-productive wells. We generally credit proceeds from property
      sales to the full-cost pool without gain or loss recognition unless such a
      sale
      would significantly alter the relationship between capitalized costs and the
      proved reserves attributable to these costs. A significant alteration would
      typically involve a sale of 25% or more of the proved reserves related to a
      single full-cost pool.





We
      compute the depletion of exploration and development costs using the
      units-of-production method based upon estimated proven oil and gas reserves.
      We
      withhold the costs of unproved properties from the depletion base until they
      are
      either developed or abandoned. We review the properties periodically for
      impairment. We transfer total well costs to the depletable pool even when
      multiple targeted zones have not been fully evaluated. For depletion and
      depreciation purposes, we convert relative volumes of oil and gas production
      and
      reserves at the energy equivalent rate of six thousand cubic feet of natural
      gas
      to one barrel of crude oil.





Under
      the
      full-cost method of accounting, capitalized oil and gas property costs, less
      accumulated depletion and net of deferred income taxes, may not exceed an amount
      equal to the present value, discounted at 10%, of estimated future net revenues
      from proved oil and gas reserves plus the cost or estimated fair value, if
      lower, of unproven properties. If capitalized costs exceed this ceiling, we
      recognize impairment. We compute the present value of estimated future net
      revenues by applying current prices of oil and gas to estimated future
      production of proved oil and gas reserves as of period-end, less estimated
      future expenditures to be incurred in developing and producing the proved
      reserves assuming the continuation of existing economic conditions. Our oil
      and
      gas wells began producing during the first quarter of 2003, but we recorded
      no
      depletion during the year ended December 31, 2003, because at December 31,
      2002,
      our oil and gas properties were either written down to a nominal value or
      written down to their net present value, based on a December 31, 2004, reserves
      study.





Stock-based
      Compensation





We
      account for our stock-based compensation using Accounting Principles Board
      Opinion No. 25 (“APB 25”) and related interpretations. Under APB 25,
      compensation expense is recognized for stock options with an exercise price
      that
      is less than the market price on the grant date of the option. For stock options
      with exercise prices at or above the market value of the stock on the grant
      date, we adopted the disclosure-only provisions of Statement of Financial
      Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS
      123”) for the stock options granted to our employees and directors. Accordingly,
      no compensation cost has been recognized for these options. Compensation expense
      has been recognized in the accompanying financial statements for stock options
      that were issued to our outside consultants. Had compensation expense for the
      options granted to our employees and directors been determined based on the
      fair
      value at the grant date for options, consistent with the provisions of SFAS
      123,
      our net loss and net loss per share for the years ended December 31, 2003 and
      2002 would have been increased to the pro forma amounts indicated below:





**For
                the Year Ended**
            
            
            **For
                the Year Ended****December
                31, 2003**
            
            
            **December
                31, 2002**Net
                loss attributable to common shareholders:As
                reported
            
            $
            (261,879
            )
            $
            (27,243,917
            )Stock-based
                employee compensationdetermined
                under the fair valuebased
                method
            
            
            (490
            )
            
            (523,950
            )Pro
                forma
            
            $
            (262,369
            )
            $
            (27,767,867
            )Net
                loss per common share:As
                reported
            
            $
            (0.01
            )
            $
            (1.16
            )Pro
                forma
            
            $
            (0.01
            )
            $
            (1.19
            )





The
      fair
      value of the common stock options granted during the years ended December 31,
      2003 and 2002, for disclosure purposes was estimated on the grant dates using
      the Black Scholes Pricing Model and the following assumptions:





2003
            2002Expected
                dividend yield
            -
            -Expected
                price volatility
            131%
                to 151%
            131%
                to 151%Risk-free
                interest rate
            3%
                to 5.5%
            3%
                to 5.5%Expected
                life of options
            5
                years
            5
                years





We
      account for equity instruments issued to non-employees in accordance with the
      provisions of SFAS 123, and Emerging Issues Task Force No. 96-18 (“EITF 96-18”).
      We account for all transactions in which we receive goods or services as
      consideration for the issuance of equity instruments based on the fair value
      of
      the consideration received or the fair value of the equity instrument, whichever
      is more reliably measurable.





We
      account for the re-pricing and re-issuing of stock options under the variable
      accounting provisions of FIN 44.





Recent
      Accounting Pronouncements





SFAS
      No.
      141 (“SFAS 141”), “Business Combinations” and SFAS No. 142 (“SFAS 142”),
“Goodwill and Intangible Assets”, were issued by the FASB in June 2001 and
      became effective for us on July 1, 2001 and January 1, 2002, respectively.
      The
      FASB, the Securities and Exchange Commission (“SEC”) and others are engaged in
      deliberations on the issue of whether SFAS 141 and 142 require interests held
      under oil, gas and mineral leases or other contractual arrangements be
      classified as intangible assets. If such interests were deemed to be intangible
      assets, mineral interest use rights for both undeveloped and developed
      leaseholds would be classified separately from oil and gas properties and
      intangible assets on our balance sheets only, but these costs would continue
      to
      be aggregated with other costs of oil and gas properties in the notes to the
      financial statements in accordance with SFAS No. 69 (“SFAS 69”), “Disclosures
      about Oil and Gas Producing Activities”. Additional disclosures required by SFAS
      141 and 142 would also be included in the notes to financial statements.
      Historically, and to our knowledge, we and all other oil and gas companies
      have
      continued to include these oil and gas leasehold interests as part of oil and
      gas properties after SFAS 141 and 142 became effective. We believe that few
      oil
      and natural gas companies have adopted this interpretation or changed their
      balance sheet presentation for oil and gas leaseholds since the implementation
      of SFAS 141 and 142.





As
      applied to companies like Brek that have adopted full-cost accounting for oil
      and gas activities, we understand that this interpretation of SFAS 141 and
      142
      would only affect our balance sheet classification of proved oil and gas
      leaseholds acquired after June 30, 2001, and our unproved oil and gas
      leaseholds. Our results of operations would not be affected, since these
      leasehold costs would continue to be amortized in accordance with full-cost
      accounting rules. At December 31, 2003, we had undeveloped leaseholds of
      approximately $2.34 million, which would be classified on the balance sheets
      as
“intangible undeveloped leaseholds” if we applied the interpretation currently
      being deliberated. This classification would require that we make the
      disclosures set forth under SFAS 142 related to these interests. Our current
      disclosures are those required by SFAS 69.





We
      will
      continue to classify our oil and gas leaseholds as tangible oil and gas
      properties until further guidance is provided. Although most of our oil and
      gas
      property interests are held under oil and gas leases, we do not expect that
      this
      interpretation, if adopted, would have a material impact on our financial
      condition or results of operations.





***Page
          - 25***


Reclassifications





Certain
      prior year amounts in the accompanying consolidated financial statements have
      been reclassified to conform to the current year’s presentation. These
      reclassifications had no effect on the results of operations of financial
      position for any year or period presented.





**Contractual
      Obligations**





We
      did
      not have any contractual obligations at December 31, 2003.





**Internal
      and External Sources of Liquidity**





We
      have
      funded our operations principally through issuance of shares for debt and the
      private placement of shares.





**Inflation**





We
      do not
      believe that inflation will have a material impact on our future
      operations.





**Uncertainties
      Relating to Forward-Looking Statements**





This
      Form
      10-KSB Annual Report contains “forward-looking statements” within the meaning of
      the Private Securities Litigation Reform Act of 1995. You can identify these
      statements by our use of words such as “plan”, “expect”, “aim”, “believe”,
“project”, “anticipate”, “intend”, “estimate”, “will”, “should”, “could” and
      other expressions that indicate future events and trends. All statements that
      address expectations or projections about the future, including statements
      about
      our strategy for participating in drilling programs, increasing revenues, and
      raising capital from external sources are forward-looking
      statements.





All
      forward-looking statements are made as of the date of filing of this Form 10-KSB
      and we disclaim any duty to update these statements.





Certain
      parts of this Form 10-KSB may contain “forward-looking statements” within the
      meaning of the Securities Exchange Act of 1934 based on current managements
      expectations. Our actual results could differ materially from those in our
      forward looking statements due to a number of uncertainties including, but
      not
      limited to, those discussed in this section. Factors that could cause our future
      results to differ from these expectations include general economic conditions,
      particularly as they affect our ability to raise sufficient working capital,
      the
      costs of bringing our oil and gas properties into production, and the market
      for
      our production. As a result, the identification and interpretation of data
      and
      other information and their use in developing and selecting assumptions from
      and
      among reasonable alternatives requires the exercise of judgment. To the extent
      that the assumed events do not occur, our outcome may vary substantially from
      our anticipated or projected results, and accordingly, we express no opinion
      on
      the achievability of those forward-looking statements and give no assurance
      that
      any of the assumptions relating to the forward-looking statements are
      accurate.





We
      may,
      from time to time, make oral forward-looking statements. We strongly advise
      you
      to read the foregoing paragraphs and the risk factors described in this annual
      report and in our other documents filed with the United States Securities and
      Exchange Commission for a description of certain factors that could cause our
      actual results to differ materially from those in the oral forward-looking
      statements. We disclaim any intention or obligation to update or revise any
      oral
      or written forward-looking statements whether as a result of new information,
      future events or otherwise.





**Item
      7.**  **Financial
      Statements**





See
      audited financial statements for the period ended December 31, 2003 and 2002
      attached as Exhibit A to this Form 10-KSB.





**Item
      8.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





There
      are
      no changes in or disagreements with Brek’s accountants on accounting and
      financial disclosure. Brek’s principal
      independent accountant since November 24, 2004 to the current date is Hall
      & Company, Certified Public Accountants Inc. ,
      16140
      Sand Canyon Avenue, Suite 100, Irvine California, 92618





Effective
      November 24, 2004, Brek’s board of directors approved a change in Brek’s
      independent auditors. None of the reports of Deloitte Touche Tohmatsu, Chartered
      Accountants on the financial statements of Brek’s for the fiscal years ended
      December 31, 2000 and 2001 contained any adverse opinion or disclaimer of
      opinion, or was qualified or modified as to uncertainty, audit scope or
      accounting principles. Although audited statements prepared by Deloitte Touche
      Tohmatsu, Chartered Accountants contained a going concern qualification, such
      financial statements did not contain any adjustments for uncertainties stated
      therein, nor have there been at any time, disagreements between Brek and
      Deloitte Touche Tohmatsu, Chartered Accountants on any matter of accounting
      principles or practices, financial statement disclosure or auditing scope or
      procedure.




***Page
          - 26***





Brek
      retained the accounting firm of Hall & Company, Certified Public Accountants
      Inc. , to
      serve
      as its independent accountants to audit its financial statements beginning
      with
      the year ended December 31, 2002. This engagement became effective November
      24,
      2004. Prior to its engagement as Brek’s independent auditors, Hall &
Company, Certified Public Accountants Inc. , had
      not
      been consulted by Brek either with respect to the application of accounting
      principles to a specific transaction or the type of audit opinion that might
      be
      rendered on Brek’s financial statements or on any other matter that was the
      subject of any prior disagreement between Brek and its previous certifying
      accountants.





**Item
      8A.**  **Controls
      and Procedures.**





Brek
      maintains disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in Brek’s Securities Exchange Act of 1934
      reports is recorded, processed, summarized and reported within the time periods
      specified in the SEC’s rules and forms, and that such information is accumulated
      and communicated to Brek’s management, including its chief executive officer and
      chief financial officer, as appropriate, to allow timely decisions regarding
      required disclosure. Based on their most recent evaluation, which was completed
      within 90 days of the filing of this Form 10-KSB, Brek’s Chief Executive Officer
      and Chief Financial Officer believe Brek’s disclosure controls and procedures
      (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective to ensure
      that information required to be disclosed by Brek in this report is accumulated
      and communicated to Brek’s management, including its principal executive officer
      and principal financial officer, as appropriate, to allow timely decisions
      regarding required disclosure. Based upon the foregoing, Brek’s chief executive
      officer and chief financial officer concluded that Brek’s disclosure controls
      and procedures are effective in connection with the filing of this Annual Report
      on Form 10-KSB for the year ended December 31, 2003.





There
      were no significant changes in Brek’s internal controls or other factors that
      could significantly affect these controls subsequent to the date of their
      evaluation, including any significant deficiencies or material weaknesses of
      internal controls that would require corrective action.





**Item
      8B. Other Information**





During
      the fourth quarter of the fiscal year covered by this Form 10-KSB, Brek reported
      all information that was required to be disclosed in a report on Form 8-K,
      except for the following.





Item
      2.06 - Material Impairments





Based
      on
      a reserve study completed during the first quarter of 2005, it was determined
      that a $16,634,187 impairment charge needed to be taken against the oil and
      gas
      properties at December 31, 2002.





Item
      3.01 - Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
      Standard; Transfer of Listing





On
      May
      23, 2003, Brek’s shares of common stock ceased to be quoted on the NASD OTC
      Bulletin Board for failing to make timely filings with the Securities &
Exchange Commission, a listing requirement of the NASD OTC Bulletin Board,
      following which Brek’s shares of common stock were moved to and quoted on the
      gray market under the same symbol, “BREK”.





**PART
      III**





**Item
      9.**  **Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a)
      of the Exchange Act.**





**(a)**  **Identify
      Directors and Executive Officers**





Each
      director of Brek or its subsidiaries holds office until (i) the next annual
      meeting of the stockholders, (ii) his successor has been elected and qualified,
      or (iii) the director resigns.




***Page
          - 27***





Brek’s
      and its subsidiaries’ management teams as of December 31, 2003 are listed below.





**Management
                Teams****Brek
                Energy Corporation****(1)**
            **Brek
                Petroleum Inc.**
            **Brek
              Petroleum (California), Inc.**
            **Vallenar
                Energy Corp.****Gregory
                Pek**
            Director
            n/a
            n/a
            Director**Ian
                Robinson**
            Director
            n/a
            n/a
            n/a**Jim
                Pratt**
            Director
            n/a
            n/a
            n/a**Ravi
                Daswani**
            Director
            n/a
            n/a
            n/a**Michael
                L. Nazmack**
            Director
            n/a
            n/a
            n/a**Kenneth
              Telford****(1)**
            Chief
                Financial Officer
            Director,
                President, Treasurer, and Secretary
            Director,
                CEO,
              Chief
                Financial Officer,
              and
                Secretary
            Director,
                Vice-President, Treasurer and
                Secretary


**(1)** Kenneth
      Telford held all these positions until his resignation on October 31, 2003
      from
      each office and directorship. As of December 31, 2003, no one had been appointed
      to fill these


offices
      or elected to the board of directors of these subsidiaries.





***Gregory
      Pek*** - Mr.
      Pek (49 years old) has been a director of Brek since March 1999. Mr. Pek was
      a
      co-founder of Brek and was the president and chief executive officer of Brek
      from March 1999 until June 2000. Mr. Pek was the chairman of the board of Brek
      from June 2000 until November 2000. Mr. Pek was the president and co-chief
      executive officer of Brek from October 2000 until August 2001. From August
      2001
      until October 2002, Mr. Pek was the chief executive officer of Brek. Finally,
      from November 2003 until January 2005, Mr. Pek was the chief financial officer
      of Brek. Since December 2002, Mr. Pek has been a director and officer of Global
      Financial Network Limited, a private Hong Kong company. From 1994 to 1999,
      Mr.
      Pek was an executive officer of both David Resources Company Limited, a
      petroleum and wine trading company, and Kong Tai International Holdings Company
      Limited, a real property investment company. From September 1998 to February
      1999, Mr. Pek was a director of Singapore Hong Kong Properties Investment
      Limited, another real property investment company. Mr. Pek obtained a Bachelor
      of Commerce from the University of British Columbia in 1978. In 1981, Mr. Pek
      received his chartered accountant designation after articling with Clarkson
      Gordon.





***Ian
      Robinson*** - Mr.
      Robinson (65) has been a director of Brek since April 2001. Since 1995, Mr.
      Robinson has been the owner and managing director of Robinson Management
      Limited, a business consulting firm. In 1962, Mr. Robinson received his CPA
      designation from the Institute of Chartered Accountants of
      Australia.





***Jim
      Pratt*** - Mr.
      Pratt (55) has been a director of Brek since June 2000. In the past five years,
      Mr. Pratt served as the CEO of Peoples Phone in Hong Kong and is currently
      the
      Managing Director of Asia Wireless, a Division of Telstra On Air, Telstra
      Corporation of Australia. Mr. Pratt oversees all of Telstra Group’s wireless
      operations and is responsible for their various investments throughout the
      Asia
      Pacific Region. Mr. Pratt has more than thirty years international management
      experience in the Asia-Pacific telecommunications industry. Also, Mr. Pratt
      currently represents Singtel Optus Limited as the chairman of the GSM
      Association. Mr. Pratt is also an executive director of GlobeTrac Inc., a
      NASDAQ-quoted company.





***Ravi
      Daswani*** - Mr.
      Daswani (37) has been a director of Brek since March 1999. Mr. Daswani was
      Chief
      Operating Officer of Brek from March 3, 1999 until August 31, 2001 and co-Chief
      Executive Officer from October 16, 2000 to August 31, 2001 when he retired
      to
      pursue other business interests. From December 1997 to February 1999 Mr. Daswani
      was the managing director and co-owner of Asia Internet Limited, a Hong Kong
      Internet service provider. For more than three years before December 1997,
      Mr.
      Daswani was the managing director of a wholesale and retail apparel business
      called Daswani S.A., a Panamanian company.





***Michael
      L. Nazmack*** - Mr.
      Nazmack (54) has been a director of Brek since March 31, 2003. Mr. Nazmack,
      a
      graduate of Penn State University with degrees in Mechanical and Civil and
      Structural Engineering, was granted his Professional Engineer's Certificate
      from
      the states of California and Alaska in 1979. From 1977 until 1984 he worked
      for
      Santa Fe International Corporation on a number of oil and gas related projects
      and was the Project Engineer for the North Slope of Alaska's oil field
      development, responsible for the planning, engineering and construction of
      over
      one billion dollars worth of oil and gas pipelines. From 1986 to 2003, Mr.
      Nazmack was the president of Longstown Development Corporation, a developer
      of
      300 retirement condominium units. From 1993 to 2002, Mr. Nazmack was also the
      vice-president York Condominium Constructors, Inc., which built another 300
      retirement condominium units. For both these projects, Mr. Nazmack designed
      the
      units and the site layout, did the construction surveying, personally handled
      the permitting, sales, and the business, legal, and engineering matters on
      a
      daily basis. From February 1997 to May 2005, Mr. Nazmack was the Chairman of
      the
      board of York Industries, Inc. Mr. Nazmack was responsible for executive
      decisions such as purchasing of new machinery and computers and deciding to
      build a new facility. Once the decision was made Mr. Nazmack was responsible
      for
      the design and managed the construction of the new 60,000 square foot factory
      building, which York Condominium Constructors, Inc. built in 2001.




***Page
          - 28***





**(b)**  **Identify
      Significant Employees**





Brek
      has
      no significant employees.





**(c)**  **Family
      Relationships**





There
      are
      no family relationships among the directors, executive officers or persons
      nominated or chosen by Brek to become directors or executive
      officers.





**(d)**  **Involvement
      in Certain Legal Proceedings**





(1)
            No
                bankruptcy petition has been filed by or against any business of
                which any
                director was a general partner or an executive officer either at
                the time
                of the bankruptcy or within two years prior to that
                time.





(2)
            No
                director has been convicted in a criminal proceeding and is not subject
                to
                a pending criminal proceeding (excluding traffic violations and other
                minor offences).





(3)
            No
                director has been subject to any order, judgement, or decree, not
                subsequently reversed, suspended or vacated, of any court of competent
                jurisdiction, permanently or temporarily enjoining, barring, suspending
                or
                otherwise limiting his involvement in any type of business, securities
                or
                banking activities.





(4)
            No
                director has been found by a court of competent jurisdiction (in
                a civil
                action), the Securities Exchange Commission or the Commodity Futures
                Trading Commission to have violated a federal or state securities
                or
                commodities law, that has not been reversed, suspended, or
                vacated.





**(e)**  **Compliance
      with Section 16(a) of the Exchange Act.**





All
      reports were filed with the SEC on a timely basis and Brek is not aware of
      any
      failures to file a required report during the period covered by this annual
      report, with the exception of the following. Gregory M. Pek, Ian Robinson,
      Michael L. Nazmack, James Pratt, Ravi Daswani, Kenneth Telford, and Richard
      N.
      Jeffs, all failed to file a Form 5 or to provide Brek with a written
      representation that a Form 5 was not required.





**(f)**  **Audit
      Committee Financial Expert**





Brek
      has
      no financial expert. Management believes the cost related to retaining a
      financial expert at this time is prohibitive. Further, because of Brek’s limited
      operations, management believes the services of a financial expert are not
      warranted.





**(g)**  **Identification
      of Audit Committee**





During
      the fiscal year ended December 31, 2003, the Audit Committee consisted of Ian
      Robinson and James Pratt. The Audit Committee was responsible for (i) reviewing
      the scope of and the fees for the annual audit, (ii) reviewing with the
      independent auditors the corporate accounting practices and policies, (iii)
      reviewing with the independent auditors their final report, and (iv) being
      available to the independent auditors during the year for consultation purposes.
      Each of the members of the Audit Committee was independent within the meaning
      of
      Rule 4200(a)(15) of the NASD listing standards.





As
      of
      December 31, 2003, Brek did not have a written audit committee charter or
      similar document.





**(h)**  **Code
      of Ethics**





As
      of
      December 31, 2003, Brek had not adopted a code of ethics. The board of directors
      decided not to adopt a code of ethics at that time as Brek had minimal
      operations, had no employees or management, and the board of directors was
      managing Brek’s minimal operations.





***Page
          - 29***


**Item
      10. Executive Compensation.**





Brek
      has
      paid $116,484 in compensation to its named executive officers during its 2003
      fiscal year.





**summary
      compensation table**





Long-term
                compensation***Annual
                compensation***
            **Awards**
            **Payouts**Name
                and principal position
              (a)
            Year
              (b)
            Salary
              ($)
              (c)
            Bonus
              ($)
              (d)
            Other
                annual compen-sation
              ($)
              (e)
            Restricted
                stock awards
              ($)
              (f)
            Securities
                underlying options/
              SARs
              (#)
              (g)
            LTIP
                Payouts
              ($)
              (h)
            All
                other compen-sation
              ($)
              (i)**Gregory
                Pek**
              CEO
                / President
              Mar
                1999 - Oct 2000
              Aug
                2001 - Oct 2002
              Co-CEO
                / President
              Oct
                2000 - Aug 2001
            2001
              2002
              2003
            218,710
              189,286[1]
              65,575
            107,097
              nil
              nil
            15,484[2]
              27,871[2]
              nil
            nil
              nil
              nil
            75,000[3]
              25,000[19]
              nil
            nil
              nil
              nil
            nil
              70,000[4]
              50,000[14]**Kenneth
                Telford**
              CFO
              July
                2000 - Oct 2003
            2001
              2002
              2003
            259,994
              297,806[5]
              50,909
            117,419
              34,000[6]
              nil
            13,005[2]
              17,209[2]
              7,742[2]
            nil
              nil
              nil
            200,000[7]
              50,000[19]
              nil
            nil
              nil
              nil
            nil
              nil
              50,000[15]**Ravi
                Daswani**
              COO
              Mar
                1999 - Aug 2001
              Co-CEO
              Oct
                2000 - Aug 2001
            2001
              2002
              2003
            154,839
              n/a[8]
              n/a
            109,677
              34,000[8]
              n/a
            4,473[2]
              n/a
              n/a
            nil
              n/a
              n/a
            75,000[3]
              n/a
              n/a
            nil
              n/a
              n/a
            nil
              nil[9]
              5,160[16]**Ian
                Robinson**
              Chairman
              Jan
                2001 - present
            2001
              2002
              2003
            15,500
              40,500
              [10]
              nil[17]
            64,516
              34,000[11]
              nil
            nil
              nil
              nil
            nil
              nil
              nil
            75,000[12]
              25,000[19]
              nil
            nil
              nil
              nil
            nil
              nil
              13,500[18]**Richard
                N. Jeffs**
              CEO
                / President
              Oct
                2002- Nov 2002
            2001
              2002
              2003
            n/a
              nil
              n/a
            n/a
              nil
              n/a
            n/a
              nil
              n/a
            n/a
              nil
              n/a
            n/a
              nil
              n/a
            n/a
              nil
              n/a
            n/a
              nil[13]
              n/a


[1] Gregory
      Pek accrued $159,038 in additional salary in the fiscal year ended December
      31,
      2002.


[2] Other
      annual compensation consisted of housing expense, directors fees, and employer
      contributions to the mandatory provident fund in Hong Kong, which is a similar
      program to Social Security in the United States.


[3] On
      October 31, 2001, these 75,000 stock options, exercisable at $0.40 per stock
      option, were issued in consideration of the return and cancellation of 150,000
      stock options exercisable at $5.05 per stock option and 50,000 stock options
      exercisable at $7.65 per stock option. The fair market value of Brek’s shares of
      common stock at the time of the grant of the new options was $5.91 per
      share.


[4] On
      September 10, 2002, Gregory Pek received 100,000 shares of common stock as
      severance valued at $70,000. The fair market value of Brek’s shares of common
      stock at the time of the issuance of these shares was $0.72 per
      share.


[5] Kenneth
      Telford accrued $54,000 in additional salary in the fiscal year ended December
      31, 2002.


[6] Kenneth
      Telford received 50,000 shares of common stock in payment of a bonus accrued
      during 2001 in the amount of $34,000. The fair market value of Brek’s shares of
      common stock at the time of the issuance of these shares was $0.68 per
      share.


[7] On
      October 31, 2001, these 200,000 stock options, exercisable at $0.40 per stock
      option, were issued in consideration of the return and cancellation of 100,000
      stock options exercisable at $5.05 per stock option and 50,000 warrants
      exercisable at $1.25 per warrant. The fair market value of Brek’s shares of
      common stock at the time of the grant of the new options was $0.41 per
      share.


[8] Ravi
      Daswani was not an executive office during the fiscal years ended December
      31,
      2002 and December 31, 2003. However, Mr. Daswani received 50,000 shares of
      common stock as a bonus payment in lieu of an accrued bonus from 2001 in the
      amount of $34,000. The fair market value of Brek’s shares of common stock at the
      time of the issuance of these shares was $0.68 per share.


[9] Ravi
      Daswani accrued $10,320 in directors’ fees for the fiscal year ended December
      31, 2002.


[10] Ian
      Robinson accrued $13,500 in additional salary for the fiscal year ended December
      31, 2002.


[11] Ian
      Robinson received 50,000 shares of common stock in payment of salary accrued
      during 2001 in the amount of $34,000. The fair market value of Brek’s shares of
      common stock at the time of the issuance of these shares was $0.68 per
      share.


[12] On
      October 31, 2001, these 75,000 stock options, exercisable at $0.40 per stock
      option, were issued in consideration of the return and cancellation of 50,000
      stock options exercisable at $5.05 per stock option and 50,000 warrants
      exercisable at $1.25 per warrant. The fair market value of Brek’s shares of
      common stock at the time of the grant of the new options was $0.41 per
      share.


[13] Richard
      N. Jeffs was owed $24,000 for consulting fees at December 31, 2002.


[14] On
      April
      14, 2003, Gregory Pek received 277,778 shares of common stock as settlement
      for
      $50,000 debt at a settlement price of $0.18 per share. The fair market value
      of
      Brek’s shares of common stock at the time of the issuance of these shares was
      $0.21 per share.


[15] On
      April
      14, 2003, Kenneth Telford received 277,778 shares of common stock as settlement
      for $50,000 debt at a settlement price of $0.18 per share. The fair market
      value
      of Brek’s shares of common stock at the time of the issuance of these shares was
      $0.21 per share.


[16] On
      April
      14, 2003, Ravi Daswani received 28,667 shares of common stock as settlement
      for
      $5,160 debt at a settlement price of $0.18 per share. The fair market value
      of
      Brek’s shares of common stock at the time of the issuance of these shares was
      $0.21 per share. The debt represented half of the accrued directors’ fees set
      out in footnote #9 above.


[17] Ian
      Robinson accrued $12,000 in additional salary for the fiscal year ended December
      31, 2003.


[18] On
      April
      14, 2003, Ian Robinson received 75,000 shares of common stock as settlement
      for
      $13,500 debt at a settlement price of $0.18 per share. The fair market value
      of
      Brek’s shares of common stock at the time of the issuance of these shares was
      $0.21 per share. The debt represented the accrued directors’ fees set out in
      footnote #10 above.


[19] On
      July
      15, 2002, Brek granted these stock options to the named executive officer.
      The
      fair market value of Brek’s shares of common stock at the time of the granting
      of these stock options was $0.73 per share.




***Page
          - 30***





**Grant
      of Stock Options**





During
      the fiscal year ended December 31, 2003, Brek did not grant any stock options
      or
      stock appreciation rights.





**Existing
      Stock Options**





No
      stock
      options or stock appreciation rights were exercised by any named executive
      officers during the fiscal year ended December 31, 2003.





Existing
      stock options in the hands of named executive officers and senior management
      as
      of December 31, 2003, were as follows:





**Name**
            **Shares
                acquired on exercise**
              **(#)**
            **Value
                realized**
              **($)**
            **Number
                of securities underlying unexercised options/SARs at
                FY-end**
              **(#)**
            **Value
                of unexercised**
              **in-the-money**
              **options/SARs
                at FY-end**
              **($)****Exercisable**
            **Unexercisable**
            **Exercisable**
            **Unexercisable**Gregory
                Pek
            0
            nil
            100,000
            0
            0
            0Ian
                Robinson
            0
            nil
            100,000
            0
            0
            0Kenneth
                Telford
            0
            nil
            250,000
            0
            0
            0Richard
                N. Jeffs
            0
            nil
            150,000(1)
            0
            0
            0


**(1)**
            Stock
                options granted to Wet Coast Management Corp. which Richard N. Jeffs
                is
                the sole beneficial owner.





**Long
      Term Incentive Plan Awards**





Brek
      did
      not award any long term incentive plans during the fiscal year ended December
      31, 2003.





**Director
      Compensation**





During
      the fiscal year ended December 31, 2003, directors, who are not officers of
      Brek, were paid fees of $10,320 per year in connection with their serving on
      the
      Board. Fees of $12,000 were accrued to the Chairman of the Board at December
      31,
      2003. Directors were also reimbursed for out-of-pocket expenses incurred for
      attending Board meetings.





***Page
          - 31***


**Termination
      of Employment**





As
      of
      December 31, 2003, there were no employment agreements between Brek or the
      subsidiaries and any named executive officer, and there were no employment
      agreements or other compensating plans or arrangements with regard to any named
      executive officer that provided for specific compensation in the event of
      resignation, retirement, other termination of employment, a change of control
      of
      Brek, or from a change in a named executive officer’s responsibilities following
      a change in control.





**Compensation
      Committee**





During
      the fiscal year ended December 31, 2003, Brek’s Compensation Committee consisted
      of the following non-employee members of Brek's board of directors: Ian Robinson
      and James Pratt. The Compensation Committee was responsible for reviewing and
      determining Brek’s executive compensation objectives and policies, administers
      Brek’s stock plans and grants stock options.





**Item
      11. Security Ownership of Certain Beneficial Holders and
      Management.**





(a)  **Security
      Ownership of Certain Beneficial Owners (more than 5%)**





**(1)**
              **Title
                of Class**
            **(2)**
              **Name
                and Address of Beneficial Owner**
            **(3)**
              **Amount
                and Nature of**
              **Beneficial
                Owner**
            **(4)**
              **Percent**
              **of
                Class**[1]shares
                of
              common
                stock
            **Richard
                N. Jeffs**
              Third
                Floor
              346
                Kensington High Street
              London,
                UK, W14 8NS
            3,158,314[2]
                [3]
            10.94%[4]shares
                of
              common
                stock
            **Gregory
                Pek**
              902
                Henley Building 5
              Queens
                Road Central, Hong Kong
            1,890,278[5]
            6.56%[6]


[1] Based
      on
      28,713,630 shares of common stock issued and outstanding as of December 31,
      2003
      unless indicated otherwise.


[2] This
      number includes 1,267,389 shares of common stock that are beneficially owned
      indirectly.


[3] This
      number includes 150,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[4] Based
      on
      28,863,630 shares of common stock on the assumption that all the stock options
      in footnote #3 above are exercised.


[5] This
      number includes 100,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[6] Based
      on
      28,813,630 shares of common stock on the assumption that all the warrants and
      stock options in footnote #5 above are exercised.





**(b)**  **Security
      Ownership of Management**





**(1)**
              **Title
                of Class**
            **(2)**
              **Name
                and Address of Beneficial Owner**
            **(3)**
              **Amount
                and Nature of Beneficial Owner**
            **(4)**
              **Percent**
              **of
                Class**[1]shares
                of
              common
                stock
            **Gregory
                Pek**
              902
                Henley Building 5
              Queens
                Road Central, Hong Kong
            1,890,278[2]
            6.56%[3]shares
                of
              common
                stock
            **Ian
                Robinson**
              902
                Henley Boulevard
              5
                Queen Road
              Central,
                Hong Kong
            870,000[4]
                [5]
            3.02%[6]shares
                of
              common
                stock
            **James
                Pratt**
              32
                Greenwich Road, Greenwich
              Sydney,
                NSW 2065 Australia
            148,667[7]
            0.52%[8]shares
                of
              common
                stock
            **Ravi
                Daswani**
              902
                Henley Building 5
              Queens
                Road Central, Hong Kong
            589,128[9]
            2.04%[10]shares
                of
              common
                stock
            **Michael
                L. Nazmack**
              3280
                Forrest Lane
              York,
                Pennsylvania, 17402
            603,100
            2.10%shares
                of
              common
                stock
            Directors
                and Executive Officers (as a group)
            4,101,173[11]
            14.09%[12]


[1] Based
      on
      28,713,630 shares of common stock issued and outstanding as of December 31,
      2003, unless indicated otherwise.


[2] This
      number includes 100,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[3] Based
      on
      28,813,630 shares of common stock on the assumption that all the warrants and
      stock options in footnote #2 above are exercised.


[4] This
      number includes 125,000 shares of common stock that are beneficially owned
      indirectly.


[5] This
      number includes 100,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[6] Based
      on
      28,813,630 shares of common stock on the assumption that all the warrants and
      stock options in footnote #5 above are exercised.


[7] This
      number includes 100,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[8] Based
      on
      28,813,630 shares of common stock on the assumption that all the warrants and
      stock options in footnote #7 above are exercised.


[9] This
      number includes 100,000 stock options that can be exercised into one share
      of
      common stock per stock option.


[10] Based
      on
      28,813,630 shares of common stock on the assumption that all warrants and stock
      options in footnote #9 above are exercised.


[11] This
      number includes 400,000 stock options that that can be exercised into one share
      of common stock per stock option.


[12] Based
      on
      29,113,630 shares of common stock on the assumption that all warrants and stock
      options in footnote #11 above are exercised.




***Page
          - 32***





**(c)**  **Changes
      in Control**





Brek
      is
      not aware of any arrangement that may result in a change in control of
      Brek.





**Item
      12. Certain Relationships and Related Transactions.**





**(a)**  **Transactions
      with Related Parties**





During
      the last two fiscal years, no director, executive officer or security holder
      has
      had any direct or indirect interest in any transaction or a series of similar
      transactions that exceeded $60,000 to which Brek or any of its subsidiaries
      was
      a party with the exception of the following:





Investor
      Relations Fees - Pacific Capital Markets Inc.





In
      2001
      and 2002, Brek paid investor relations fees to Pacific Capital Markets Inc.,
      a
      company that was one third owned by Richard Jeffs, in the amount of $241,700
      and
      $187,328 respectively.





Stock
      Purchase Agreement with Vallenar Energy Corp.





On
      March
      12, 2002, Brek paid $12,563 to acquire 2,512,500 common shares of Vallenar
      Energy Corp’s stock and paid $350,000 to acquire 733,333 preferred shares of
      Vallenar Energy Corp. Brek’s interest in Vallenar Energy Corp. is the largest
      outstanding voting block stock. The interest in the preferred shares entitles
      Brek to a minimum 26% of the voting power of Vallenar that will not be diluted
      by further issuances of common stock. The preferred shares are convertible
      into
      733,333 common shares at the discretion of Brek. Also, as a shareholder of
      preferred shares, Brek is entitled to vote as a class on certain extraordinary
      matters such as a merger or other acquisition. See Exhibit 10.2 - Stock Purchase
      Agreement for more details.





Purchase
      Agreement with Gasco Energy, Inc.





On
      July
      16, 2002, Gasco Energy, Inc. entered into a purchase agreement with Brek and
      other stockholders of Gasco Energy, Inc., including Richard N. Jeffs and Wet
      Coast Management Corp., which is owned and controlled by Richard N. Jeffs,
      pursuant to which Brek and the others purchased from Gasco Energy, Inc. an
      undivided 25% of Gasco Energy, Inc.’s working interests in all undeveloped
      acreage owned by Gasco Energy, Inc., representing 35,169 net undeveloped acres,
      in exchange for 6,250,000 shares of common stock of Gasco Energy, Inc. and
      500
      shares of preferred stock of Gasco Energy, Inc. held by Brek and the other
      stockholders. The other stockholders assigned their right to receive their
      share
      of such working interests to Brek, so that Brek acquired title to all of the
      working interests conveyed by Gasco Energy, Inc. in the transaction. For the
      assignment of their right to Brek, Mr. Jeffs and Wet Coast Management Corp.
      each
      received 1,237,500 shares of common stock in the capital of Brek. Brek also
      has
      the option to acquire an additional 5% undivided interest in Gasco Energy,
      Inc.’s undeveloped acreage by paying a total of $10.5 million in two equal
      installments on or before January 1, 2004 and January 1, 2005, respectively.
      A
      2.5% interest will be conveyed to Brek upon receipt of each installment. Brek
      must make timely payment of the first installment in order to maintain the
      option to acquire the additional 2.5% interest with the second installment.
      See
      Exhibit 10.3 - Purchase Agreement for more details.




***Page
          - 33***





**(b)**  **Transactions
      with Promoters**





During
      the fiscal year ended December 31, 2003, Richard Jeffs and Gregory Pek were
      the
      only promoters of Brek. None of the promoters received anything of value from
      Brek or its subsidiaries nor is any promoter entitled to receive anything of
      value from Brek or its subsidiaries for services provided as a promoter of
      Brek
      or its subsidiaries, except for Mr. Jeffs, as disclosed above under
“Transactions with Related Parties”.





**Item
      13. Exhibits.**





**(a)**  **Index
      to and Description of Exhibits.**





**Exhibit**
            **Description**
            **Status****Exhibit
                A**
            Audited
                Financial Statements for the period ended December 31, 2003
            Included**3.1**
            Amended
                and Restated Articles of Incorporation filed as an Exhibit to Brek’s Form
                10-K/A filed on May 14, 2002, and incorporated herein by
                reference.
            Filed**3.2**
            Bylaws
                filed as an Exhibit to Brek’s registration statement on Form 10 filed on
                October 21, 1999, and incorporated herein by reference.
            Filed**4.1**
            1999
                Stock Option Plan, filed as an Exhibit to Brek’s Form S-8 (Registration
                Statement) filed on September 11, 2000, and incorporated herein by
                reference.
            Filed**4.2**
            Rights
                Agreement dated March 1, 2002 between Brek Energy Corporation and
                U.S.
                Bank N.A., filed as an Exhibit to Brek’s Form 8-K (Current Report) filed
                on March 6, 2002, and incorporated herein by reference.
            Filed**4.3**
            2001
                Employee Stock Option / Warrant Plan, filed as an Exhibit to Brek’s Form
                S-8 (Registration Statement) filed on July 10, 2002, and incorporated
                herein by reference.
            Filed**10.1**
            Stock
                Purchase Agreement dated March 16, 2000 among Brek Energy Corporation,
                Balaji Exports Ltd., Rajan Chellarm Mahboobani, Ravi Kishinchand
                Daswani,
                and Asia Internet Limited, filed as an attached exhibit to Brek’s Form
                10-KSB (Annual Report) filed on March 29, 2000, and incorporated
                herein by
                reference.
            Filed**10.2**
            Stock
                Purchase Agreement dated March 12, 2002 between Vallenar Energy Corp.
                and
                Brek Energy Corporation, filed as an attached exhibit to Brek’s Form
                10-K/A (Annual Report) filed on September 18, 2002, and incorporated
                herein by reference
            Filed**10.3**
            Purchase
                Agreement dated July 16, 2002 among Gasco Energy, Inc., Pannonian
                Energy
                Inc., San Joaquin Oil & Gas Ltd., Brek Energy Corporation, Brek
                Petroleum Inc., Brek Petroleum (California), Inc. and certain
                stockholders, filed as an attached exhibit to Brek’s Form 8-K (Current
                Report) filed on July 31, 2002, and incorporated herein by
                reference.
            Filed**10.4**
            Share
                Purchase Agreement dated October 19, 2001 among First Ecom.com, Inc.,
                First Commerce Asia Limited, FEDS Acquisition Corporation, First
                Ecom
                Systems Limited, Transworld Payment Solutions NV, and First Curacao
                International Bank NV, filed as an attached exhibit to Brek’s Form 10-KSB
                (2002 - Annual Report) filed on November 21,
                2005, and incorporated herein by reference.
            Filed**10.5**
            License
                Agreements dated October 19, 2001 among First Ecom.com, Inc., First
                Ecom
                Systems Limited, and Transworld Payment Solutions NV, filed as an
                attached
                exhibit to Brek’s Form 10-KSB (2002 - Annual Report) filed on November
                21,
                2005, and incorporated herein by reference.
            Filed**31**
            Certifications
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
            Included**32**
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.
            Included




***Page
          - 34***







**ITEM
      14. PRINCIPAL ACCOUNTING FEES AND SERVICES**






**(1)
      Audit Fees**






The
      aggregate fees billed for each of the last two fiscal years for professional
      services rendered by the principal accountant for Brek’s audit of annual
      financial statements and for review of financial statements included in Brek’s
      Form 10-QSB’s or services that are normally provided by the accountant in
      connection with statutory and regulatory filings or engagements for those fiscal
      years were:




2003
      - $0
      - Hall & Company, Certified Public Accountants Inc.


2002
      -
      $31,552 - Hall & Company, Certified Public Accountants Inc.





2003
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants


2002
      -
      $57,265 - Deloitte
      Touche Tohmatsu, Chartered Accountants







**(2)
      Audit-Related Fees**






The
      aggregate fees billed in each of the last two fiscal years for assurance and
      related services by the principal accountants that are reasonably related to
      the
      performance of the audit or review of Brek’s financial statements and are not
      reported in the preceding paragraph were:




2003
      - $0
      - Hall & Company, Certified Public Accountants Inc.


2002
      - $0
      - Hall & Company, Certified Public Accountants Inc.





2003
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants


2002
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants







**(3)
      Tax Fees**






The
      aggregate fees billed in each of the last two fiscal years for professional
      services rendered by the principal accountant for tax compliance, tax advice,
      and tax planning were:




2003
      - $0
      - Hall & Company, Certified Public Accountants Inc.


2002
      - $0
      - Hall & Company, Certified Public Accountants Inc.





2003
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants


2002
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants







**(4)
      All Other Fees**






The
      aggregate fees billed in each of the last two fiscal years for the products
      and
      services provided by the principal accountant, other than the services reported
      in paragraphs (1), (2), and (3) above were:




2003
      - $0
      - Hall & Company, Certified Public Accountants Inc.


2002
      - $0
      - Hall & Company, Certified Public Accountants Inc.





2003
      - $0
      - Deloitte
      Touche Tohmatsu, Chartered Accountants


2002
      -
      $3,500 - Deloitte
      Touche Tohmatsu, Chartered Accountants







(5)
      Brek’s audit committee’s pre-approval policies and procedures described in
      paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee
      pre-approve all accounting related activities prior to the performance of any
      services by any accountant or auditor.






(6)
      The
      percentage of hours expended on the principal accountant’s engagement to audit
      Brek’s financial statements for the most recent fiscal year that were attributed
      to work performed by persons other than the principal accountant’s full time,
      permanent employees was nil %.




***Page
          - 35***





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934,
      Brek has caused this report to be signed on its behalf by the undersigned duly
      authorized person.








**BREK
      ENERGY CORPORATION**




*By:
      /s/ Richard N. Jeffs*      ******


Name:  **Richard
      N. Jeffs**


Title **:**  **Director
      and CEO**


Dated:  **October
      31, 2005**








Pursuant
      to the requirements of the Securities Exchange Act of 1934, the following
      persons on behalf of Brek and in the capacities and on the dates indicated
      have
      signed this report below.








**Signature**
            **Title**
            **Date***/s/
                Richard N. Jeffs*
            President,
                CEO, Principal Executive Officer, CFO, Principal Financial
                Officer
              and
                a member of the Board of Directors
            31
                October 2005*/s/
                Gregory Pek*
            Member
                of the Board of Directors
            4
                November 2005*/s/
                Ian Robinson*
            Member
                of the Board of Directors
            4
                November 2005*/s/Michael
                L. Nazmack*
            Member
                of the Board of Directors
            31
                October 2005*/s/
                Eugene Sweeney*
            Member
                of the Board of Directors
            10
                November 2005*/s/
                Shawne Malone*
            Member
                of the Board of Directors
            31
                October 2005





***Page
          - 36***









**Exhibit
      31**









***Page
          - 37***




**BREK
      ENERGY CORPORATION** ****


**CERTIFICATIONS
      PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




**CERTIFICATION**




I,
      Richard N. Jeffs, certify that:


1.
        I have
        reviewed this quarterly report on Form 10-KSB of Brek Energy Corporation;
  2.
        Based
        on my knowledge, this quarterly report does not contain any untrue statement
        of
        a material fact or omit to state a material fact necessary to make the
        statements made, in light of the circumstances under which such statements
        were
        made, not misleading with respect to the period covered by this report;
  3.
        Based
        on my knowledge, the financial statements, and other financial information
        included in this report, fairly present in all material respects the financial
        condition, results of operations and cash flows of the small business issuer
        as
        of, and for, the periods presented in this report;
  4.
        The
        small business issuer’s other certifying officer(s) and I are responsible for
        establishing and maintaining disclosure controls and procedures (as defined
        in
        Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
        reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
        the
        small business issuer and have:
  (a)
        Designed such disclosure controls and procedures, or caused such disclosure
        controls and procedures to be designed under our supervision, to ensure that
        material information relating to the small business issuer, including its
        consolidated subsidiaries, is made known to us by others within those entities,
        particularly during the period in which this report is being prepared;
  (b)
        Designed such internal control over financial reporting, or caused such internal
        control over financial reporting to be designed under our supervision, to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles;
  (c)
        Evaluated the effectiveness of the small business issuer’s disclosure controls
        and procedures and presented in this report our conclusions about the
        effectiveness of the disclosure controls and procedures, as of the end of
        the
        period covered by this report based on such evaluation; and
  (d)
        Disclosed in this report any change in the small business issuer’s internal
        control over financial reporting that occurred during the small business
        issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
        quarter in the case of an annual report) that has materially affected, or
        is
        reasonably likely to materially affect, the small business issuer’s internal
        control over financial reporting; and
  5.
        The
        small business issuer’s other certifying officer(s) and I have disclosed, based
        on our most recent evaluation of internal control over financial reporting,
        to
        the small business issuer’s auditors and the audit committee of the small
        business issuer’s board of directors (or persons performing the equivalent
        functions):
  (a)
        All
        significant deficiencies and material weaknesses in the design or operation
        of
        internal control over financial reporting which are reasonably likely to
        adversely affect the small business issuer’s ability to record, process,
        summarize and report financial information; and
  (b)
        Any
        fraud, whether or not material, that involves management or other employees
        who
        have a significant role in the small business issuer’s internal control over
        financial reporting.




Date:
      October 31, 2005






*/s/
      Richard N. Jeffs*


Richard
      N. Jeffs




Chief
      Executive Officer







***Page
          - 38***




**BREK
      ENERGY CORPORATION** ****


**CERTIFICATIONS
      PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




**CERTIFICATION**




I,
      Richard N. Jeffs, certify that:


1.
        I have
        reviewed this quarterly report on Form 10-KSB of Brek Energy Corporation;
  2.
        Based
        on my knowledge, this quarterly report does not contain any untrue statement
        of
        a material fact or omit to state a material fact necessary to make the
        statements made, in light of the circumstances under which such statements
        were
        made, not misleading with respect to the period covered by this report;
  3.
        Based
        on my knowledge, the financial statements, and other financial information
        included in this report, fairly present in all material respects the financial
        condition, results of operations and cash flows of the small business issuer
        as
        of, and for, the periods presented in this report;
  4.
        The
        small business issuer’s other certifying officer(s) and I are responsible for
        establishing and maintaining disclosure controls and procedures (as defined
        in
        Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
        reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
        the
        small business issuer and have:
  (a)
        Designed such disclosure controls and procedures, or caused such disclosure
        controls and procedures to be designed under our supervision, to ensure that
        material information relating to the small business issuer, including its
        consolidated subsidiaries, is made known to us by others within those entities,
        particularly during the period in which this report is being prepared;
  (b)
        Designed such internal control over financial reporting, or caused such internal
        control over financial reporting to be designed under our supervision, to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles;
  (c)
        Evaluated the effectiveness of the small business issuer’s disclosure controls
        and procedures and presented in this report our conclusions about the
        effectiveness of the disclosure controls and procedures, as of the end of
        the
        period covered by this report based on such evaluation; and
  (d)
        Disclosed in this report any change in the small business issuer’s internal
        control over financial reporting that occurred during the small business
        issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal
        quarter in the case of an annual report) that has materially affected, or
        is
        reasonably likely to materially affect, the small business issuer’s internal
        control over financial reporting; and
  5.
        The
        small business issuer’s other certifying officer(s) and I have disclosed, based
        on our most recent evaluation of internal control over financial reporting,
        to
        the small business issuer’s auditors and the audit committee of the small
        business issuer’s board of directors (or persons performing the equivalent
        functions):
  (a)
        All
        significant deficiencies and material weaknesses in the design or operation
        of
        internal control over financial reporting which are reasonably likely to
        adversely affect the small business issuer’s ability to record, process,
        summarize and report financial information; and
  (b)
        Any
        fraud, whether or not material, that involves management or other employees
        who
        have a significant role in the small business issuer’s internal control over
        financial reporting.




Date:
      October 31, 2005




*/s/
      Richard N. Jeffs*


Richard
      N. Jeffs


Chief
      Financial Officer





***Page
          - 39***











**Exhibit
      32**










***Page
          - 40***




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350,**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**






In
      connection with the Annual Report of Brek Energy Corporation (“Brek”) on Form
      10-KSB for the period ending December 31, 2003 as filed with the Securities
      and
      Exchange Commission on the date hereof (the “Report”), I, Richard N. Jeffs,
      President and Chief Executive Officer of Brek and a member of the Board of
      Directors, certify, pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:




(1)
        The Report fully complies with the requirements of section 13(a) or 15(d)
      of the Securities Exchange Act of 1934; and




(2)
        The information contained in the Report fairly represents, the financial
      condition and result of operations of the Company.








*/s/
      Richard N. Jeffs*


Richard
      N. Jeffs


Chief
      Executive Officer




October
      31, 2005




***Page
          - 41***




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350,**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**






In
      connection with the Annual Report of Brek Energy Corporation (“Brek”) on Form
      10-KSB for the period ending December 31, 2003 as filed with the Securities
      and
      Exchange Commission on the date hereof (the “Report”), I, Richard n. Jeffs,
      Chief Financial Officer of Brek and a member of the Board of Directors, certify,
      pursuant to s.906 of the Sarbanes-Oxley Act of 2002, that:




(1)
        The Report fully complies with the requirements of section 13(a) or 15(d)
      of the Securities Exchange Act of 1934; and




(2)
        The information contained in the Report fairly represents, the financial
      condition and result of operations of the Company.








*/s/
      Richard N. Jeffs*


Richard
      N. Jeffs


Chief
      Financial Officer






October
      31, 2005




***Page
          - 42***







**Exhibit
      A**


**Financial
      Statements**







***Page
          - 43***


**BREK
          ENERGY CORPORATION**
 **CONSOLIDATED
          FINANCIAL STATEMENTS**
 **December
          31, 2003**
 REPORT
        OFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
  **CONSOLIDATED
        BALANCE SHEETS**
 
 **CONSOLIDATED
        STATEMENTS OF
        OPERATIONS**
 
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND
        COMPREHENSIVE INCOME**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS**
 
 
 
 ***Page
            - 44***
  16140
          SAND CANYON AVE., SUITE 100
 IRVINE,
          CALIFORNIA 92618
 **H** **ALL** **&** **C** **OMPANY** *Certified
          Public Accountants, Inc* *.* (949)
          910-HALL (4255)
 TAX,
          FINANCIAL AND BUSINESS ADVISORY SERVICES FAX    (949)
          910-4256
  **R****EPORT
          OF****I****NDEPENDENT****R****EGISTERED****P****UBLIC****A****CCOUNTING****F****IRM**
  September
          16, 2005
  To
          the
          Board of Directors and Stockholders of
 Brek
          Energy Corporation (Formerly First Ecom.com, Inc.)
 London,
          United Kingdom
  We
          have
          audited the accompanying consolidated balance sheets of Brek Energy Corporation
          as ofDecember
          31, 2003 and 2002, and the related consolidated statements of operations,
          stockholders'equity,
          and cash flows for the two years then ended. These financial statements
          are theresponsibility
          of the Company's management. Our responsibility is to express an opinion
          on
          thesefinancial
          statements based on our audits.
 We
              conducted our audits in accordance with the standards of the Public
              Company
              Accounting Oversight
              Board (United States). Those standards require that we plan and perform
              the
              audits to obtain
              reasonable assurance about whether the financial statements are free
              of material misstatement.
              The Company is not required to have, nor were we engaged to perform,
              an audit of its
              internal control over financial reporting. Our audits included consideration
              of
              internal control over
              financial reporting as a basis for designing audit procedures that
              are
              appropriate in the circumstance,
              but not for the purpose of expressing an opinion on the effectiveness
              of the Company's
              internal control over financial reporting. Accordingly, we express
              no such
              opinion. An
              audit
              includes examining, on a test basis, evidence supporting the amounts
              and
              disclosures in the
              financial statements. An audit also includes assessing the accounting
              principles
              used and significant
              estimates made by management, as well as evaluating the overall financial
              statement presentation.
              We believe that our audits provide a reasonable basis for our
              opinion.
  In
              our
              opinion, the financial statements referred to above present fairly,
              in all
              material respects, the consolidated
              financial position of Brek Energy Corporation as of December 31, 2003
              and 2002, and
              the
              results of its operations and its cash flows for the two years then
              ended in
              conformity with accounting
              principles generally accepted in the United States of America.
 
 **H** **ALL** **&
            C** **OMPANY**
 **Irvine,
            California**
   
 
 **BREK
            ENERGY CORPORATION**
 **CONSOLIDATED
            BALANCE SHEETS**
    **December
                      31,****2003**
                  
                  
                  **2002****ASSETS****Current
                      Assets**Cash
                      and cash equivalents
                  
                  $
                  2,318
                  
                  $
                  3,801Trade
                      accounts receivable
                  
                  
                  6,028
                  
                  
                  878Other
                      prepaid expenses and deposits
                  
                  
                  -
                  
                  
                  32,4478,346
                  
                  
                  37,126Oil
                      and gas properties (Note 6)
                  
                  
                  2,339,345
                  
                  
                  2,032,860**TOTAL
                      ASSETS**
                  
                  **$**
                  **2,347,691**
                  
                  **$**
                  **2,069,986****LIABILITIES
                      AND STOCKHOLDERS' EQUITY****Current
                      Liabilities**Accounts
                      payable and accrued liabilities
                  
                  $
                  1,347,517
                  
                  $
                  1,048,134Due
                      to related parties (Note 10)
                  
                  
                  210,957
                  
                  
                  365,717**TOTAL
                      LIABILITIES**
                  
                  
                  **1,558,474**
                  
                  
                  **1,413,851****Commitments
                      and contingencies (Note 17)****Minority
                      interest (Note 7)**
                  
                  
                  65,342
                  
                  
                  58,028**STOCKHOLDERS'
                      EQUITY**Share
                      capital (Note 11)Authorized300,000,000
                      common shares, $0.001 par valueIssued
                      and outstanding28,713,630
                      and 26,560,037 common shares
                  
                  
                  28,714
                  
                  
                  26,561Additional
                      paid in capital
                  
                  
                  54,021,239
                  
                  
                  53,635,745Common
                      stock purchase warrants
                  
                  
                  8,016,124
                  
                  
                  8,016,124Deficit
                  
                  
                  (61,342,202
                  )
                  
                  (61,080,323
                  )**TOTAL
                      STOCKHOLDERS' EQUITY**
                  
                  
                  **723,875**
                  
                  
                  **598,107****TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY**
                  
                  **$**
                  **2,347,691**
                  
                  **$**
                  **2,069,986**
  The
            accompanying notes are an integral part of these consolidated financial
            statements
 
 ***Page
              - 45***
 
 **BREK
            ENERGY CORPORATION**
 **CONSOLIDATED
            STATEMENTS OF OPERATIONS**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2003 and 2002**
    **2003**
                  
                  
                  **2002****Revenue**
                  
                  $
                  22,077
                  
                  $
                  -**Expenses****Operating
                      expenses**General
                      and administrative
                  
                  
                  287,140
                  
                  
                  3,673,105Charges
                      for impairment of certainlong-lived
                      assets (Notes 6, 8 and 9)
                  
                  
                  -
                  
                  
                  18,543,307Total
                      operating expenses
                  
                  
                  287,140
                  
                  
                  22,216,412**Loss
                      from operations**
                  
                  
                  (265,063
                  )
                  
                  (22,216,412
                  )**Other
                      Income (expenses)**Interest
                      income
                  
                  
                  6,572
                  
                  
                  40,593Other
                      income
                  
                  
                  3,926
                  
                  
                  -Loss
                      on sale of marketable securities (Note 3)
                  
                  
                  -
                  
                  
                  (12,611
                  )Loss
                      on write-down of marketable securities (Note 3)
                  
                  
                  -
                  
                  
                  (34,927
                  )Total
                      other (expenses) income
                  
                  
                  10,498
                  
                  
                  (6,945
                  )**Losses
                      associated with affiliates**Equity
                      in losses of affiliates (Notes 7 and 8)
                  
                  
                  -
                  
                  
                  (813,381
                  )Impairment
                      loss of equity in affiliate (Note 8)
                  
                  
                  -
                  
                  
                  (3,309,536
                  )Total
                      loss associated with affiliate
                  
                  
                  -
                  
                  
                  (4,122,917
                  )**Loss
                      from continuing operations**
                  
                  
                  (254,565
                  )
                  
                  (26,346,274
                  )**Income
                      (loss) from discontinued operations (Note 9)**Net
                      loss -payment processing
                  
                  
                  -
                  
                  
                  (1,199,653
                  )(Loss)
                      gain on discontinuance (net of $Nil tax effect)
                  
                  
                  -
                  
                  
                  (132
                  )**Total
                      income (loss) from discontinuance**
                  
                  
                  -
                  
                  
                  (1,199,785
                  )**Minority
                      interest (Note 7)**
                  
                  
                  (7,314
                  )
                  
                  302,142**Net
                      Loss**
                  
                  $
                  (261,879
                  )
                  $
                  (27,243,917
                  )**Basic
                      and diluted loss per share applicable****to
                      common stockholders**Continuing
                      operations
                  
                  $
                  (0.01
                  )
                  $
                  (1.11
                  )Discontinued
                      operations
                  
                  
                  -
                  
                  
                  (0.05
                  )$
                  (0.01
                  )
                  $
                  (1.16
                  )**Weighted
                      average shares outstanding**
                  
                  
                  **28,105,904**
                  
                  
                  **23,408,585**
  The
            accompanying notes are an integral part of these consolidated financial
            statements
  ***Page
              - 46***
  **BREK
            ENERGY CORPORATION**
 **CONSOLIDATED
            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
            COMPREHENSIVE INCOME**
 **FOR
            THE YEARS ENDED DECEMBER 31, 2003 and 2002**
    **Common**
                  
                  **Accumulated****Common
                      Stock Issued**
                  
                  **Additional**
                  
                  
                  **Stock**
                  
                  
                  **Other****Number
                      of**
                  
                  
                  
                  
                  
                  **Paid
                      in**
                  
                  
                  **Purchase**
                  
                  
                  **Comprehensive****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Capital**
                  
                  
                  **Warrants**
                  
                  
                  **(Loss)
                      Income**
                  
                  
                  **Total****Balance,
                      January 1, 2002**
                  
                  
                  **19,210,037**
                  
                  
                  **19,211**
                  
                  
                  **49,027,070**
                  
                  
                  **8,016,124**
                  
                  
                  **(33,836,406**
                  **)**
                  
                  **23,225,999**Issuance
                      of shares of common stock for cash
                  
                  
                  2,845,000
                  
                  
                  2,845
                  
                  
                  1,419,655
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,422,500Share
                      issue costs
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (25,000
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (25,000
                  )Issuance
                      of penalty shares
                  
                  
                  80,000
                  
                  
                  80
                  
                  
                  56,720
                  
                  
                  -
                  
                  
                  -
                  
                  
                  56,800Issuance
                      of shares of common stock inexchange
                      for oil and gas properties
                  
                  
                  4,125,000
                  
                  
                  4,125
                  
                  
                  2,858,625
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,862,750Issuance
                      of shares of common stocksettlement
                      of debt
                  
                  
                  250,000
                  
                  
                  250
                  
                  
                  171,750
                  
                  
                  -
                  
                  
                  -
                  
                  
                  172,000Issuance
                      of shares of common stockupon
                      exercise of stock options
                  
                  
                  50,000
                  
                  
                  50
                  
                  
                  19,950
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20,000Stock
                      compensation expense
                  
                  
                  -
                  
                  
                  -
                  
                  
                  106,975
                  
                  
                  -
                  
                  
                  -
                  
                  
                  106,975Net
                      loss for the year
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (27,243,917
                  )
                  
                  (27,243,917
                  )**Balance,
                      December 31, 2002**
                  
                  
                  **26,560,037**
                  
                  
                  **26,561**
                  
                  
                  **53,635,745**
                  
                  
                  **8,016,124**
                  
                  
                  **(61,080,323**
                  **)**
                  
                  **598,107**Issuance
                      of common shares for debt
                  
                  
                  1,875,817
                  
                  
                  1,876
                  
                  
                  335,771
                  
                  
                  -
                  
                  
                  -
                  
                  
                  337,647Issuance
                      of common shares for cash
                  
                  
                  277,776
                  
                  
                  277
                  
                  
                  49,723
                  
                  
                  -
                  
                  
                  -
                  
                  
                  50,000Net
                      loss for the year
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (261,879
                  )
                  
                  (261,879
                  )**Balance,
                      December 31, 2003**
                  
                  
                  **28,713,630**
                  
                  **$**
                  **28,714**
                  
                  **$**
                  **54,021,239**
                  
                  **$**
                  **8,016,124**
                  
                  **$**
                  **(61,342,202**
                  **)**
                  **$**
                  **723,875**
  The
            accompanying notes are an integral part of these consolidated financial
            statements
 ***Page
              - 47***
 
 **BREK
            ENERGY CORPORATION**
 **CONSOLIDATED
            STATEMENTS OF CASH FLOWS**
   **Year
                        Ended December 31,****2003**
                    
                    
                    **2002****CASH
                        FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES**Net
                        loss for the year
                    
                    $
                    (261,879
                    )
                    $
                    (27,243,917
                    )Adjustments
                        to reconcile net loss to net cash used in operating activities:Equity
                        loss of affiliates
                    
                    
                    -
                    
                    
                    813,381Minority
                        interest
                    
                    
                    7,314
                    
                    
                    302,142Issuance
                        of shares in settlement of expenses
                    
                    
                    -
                    
                    
                    228,800Stock
                        compensation costs (recovery)
                    
                    
                    -
                    
                    
                    106,975Depreciation
                    
                    
                    -
                    
                    
                    102,611(Gain)
                        loss on disposal of equipment
                    
                    
                    -
                    
                    
                    48,976Loss
                        from discontinued operations
                    
                    
                    -
                    
                    
                    132Write-down
                        of equipment
                    
                    
                    -
                    
                    
                    113,420Imputed
                        interest on notes receivable
                    
                    
                    -
                    
                    
                    (35,863
                    )Loss
                        on sale of marketable securities
                    
                    
                    -
                    
                    
                    12,611Loss
                        recognized on write-down of marketable securities
                    
                    
                    -
                    
                    
                    34,927Charges
                        for certain long-lived and prepaid assets
                    
                    
                    -
                    
                    
                    18,543,307Impairment
                        loss of equity in affiliates
                    
                    
                    -
                    
                    
                    3,309,536(254,565
                    )
                    
                    (3,662,962
                    )Changes
                        in operating assets and liabilities net of businesses acquired:(Increase)
                        decrease in accounts receivable and accrued accounts
                        receivable
                    
                    
                    (5,150
                    )
                    
                    31,307Decrease
                        in other prepaid expenses and deposits
                    
                    
                    32,447
                    
                    
                    390,428Increase
                        in accounts payable and accrued liabilities
                    
                    
                    365,058
                    
                    
                    776,755Increase
                        in amounts due to related parties
                    
                    
                    117,212
                    
                    
                    365,717**NET
                        CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES**
                    
                    
                    **255,002**
                    
                    
                    **(2,098,755**
                    **)****CASH
                        FLOWS USED IN INVESTING ACTIVITIES**Purchases
                        of property and equipment
                    
                    
                    -
                    
                    
                    (17,537
                    )Cash
                        spent on oil and gas properties
                    
                    
                    (306,485
                    )
                    
                    (529,906
                    )Acquisition
                        of subsidiary
                    
                    
                    -
                    
                    
                    (772,563
                    )Proceeds
                        from disposal of equipment
                    
                    
                    -
                    
                    
                    1,837Proceeds
                        from sale of marketable securities
                    
                    
                    -
                    
                    
                    5,771Effect
                        of minority interest on acquisition of subsidiary
                    
                    
                    -
                    
                    
                    (361,085
                    )Loan
                        receivable
                    
                    
                    -
                    
                    
                    270,055**NET
                        CASH USED IN INVESTING ACTIVITIES**
                    
                    
                    **(306,485**
                    **)**
                    
                    **(1,403,428**
                    **)****CASH
                        FLOWS FROM FINANCING ACTIVITIES**Proceeds
                        from issuance of common stock
                    
                    
                    50,000
                    
                    
                    1,422,500Share
                        issue costs
                    
                    
                    -
                    
                    
                    (25,000
                    )Proceeds
                        from exercise of stock options
                    
                    
                    -
                    
                    
                    20,000**NET
                        CASH PROVIDED BY FINANCING ACTIVITIES**
                    
                    
                    **50,000**
                    
                    
                    **1,417,500****Net
                        decrease in cash and cash equivalents**
                    
                    
                    **(1,483**
                    **)**
                    
                    **(2,084,683**
                    **)****Cash
                        and cash equivalents at the beginning of the year**
                    
                    
                    3,801
                    
                    
                    2,088,484**Cash
                        and cash equivalents at the end of the year**
                    
                    **$**
                    **2,318**
                    
                    **$**
                    **3,801**Supplemental
                        cash information:Cash
                        paid during the year for:Interest
                    
                    $
                    -
                    
                    $
                    -Non
                        Cash Transactions:Issuance
                        of shares for oil and gas properties
                    
                    $
                    -
                    
                    $
                    2,862,750Issuance
                        of penalty shares
                    
                    $
                    -
                    
                    $
                    56,800Issuance
                        of common shares in settlement of debt
                    
                    $
                    65,675
                    
                    $
                    172,000Issuance
                        of common shares in settlement of amounts due to related
                        parties
                    
                    $
                    271,972
                    
                    $
                    -Stock
                        compensation expense
                    
                    $
                    -
                    
                    $
                    106,975Loan
                        receivable offset against acquisition price of subsidiary
                    
                    $
                    -
                    
                    $
                    270,000Share
                        exchange to acquire 25% interest in oil and gas properties
                    
                    $
                    -
                    
                    $
                    17,264,750
 The
            accompanying notes are an integral part of these consolidated financial
            statements
 
 
 
 ***Page
              - 48***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          1 - ORGANIZATION AND PRINCIPAL ACTIVITIES**
 **Organization**
 First
          Ecommerce Asia Limited (“FEAL”) was incorporated in Hong Kong on September 16,
          1998. On January 28, 1999, FEAL, entered into an agreement and plan of
          merger
          with JRL Resources Corp., (“JRL Resources”) a company incorporated in the State
          of Florida on November 13, 1996. Pursuant to the terms of the agreement,
          plan of
          merger and related agreements, 3,015,000 newly issued shares of JRL Resources
          and 985,000 shares held by existing shareholders of JRL Resources were
          exchanged
          for two shares of FEAL. As a result of this business combination FEAL became
          a
          wholly-owned subsidiary of JRL Resources.
 
 The
          merger between JRL Resources and FEAL was a merger of a private operating
          company, (FEAL) into a public shell corporation, with nominal net assets,
          that
          resulted in the owners and management of the private company (FEAL) obtaining
          operating control of the combined company after the transaction. For accounting
          purposes, the transaction has been treated as a reverse merger, of JRL
          Resources
          by FEAL with FEAL deemed to be the accounting acquirer.
 
 Pursuant
          to an agreement and plan of merger dated February 12, 1999, JRL Resources
          was
          merged with and into Brek Energy Corporation (formerly First Ecom.com,
          Inc.)
          (“BREK” or the Company”), a company incorporated in the State of Nevada on
          February 12, 1999, with no shares issued and outstanding. Pursuant to the
          agreement and plan of merger, all of the 12,040,000 outstanding common
          shares of
          JRL Resources were exchanged on a one-for-one basis for newly issued shares
          of
          BREK, with BREK being the surviving corporation. For accounting purposes,
          this
          merger is treated as a re-incorporation of JRL Resources as BREK.
 
 **Principal
          Activities**
 The
          Company was originally established to facilitate electronic payment processing
          of e-commerce transactions for merchants and banks across the internet.
          The
          Company developed an electronic gateway to convert consumers’ credit card
          information, collected by merchants on the internet, into a format that
          could be
          processed by banks. The Company disposed of its payment processing business
          on
          September 30, 2002.
 
 During
          2001, the Company changed its primary business to that of oil and gas
          exploration and on July 19, 2001, acquired a 26% non-dilutable voting interest
          in Gasco Energy, Inc., (“Gasco”). On July 16, 2002, the Company exchanged all of
          its shareholdings in Gasco for an undivided interest in all of Gasco’s
          undeveloped mineral leases in Utah, Wyoming, and California. At the same
          time,
          the Company acquired an additional undivided interest in Gasco’s undeveloped
          mineral leases from certain third parties in exchange for the issuance
          of
          4,125,000 shares of the Company. The main focus of the Company’s oil and gas
          exploration business has been centered in the United States.
 
 In
          March
          2002, the Company acquired a 26% non-dilutable voting interest in Vallenar
          Energy Corp. (“Vallenar”) another company engaged in oil and gas exploration. On
          June 28, 2002, the Company increased its ownership of Vallenar to
          51.53%.
 
 **Development
          Stage Activities**
 During
          the first quarter of 2003 the Company commenced operating as an oil and
          gas
          company and ceased to be a development stage company.
  
 ***Page
              - 49***
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 **Principles
          of Consolidation**
 The
          consolidated financial statements include the financial statements of the
          Company and its subsidiaries. All significant intercompany balances and
          transactions have been eliminated.
 
 **Accounting
          Estimates**
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America requires management
          to make
          estimates and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of
          the financial statements and the reported amounts of revenues and expenses
          during the reporting period. Actual results could differ from those
          estimates.
 
 The
          Company’s financial statements are based on a number of significant estimates,
          including oil and gas reserve quantities which is the basis for the calculation
          of depletion and impairment of oil and gas properties.
 
 **Cash
          and Cash Equivalents**
 For
          purposes of the balance sheets and statements of cash flows, the Company
          considers all highly liquid debt instruments purchased with maturity of
          three
          months or less to be cash equivalents.
 
 **Marketable
          Securities**
 The
          Company considers all marketable securities as available-for-sale. All
          securities are recorded at fair value. Unrealized gains and losses, which
          are
          temporary, on marketable securities are reported as a component of other
          comprehensive income and classified as accumulated other comprehensive
          income
          (loss) in stockholders’ equity (deficit). Realized gains and losses and
          unrealized losses, which are other than temporary on marketable securities
          are
          included in earnings and are derived using the specific identification
          method.
          The Company sold all of their marketable securities during the year ended
          December 31, 2002.
 
 **Investments**
 The
          Company accounts for its investments in entities where it does not have
          majority
          voting or management control, using the equity basis. The gains (losses)
          from
          equity investments are reported as a component of income (loss).
 
 **Concentration
          of Credit Risk**
 Financial
          instruments that potentially subject the Company to a concentration of
          credit
          risk consist primarily of cash and cash equivalents. The Company places
          its cash
          with various major financial institutions and, by policy, limits the amount
          of
          credit exposure with any one financial institution.
 
 **Fair
          Value of Financial Instruments**
 The
          carrying values reflected in the consolidated balance sheets for cash and
          cash
          equivalents, trade accounts receivable, accounts payable and accrued liabilities
          and amounts due to related parties approximate their fair values because
          of the
          short term nature of these instruments. The fair value of the note receivable
          of
          $1 is an estimate based on the value the Company expects to realize within
          the
          next twelve months.
 
 **Revenue
          Recognition**
 Oil
          and
          gas revenue is recognized as income when the oil or gas is produced and
          sold.
 
 ***Page
              - 50***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Long-Lived
          Assets**
 The
          Company’s unproved properties are evaluated periodically for the possibility of
          potential impairment. At December 31, 2002 the Company recorded impairments
          of
          its oil and gas properties of $16,634,187, of its note receivable of $1,901,106
          and of its fixed assets of $8,014. At December 31, 2003 the Company’s only long
          lived asset is its oil and gas properties. At December 31, 2003 the Company
          determined that the oil and gas properties reflect their fair value and
          did not
          recognized an impairment loss.
 
 **Income
          Taxes**
 Income
          tax expense is based on pre-tax financial accounting income. The Company
          recognizes deferred tax assets and liabilities based on differences between
          the
          financial reporting and tax bases of assets and liabilities using the enacted
          tax rates and laws that are expected to be in effect when the differences
          are
          expected to be recovered. The Company provides a valuation allowance for
          deferred tax assets for which it does not consider realization of such
          assets to
          be more likely than not.
 
 **Research
          and Development and Advertising**
 Research
          and development and advertising costs are expensed as incurred. Research
          and
          development costs amounted to $Nil in each of the years ended December
          31, 2003
          and 2002. Advertising costs amounted to $2,037 and $129,810 for the years
          ended
          December 31, 2003 and 2002. **
 
 **Comprehensive
          Income**
 Comprehensive
          income reflects changes in equity that results from transactions and economic
          events from non-owner sources. The Company had no comprehensive income
          for the
          years ended December 31, 2003 and 2002.
 
 **Oil
          and Gas Properties**
 The
          Company follows the full cost method of accounting whereby all costs related
          to
          the acquisition of oil and gas leases and acquisition and development of
          oil and
          gas properties are capitalized into a single cost center (“full cost pool”).
          Such costs include lease acquisition costs, geological and geophysical
          expenses,
          overhead directly related to exploration and development activities and
          costs of
          drilling both productive and non-productive wells. Proceeds from property
          sales
          are generally credited to the full cost pool without gain or loss recognition
          unless such a sale would significantly alter the relationship between
          capitalized costs and the proved reserves attributable to these costs.
          A
          significant alteration would typically involve a sale of 25% or more of
          the
          proved reserves related to a single full cost pool.
 
 Depletion
          of exploration and development costs and depreciation of production equipment
          is
          computed using the units of production method based upon estimated proven
          oil
          and gas reserves. The costs of unproved properties are withheld from the
          depletion base until such time as they are either developed or abandoned.
          The
          properties are reviewed periodically for impairment. Total well costs are
          transferred to the depletable pool even when multiple targeted zones have
          not
          been fully evaluated. For depletion and depreciation purposes, relative
          volumes
          of oil and gas production and reserves are converted at the energy equivalent
          rate of six thousand cubic feet of natural gas to one barrel of crude oil.
 
 ***Page
              - 51***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Oil
          and Gas Properties, continued**
 Under
          the
          full cost method of accounting, capitalized oil and gas property costs,
          less
          accumulated depletion and net of deferred income taxes, may not exceed
          an amount
          equal to the present value, discounted at 10%, of estimated future net
          revenues
          from proved oil and gas reserves plus the cost or estimated fair value,
          if
          lower, of unproven properties. Should capitalized costs exceed this ceiling,
          impairment is recognized. The present value of estimated future net revenues
          is
          computed by applying current prices of oil and gas to estimated future
          production of proved oil and gas reserves as of period-end, less estimated
          future expenditures to be incurred in developing and producing the proved
          reserves assuming the continuation of existing economic conditions. The
          Company’s oil and gas wells began producing during the first quarter of 2003, no
          depletion was recorded during the year ended December 31, 2003 because
          at
          December 31, 2002, the Company’s oil and gas properties were either written down
          to a nominal value or written down to their net present value, based on
          a
          December 31, 2004 reserves study. (Notes 6 and 18)
 
 **Basic
          and Diluted Net Income (Loss) Per Common Share (“EPS”)**
 Basic
          net
          loss per share is computed by dividing net loss attributable to the common
          stockholders by the weighted average number of common shares outstanding
          during
          the reporting period. The shares of restricted common stock granted to
          certain
          officers, directors and employees of the Company are included in the computation
          only after the shares become fully vested. Diluted net income per common
          share
          includes the potential dilution that could occur upon exercise of the options
          and warrants to acquire common stock computed using the treasury stock
          method
          which assumes that the increase in the number of shares is reduced by the
          number
          of shares which could have been repurchased by the Company with the proceeds
          from the exercise of the options and warrants (which were assumed to have
          been
          made at the average market price of the common shares during the reporting
          period). The outstanding common stock options and warrants have not been
          included in the computation of diluted net loss per share during all periods
          because their inclusion would have been anti-dilutive.
 
 As
          of
          December 31, 2003, the Company had 28,713,630 shares of common stock issued
          and
          outstanding. The Company also had 1,580,000 shares of common stock issuable
          upon
          exercise of outstanding options and 1,843,682 shares of common stock issuable
          upon exercise of outstanding warrants. Additional options or warrants may
          be
          granted to purchase 3,420,000 shares of common stock under the Company’s 2001
          stock option plan.
 
 ***Page
              - 52***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Stock-based
          Compensation**
 The
          Company accounts for its stock-based compensation using Accounting Principles
          Board Opinion No. 25 (“APB 25”) and related interpretations. Under APB 25,
          compensation expense is recognized for stock options with an exercise price
          that
          is less than the market price on the grant date of the option. For stock
          options
          with exercise prices at or above the market value of the stock on the grant
          date, the Company adopted the disclosure-only provisions of Statement of
          Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation”
(“SFAS 123”) for the stock options granted to the employees and directors of the
          Company. Accordingly, no compensation cost has been recognized for these
          options. Compensation expense has been recognized in the accompanying financial
          statements for stock options that were issued to our outside consultants.
          Had
          compensation expense for the options granted to our employees and directors
          been
          determined based on the fair value at the grant date for options, consistent
          with the provisions of SFAS 123, the Company’s net loss and net loss per share
          for the years ended December 31, 2003 and 2002 would have been increased
          to the
          pro forma amounts indicated below:
 
 **For
                    the Year Ended**
                
                **For
                    the Year Ended****December
                    31, 2003**
                
                **December
                    31, 2002**Net
                    loss attributable to common shareholders:As
                    reported
                
                $
                (261,879
                )
                $
                (27,243,917
                )Stock-based
                    employee compensationdetermined
                    under the fair valuebased
                    method
                
                
                (490
                )
                
                (523,950
                )Pro
                    forma
                
                $
                (262,369
                )
                $
                (27,767,867
                )Net
                    loss per common share:As
                    reported
                
                $
                (0.01
                )
                $
                (1.16
                )Pro
                    forma
                
                $
                (0.01
                )
                $
                (1.19
                )
 
 The
          fair
          value of the common stock options granted during the years ended December
          31,
          2003 and 2002, for disclosure purposes was estimated on the grant dates
          using
          the Black Scholes Pricing Model and the following assumptions:
 
 2003
                2002Expected
                    dividend yield
                -
                -Expected
                    price volatility
                131%
                    to 151%
                131%
                    to 151%Risk-free
                    interest rate
                3%
                    to 5.5%
                3%
                    to 5.5%Expected
                    life of options
                5
                    years
                5
                    years
 
 The
          Company accounts for equity instruments issued to non-employees in accordance
          with the provisions of SFAS 123, and Emerging Issues Task Force No. 96-18
          (“EITF
          96-18”). All transactions in which goods or services are consideration received
          for the issuance of equity instruments are accounted for based on the fair
          value
          of the consideration received or the fair value of the equity instrument,
          whichever is more reliably measurable.
 
 ***Page
              - 53***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Stock-based
          Compensation, continued**
 The
          Company accounts for the re-pricing and re-issuing of stock options under
          the
          variable accounting provisions of FIN 44.
 
 **Recent
          Accounting Pronouncements**
 
 SFAS
          No.
          141 (“SFAS 141”), “Business Combinations” and SFAS No. 142 (“SFAS 142”),
“Goodwill and Intangible Assets”, were issued by the FASB in June 2001 and
          became effective for the Company on July 1, 2001 and January 1, 2002,
          respectively. The FASB, the Securities and Exchange Commission (“SEC”) and
          others are engaged in deliberations on the issue of whether SFAS 141 and
          142
          require interests held under oil, gas and mineral leases or other contractual
          arrangements be classified as intangible assets. If such interests were
          deemed
          to be intangible assets, mineral interest use rights for both undeveloped
          and
          developed leaseholds would be classified separately from oil and gas properties
          and intangible assets on the Company’s balance sheets only, but these costs
          would continue to be aggregated with other costs of oil and gas properties
          in
          the notes to the financial statements in accordance with SFAS No. 69 (“SFAS
          69”), “Disclosures about Oil and Gas Producing Activities”. Additional
          disclosures required by SFAS 141 and 142 would also be included in the
          notes to
          financial statements. Historically, and to the Company’s knowledge, we and all
          other oil and gas companies have continued to include these oil and gas
          leasehold interests as part of oil and gas properties after SFAS 141 and
          142
          became effective. The Company believes that few oil and natural gas companies
          have adopted this interpretation or changed their balance sheet presentation
          for
          oil and gas leaseholds since the implementation of SFAS 141 and
          142.
 
 As
          applied to companies like BREK that have adopted full cost accounting for
          oil
          and gas activities, the Company understands that this interpretation of
          SFAS 141
          and 142 would only affect its balance sheet classification of proved oil
          and gas
          leaseholds acquired after June 30, 2001 and its unproved oil and gas leaseholds.
          The Company’s results of operations would not be affected, since these leasehold
          costs would continue to be amortized in accordance with full cost accounting
          rules. At December 31, 2003, the Company had undeveloped leaseholds of
          approximately $2.34 million, that would be classified on the balance sheets
          as
“intangible undeveloped leaseholds” if the Company applied the interpretation
          currently being deliberated. This classification would require the Company
          to
          make the disclosures set forth under SFAS 142 related to these interests.
          The
          Company’s current disclosures are those required by SFAS 69.
 
 The
          Company will continue to classify its oil and gas leaseholds as tangible
          oil and
          gas properties until further guidance is provided. Although most of the
          Company’s oil and gas property interests are held under oil and gas leases, it
          is not expected that this interpretation, if adopted, would have a material
          impact on the Company’s financial condition or results of operations.
 
 In
          August
          2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement
          Obligations”. This statement addresses the diverse accounting practices for
          obligations associated with the retirement of tangible long-lived assets,
          and
          the associated asset retirement costs. This statement establishes a uniform
          methodology for accounting for estimated reclamation and abandonment costs
          whereby reclamation and closure costs including site rehabilitation will
          be
          recorded at the estimated present value of reclamation liabilities and
          will
          increase the carrying amount of the related asset. These reclamation costs
          will
          be allocated to expense over the life of the related assets and will be
          adjusted
          for changes resulting form the passage of time and revisions to either
          the
          timing or the amount of the original present value estimate. The Company
          adopted
          this standard on January 1, 2003. The adoption of this statement did not
          have a
          significant impact on the Company’s financial position and results of
          operations.
 
 ***Page
              - 54***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Recent
          Accounting Pronouncements, continued**
 In
          June
          2002, the FASB issued SFAS No. 146 (“SFAS 146”), "Accounting for Costs
          Associated with Exit or Disposal Activities" which addresses financial
          accounting and reporting for costs associated with exit or disposal activities.
          It nullified Emerging Issues Task Force ("EITF") Issue No. 94-3 "Liability
          Recognition for Certain Employee Termination Benefits and Other Costs to
          Exit an
          Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146
          requires that a liability for costs associated with an exit or disposal
          activity
          be recognized when the liability is incurred rather than at the date of
          an
          entity's commitment to an exit plan, as was required under EITF No. 94-3.
          Such
          costs covered by the standard include lease termination costs and certain
          employee severance costs that are associated with a restructuring, discontinued
          operation, plant closing or other exit or disposal activity. SFAS 146 also
          establishes that fair value is the objective for initial measurement of
          the
          liability. SFAS 146 is to be applied prospectively to exit or disposal
          activities initiated after December 31, 2002. The Company’s adoption of SFAS 146
          did not have a material impact on the Company’s financial statements or results
          of operations.
 
 In
          November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantors
          Accounting and Disclosure Requirements for Guarantees, Including Indirect
          Guarantees of Indebtedness of Others”. This interpretation elaborates on the
          disclosures to be made by a guarantor in its interim and annual financial
          statements about its obligations under specific guarantees that it has
          issued.
          It also clarifies that a guarantor is required to recognize, at inception
          of a
          guarantee, a liability for the fair value of the obligation undertaken
          in
          issuing the guarantee. The disclosure requirements in this interpretation
          were
          effective for financial statements of interim and annual periods ending
          after
          December 15, 2002. Additionally, the recognition of a guarantor’s obligation
          should be applied on a prospective basis on guarantees issued after December
          31,
          2002. The adoption of FIN 45 did not have a material effect on the Company’s
          financial position or results of operations.
 
 In
          January 2003, the FASB issued FIN No. 46 (“FIN 46”), “Consolidation of Variable
          Interest Entities”. This interpretation explains how to identify variable
          interest entities and how an enterprise assesses its interest in a variable
          interest entity to decide whether to consolidate that entity. This
          interpretation requires existing unconsolidated variable interest entities
          to be
          consolidated by their primary beneficiaries if the entities do not effectively
          disperse risks among the parties involved. FIN 46 requires that the primary
          beneficiary in a variable interest entity consolidate the entity even if
          the
          primary beneficiary does not have a majority voting interest. Variable
          interest
          entities that effectively disperse risks will not be consolidated unless
          a
          single party holds an interest or combination of interest that effectively
          recombines risks that were previously dispersed. This interpretation applies
          immediately to variable interest entities created after January 31, 2003,
          and to
          variable interest entities in which an enterprise obtains an interest after
          that
          date. It applies in the first fiscal year or interim period beginning after
          June
          15, 2003, to variable interest entities in which an enterprise holds a
          variable
          interest that it acquired before February 1, 2003. In addition, FIN 45
          requires
          disclosure of information regarding guarantees or exposures to loss relating
          to
          any variable interest entity existing prior to January 31, 2003, in financial
          statements issued after January 31, 2003. The adoption of FIN 46 did not
          have a
          material effect on the Company’s financial position or results of
          operations.
 
 In
          April
          2003, the FASB issued SFAS No. 149 (”SFAS 149”), “Amendment of Statement 133 on
          Derivative Instruments and Hedging Activities,” which clarifies financial
          accounting and reporting for derivative instruments, including certain
          derivative instruments embedded in other contracts and for hedging activities
          under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”.
          SFAS 149 is effective for contracts entered into or modified after June
          30, 2003
          and for hedging relationships designated after June 30, 2003. The adoption
          of
          SFAS 149 did not have a material effect on the Company’s financial condition or
          results of operations.
 
 ***Page
              - 55***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Recent
          Accounting Pronouncements, continued**
 In
          May
          2003, the FASB issued SFAS No. 150 (“SFAS 150”), “Accounting for Certain
          Financial Instruments with Characteristics of both Liabilities and Equity.” This
          statement establishes standards for how an issuer classifies and measures
          in its
          statement of financial position certain financial instruments with
          characteristics of both liabilities and equity. In accordance with the
          standard,
          financial instruments that embody obligations for the issuer are required
          to be
          classified as liabilities. SFAS 150 is effective for all financial instruments
          created or modified after May 31, 2003, and otherwise shall be effective
          at the
          beginning of the first interim period beginning after June 15, 2003. The
          adoption of SFAS 150 did not have a material effect on the Company’s financial
          condition or results of operations.
 
 In
          December 2003, the Financial Accounting Standards Board (“FASB”) issued a
          revised FIN No. 46 (“FIN 46R”), “Consolidation of Variable Interest Entities”.
          Fin 46R addresses consolidation by business enterprises of variable interest
          entities and significantly changes the consolidation application of
          consolidation polices to variable interest entities and, thus improves
          comparability between enterprises engaged in similar activities when those
          activities are conduced through variable interest entities. The adoption
          of FIN
          46R did not have a material effect on its financial position or results
          of
          operations.
 
 The
          Securities and Exchange Commission issued Staff Accounting Bulletin SAB
          No. 106
          (“SAB 106”) in September 2004 regarding the application of SFAS 143 for oil and
          gas producing entities that follow the full cost accounting method. SAB
          106
          states that after adoption of SFAS 143, the future cash outflows associated
          with
          settling asset retirement obligations that have been accrued on the balance
          sheet should be excluded from the present value of estimated future net
          cash
          flows used for the full cost ceiling test calculation. The Company has
          calculated its ceiling test computation in this manner since the adoption
          of
          SFAS 143 and therefore when SAB 106 is adopted in the third quarter of
          2004, it
          is not expected to have a material effect on the Company’s financial
          statements.
 
 During
          March 2004, the Emerging Issues Task Force (“EITF”) determined that mineral
          rights as defined in EITF Issue 04-2, “Whether Mineral Rights are Tangible or
          Intangible Assets”, are tangible assets and should not be considered intangible
          assets in SFAS 141, “Business Combinations” (“SFAS 141”) and SFAS 142, “Goodwill
          and Intangible Assets” (”SFAS 142”). The FASB, in agreement with this
          determination, amended SFAS 141 and 142 through the issuance of FASB Staff
          Position (“FSP”) FSP 141-1 and 142-1. In addition, the proposed FSP 142-b
          confirms that SFAS 142 did not change the balance sheet classification
          or
          disclosures of mineral rights of oil and gas producing entities. The Company
          classifies its oil and gas leaseholds as tangible oil and gas properties
          which
          is consistent with EITF 04-02, FSP 141-1 and 142-1 and therefore such
          pronouncements have not impacted the Company’s financial condition or results of
          operations.
 
 In
          March
          2004, the FASB issued consensus on EITF 03-6, “Participating Securities and the
          Two-Class Method Under FASB Statement No. 128, Earnings Per Share,” related to
          calculating earnings per share with respect to using the two-class method
          for
          participating securities. This pronouncement is effective for all periods
          after
          March 31, 2004, and requires prior period to be restated. As the Company
          only
          has one class of shares and has incurred net losses in the current and
          prior
          periods, the adoption of EITF 03-6 is not expected to have an impact on
          the
          Company’s financial condition or results of operations.
 
 In
          December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS
          123(R)”), which is a revision of SFAS No. 123, Accounting for Stock-Based
          Compensation. SFAS 123 (R) is effective for public companies for the first
          fiscal year beginning after June 15, 2005, supersedes APB Opinion No. 25,
          Accounting for Stock Issued to Employees, and amends SFAS 95, Statement
          of Cash
          Flows.
 
 ***Page
              - 56***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued**
 **Recent
          Accounting Pronouncements, continued**
 SFAS
          123(R) requires all share-based payments to employees, including grants
          of
          employee stock options, to be recognized in the income statement based
          on their
          fair values. Pro-forma disclosure is no longer an alternative. The new
          standard
          will be effective for the Company, for the quarter commencing July 1, 2005.
          SFAS
          123(R) permits companies to adopt its requirements using either a “modified
          prospective” method or a “modified retrospective” method. Under the “modified
          prospective” method, compensation cost is recognized in the financial statements
          beginning with the effective date, based on the requirements of SFAS 123(R)
          for
          all share-based payments granted after that date, and based on the requirements
          of SFAS 123 for all unvested awards granted prior to the effective date
          of SFAS
          123(R). Under the “modified retrospective” method, the requirements are the same
          as under the “modified prospective” method, but it also permits entities to
          restate financial statements of previous periods, either for all periods
          presented or to the beginning of the fiscal year in which the statement
          is
          adopted, based on previous pro forma disclosures made in accordance with
          SFAS
          123. The Company has not yet determined which of the methods it will use
          upon
          adoption. The Company has not yet completed its evaluation but expects
          the
          adoption of SFAS 123(R) to have an effect on the financial statements similar
          to
          the pro forma effects reported in the Stock Based Compensation disclosure
          above.
 
 **Reclassifications**
 Certain
          prior year amounts in the accompanying consolidated financial statements
          have
          been reclassified to conform to the current year’s presentation. These
          reclassifications had no effect on the results of operations of financial
          position for any year/period presented.
 
 **NOTE
          3 - MARKETABLE SECURITIES**
 Marketable
          securities for the year ended December 31, 2001 was comprised of 91,912
          shares
          (representing a 2.7% equity interest), after an 8 for 1 reverse stock split
          on
          September 7, 2001 of uniView Technologies Corporation, a public company
          traded
          on NASDAQ. The Company has written down the carrying value of the shares
          by $nil
          and $34,927 for the years ended December 31, 2003 and 2002. The carrying
          value
          of the marketable securities was written down to its market value as the
          decline
          in value was deemed to be other than temporary. As of December 31, 2002,
          all
          shares of uniView Technologies Corporation were disposed of for consideration
          of
          $5,771, resulting in a loss on disposal of $12,611.
 
 
 ***Page
              - 57***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          4 - NOTE RECEIVABLE**
 On
          October 19, 2001, the Company completed the sale of its 100% interest in
          its
          subsidiary, First Ecommerce Data Services Limited (“FEDS”), to Transworld
          Payment Solutions N.V. (“Transworld”). The guaranteed amount of FEDS operating
          profits is receivable in installments of $350,000, $650,000 and $1,000,000,
          due
          March 1, 2003, 2004 and 2005. The guaranteed installments have been recorded
          at
          their present value with imputed interest of 2% to 3.5%. Imputed interest
          of
          $nil and $35,863 was recorded as interest income for the years ended December
          31, 2003 and 2002.
 
 At
          December 31, 2002, as a result of a dispute with Transworld, the Company
          undertook an assessment on its notes receivable and recorded an impairment
          charge of $1,901,106 to reduce the carrying value of the asset to the estimated
          fair value that the Company expects to receive within the next twelve months.
          This impairment charge was recorded as an operating expense in the consolidated
          statements of operations, in the charges for impairment of certain long-lived
          and prepaid assets section at December 31, 2002. (Note 17)
 
 2003
                
                2002Present
                    value of guarantee notes receivable
                
                $
                1
                
                $
                1,901,107Less:
                    Impairment charge
                
                
                -
                
                
                (1,901,106
                )Present
                    value of amount due within one year
                
                $
                1
                
                $
                1
 
 **NOTE
          5 - PROPERTY AND EQUIPMENT**
 During
          2002, the Company disposed of all of its property and equipment when they
          closed
          their Hong Kong offices and disposed of their payment processing business.
          Closure of the Hong Kong office resulted in an impairment loss on certain
          long
          lived assets of $8,014, which has been recorded in operating expenses under
          charges for impairment of certain long-lived assets on the consolidated
          statements of operations for the year ended December 31, 2002.
 
 Depreciation
          expense charged to results of operations for the years ended December 31,
          2003
          and 2002, was $nil and $102,611, all of the depreciation expenses were
          reclassified on the consolidated statements of operations to loss from
          discontinued operations, net loss - payment processing.
 
 
 ***Page
              - 58***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          6 - OIL AND GAS PROPERTIES**
 The
          Company has a 25% interest on some 113,681 gross acres (13,611 net acres)
          in the
          Uinta Basin region in Utah, 110,743 gross acres (21,759 net acres) in the
          Greater Green River Basin of Wyoming and 3,868 gross acres (802 net acres)
          in
          Kern County and San Luis Obispo County in California and a 50% interest
          in
          51,194 gross acres (8,865 net acres) in Edwards County in Texas.
 
 The
          following table presents the Company’s oil and gas property acquisitions,
          exploration and development expenditures and an adjustment for impairment
          charges:
 
 December
                    31,2003
                
                2002Property
                    acquisition costsAcquired
                    in share exchange with Gasco (Note 8)
                
                $
                14,402,000
                
                $
                14,402,000Acquired
                    in exchange for common shares of theCompany
                    (Notes 8, 10 and 11)
                
                
                2,862,750
                
                
                2,862,750Acquired
                    upon acquisition of Vallenar (Note 7)
                
                
                872,391
                
                
                872,391Exploration
                    and development expenditures
                
                
                836,391
                
                
                529,90618,973,532
                
                
                18,667,047Less:
                    Impairment charges
                
                
                (16,634,187
                )
                
                (16,634,187
                )$
                2,339,345
                
                $
                2,032,860
 
 At
          December 31, 2003 and 2002, the Company’s proved and unproved oil and gas
          properties consisted of leasehold interests and exploration and development
          costs related to their interests in Texas, Utah, Wyoming and California.
          The
          Company’s proven and unproven properties are evaluated periodically for the
          possibility of potential impairment. During 2002, the Company recorded
          impairment charges on its proved and unproved acreage as follows:
 
 
 **December
                    31, 2003**
                **December
                    31, 2002****Costs**
                
                
                **Costs**
                
                
                **Impairment**
                
                
                **Cost
                    Net of****Charges**
                
                
                **Impairment****Charges****Proved
                  and Unproved Properties**Property
                  acquisition costs:Utah
                
                $
                2,032,560
                
                $
                8,459,726
                
                $
                (6,427,166)
                
                $
                2,032,560Wyoming
                
                
                100
                
                
                8,459,727
                
                
                (8,459,627)
                
                
                100California
                
                
                100
                
                
                345,294
                
                
                (345,194)
                
                
                100Texas
                
                
                100
                
                
                872,391
                
                
                (872,291)
                
                
                100Exploration
                  & development costs:Wyoming
                
                
                -
                
                
                423,839
                
                
                (423,839)
                
                
                -Utah
                
                
                306,485
                
                
                7,662
                
                
                (7,662)
                
                
                -California
                
                
                -
                
                
                2,998
                
                
                (2,998)
                
                
                -Texas
                
                
                -
                
                
                95,410
                
                
                (95,410)
                
                
                -$
                2,339,345
                
                $
                18,667,047
                
                $
                (16,634,187)
                
                $
                2,032,860
    ***Page
              - 59***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
   **NOTE
          6 - OIL AND GAS PROPERTIES, continued**
 During
          the year ended December 31, 2003, no impairment charges were recorded against
          the Wyoming properties. During the year ended December 31, 2002, two wells
          that
          were drilled on the Wyoming property were not considered prospective by
          the
          Company and as a result of this assessment an impairment charge was recorded
          against the property.
 
 During
          the year ended December 31, 2003, no impairment charges were recorded against
          the Texas and California properties. At December 31, 2002, the Company
          recorded
          impairment charges against its unproven properties in Texas and California
          because no exploration or development work is expected to be performed
          on these
          properties.
 
 During
          the year ended December 31, 2003, no impairment charges were recorded against
          the Utah properties. At December 31, 2002, the Company recorded impairment
          charges against their Utah property based on a reserves study completed
          December
          31, 2004. (Note 18) ****
 
 **NOTE
          7 - MINORITY INTEREST**
 On
          March 12, 2002, the Company acquired an equity interest of 29.69% in Vallenar,
          a
          company with interests in various oil and gas leases in Texas, by converting
          a
          loan receivable from Vallenar of $270,055 together with a further payment
          of
          $79,945, into 733,333 Series “A” Preferred Shares of Vallenar. The Company also
          acquired 2,512,500 common shares of Vallenar from third parties for $12,563.
          The
          preferred shares, which are convertible into 733,333 common shares of Vallenar,
          provide the Company with a non-dilutable 26% voting interest provided that
          at
          least 50% of Vallenar’s shares remain outstanding.
 
 On
          June
          28, 2002, the Company acquired a further 2 million common shares of Vallenar,
          from third parties, for $10,000 and subscribed for an additional 800,000
          common
          shares of Vallenar at $0.50 per share ($400,000). At December 31, 2002,
          the
          Company held a 51.53% equity interest in Vallenar.
 
 Prior
          to
          June 28, 2002, the Company accounted for its interest in Vallenar using
          equity
          accounting. The equity in loss of Vallenar for the period from March 12,
          2002 to
          June 28, 2002 was $17,011. This loss has been recorded in the Company’s December
          31, 2002, consolidated statements of operations as equity in losses of
          affiliates, in the losses associated with affiliates section of the financial
          statements.
 
 Subsequent
          to June 28, 2002, the acquisition is being accounted for using purchase
          accounting and accordingly, the results of Vallenar’s operations have been
          included in the Company’s consolidated financial statements from June 28, 2002
          onwards. The total cost of the Vallenar acquisition has been allocated
          to the
          tangible and intangible assets acquired and liabilities assumed based on
          their
          respective fair market values at the effective date of the acquisition.
          Such
          allocations ultimately will be based on further management studies and
          due
          diligence and consequently are preliminary and subject to revision.
 
 The
          excess of the Company’s costs over fair value of the identifiable net assets
          attributable to the Company of $372,643 has been recorded as an increase
          in
          value of the oil and gas properties. (Note 6)
 
 ***Page
              - 60***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          7 - MINORITY INTEREST, continued**
 Assets
          acquired and liabilities assumed in the acquisition were as
          follows:
 
 Banks
          and
          fixed
          deposits................................................................................................................ 23,993
 Notes
          receivable from the
          Company........................................................................................... 370,000
 Oil
          and
          gas
          properties................................................................................................................... 499,748
 Short
          term
          loan...............................................................................................................................(29,000)
 Accounts
          payable....................................................................................................................... (121,662)
 
 Net
          book
          value of assets as of June 28,
          2002......................................................................... $743,079
  Cash
          consideration..................................................................................................................... $402,563
 Non-cash
          consideration, subscription
          payable....................................................................... 370,000
 Equity
          in
          loss up to June 28,
          2002............................................................................................... (17,011)
 Share
          of
          net assets
          (51.53%)...................................................................................................... (382,909)
  Excess
          of
          consideration over net book value of assets at
 acquisition
          date.......................................................................................................... $372,643
 
 Cash
          outflow from acquisition of subsidiary is made up of:
 
 Cash
          consideration
          paid......................................................................................................... $402,563
 Conversion
          of loans receivable on December 31, 2001 (Note
          6)....................................... (270,055)
 Bank
          and
          fixed deposits
          acquired............................................................................................ (23,993)
  $108,515
 
 
 ***Page
              - 61***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          8 - EQUITY**  **IN
          AFFILIATE**
 **Gasco
          Energy, Inc.**
 On
          July
          19, 2001, the Company acquired an equity interest in Gasco Energy, Inc.
          (“Gasco”), a Nevada Corporation, involved in the exploration of and potential
          development of natural gas reserves on some 117,000 gross acres in the
          Uinta
          Basin region in Utah, 330,000 gross acres in the Greater Green River Basin
          of
          Wyoming and 4,000 gross acres in Kern County and San Luis Obispo County
          in
          California. The Company paid $19 million for 1,000 preferred shares of
          Gasco,
          which were convertible into 9.5 million common shares of Gasco, at the
          Company’s
          option. These preferred shares entitled the Company to a non-dilutable
          26%
          voting interest in Gasco, provided that at least 50% of the preferred shares
          remained outstanding. This equity interest was accounted for as
          follows:
  2002
                
                2001Investment
                    in affiliate, July 19, 2001
                
                $
                19,000,000
                
                $
                19,000,000Less:
                    Share in losses of affiliate, July 19 to December 31, 2001
                
                
                (492,094
                )
                
                (492,094
                )Share
                    in losses of affiliate, January 1 to July 16, 2002
                
                
                (796,370
                )
                
                -Impairment
                    loss of equity in affiliate
                
                
                (3,309,536
                )
                
                -Investment
                    in affiliate, July 16, 2002
                
                
                2,862,750
                
                
                -Less:
                    Share exchange for oil and gas properties (Note 8)
                
                
                (17,264,750
                )
                
                -Investment
                    in affiliate
                
                $
                -
                
                $
                18,507,906
 
 From
          July
          19, 2001 to July 16, 2002, the Company accounted for its interest in Gasco
          using
          the equity method of accounting. The total cost of the Gasco acquisition
          was
          allocated to the tangible and intangible assets acquired and liabilities
          assumed
          based on their respective fair market values at the effective date of the
          acquisition. The Company’s equity in losses of Gasco during the period from
          acquisition, July 19, 2001 to December 31, 2001 was $492,094, for the period
          from January 1, 2002 to July 16, 2002 was
 $796,370
          and the accumulated losses from July 19, 2001 (date of first acquisition)
          to
          December 31, 2002 were $1,288,464. These losses have been recorded in the
          Company’s consolidated statements of operations, as equity in losses of
          affiliates, in the losses associated with affiliates section.
 
 In
          March
          2002, the Company converted 50% of its preferred shares of Gasco (500 shares)
          into 4,750,000 Gasco common shares and on July 16, 2002, the Company exchanged
          its 4,750,000 common shares of Gasco and 500 preferred shares of Gasco,
          for an
          undivided interest in all of Gasco’s undeveloped mineral leases in Wyoming, Utah
          and California. On July 16, 2002, the Company acquired an additional undivided
          interest in Gasco’s undeveloped mineral leases from certain other Gasco
          shareholders, in exchange for 4,125,000 common shares of the Company. (Notes
          6,
          10 and 11) These transactions gave the Company a combined 25% undivided
          interest
          in all of Gasco’s undeveloped mineral leases.
 
 
 ***Page
              - 62***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          8 - EQUITY**  **IN
          AFFILIATE, continued**
 At
          July 16, 2002, the Company had recorded an impairment loss of equity in
          affiliate of $3,309,536, in the losses associated with affiliates section
          of the
          consolidated statements of operations. This loss adjusted the carrying
          value of
          it’s equity in Gasco to the fair value amount of $14,402,000, which is based
          on
          the average closing market price of Gasco’s shares for two days before and two
          days after the date the Company exchanged its Gasco shares. At July 16,
          2002,
          the Company recorded the additional undivided interest in Gasco’s undeveloped
          mineral leases from certain other Gasco shareholders, in exchange for 4,125,000
          common shares of the Company at $2,862,750. This was based on the average
          closing market price of the common shares of the Company for two days before
          the
          date of exchange and two days after the date of exchange. The fair value
          of the
          Gasco shares exchanged by the Company and shares of the Company issued
          for the
          additional undivided interests in the mineral leases, of $14,402,000 and
          $2,862,750, have been recorded under oil and gas properties. (Note
          6)
 
 The
          Company has an option to acquire an additional 2.5% interest in these
          undeveloped mineral leases by paying $5,250,000 on or before January 1,
          2004. If
          they exercise this option, the Company has the option of acquiring an additional
          undivided 2.5% interest by paying $5,250,000 on or before January 1, 2005.
          (Note
          18)
 
 **NOTE
          9 - DISCONTINUED OPERATIONS**
 **First
          Ecom System Limited**
 On
          September 30, 2002, the Company disposed of its subsidiary, First Ecom
          Systems
          Limited (“FESL”), which was engaged in the electronic payment processing
          operations, for consideration of $12,786. At December 31, 2002, the Company
          recorded a loss on discontinuance in the consolidated statements of operations
          of $132, which is the difference between FESL’s net assets of $12,918 and the
          disposal price.
 
 As
          at
          December 31, 2002, no assets or liabilities of the payment processing business
          were included in the consolidated balance sheet. All FESL’s revenues and
          expenses for the year ended December 31, 2002 were reclassified from operations
          to the income (loss) from discontinued operations section of the consolidated
          statements of operations. For the year ended December 31, 2002, these net
          losses
          were **** $1,199,785.
 
 For
          the
          year ended December 31, 2002, FESL’s revenues and losses from operations from
          the payment processing business were $67,918 and $847,906.
 
 **NOTE
          10 - RELATED PARTY TRANSACTIONS**
 At
          December 31, 2002, the Company was indebted to its former President and
          CEO in
          the amount of $28,000. This debt is unsecured, non-interest bearing and
          has no
          set terms of repayment. During the year ended December 31, 2003, this loan
          was
          settled by issuance of common shares of the Company. (Note 11)
 
 During
          the year ended December 31, 2002, the Company paid investor relations fees
          to a
          company controlled by the former President and CEO of the Company in the
          amount
          of $187,328.
 
 During
          the year ended December 31, 2002 the Company paid legal fees to a law firm
          controlled by the wife of the Company’s former President and CEO in the amount
          of $2,503. During the period from March 12, 2002, the date the Company
          first
          acquired an equity interest in Vallenar, until June 28, 2002, the date
          of the
          Company commenced consolidating the financial results of Vallenar, Vallenar
          accrued legal fees to a law firm controlled by the wife of the Company’s former
          President and CEO in the amount of $33,769, of which, at December 31, 2002,
          there is a balance of unpaid legal fees included in accounts payable of
          $30,941.
          During the year ended December 31, 2003, this liability was settled by
          the
          issuance of common shares of the Company. (Note 11)
  ***Page
              - 63***
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
   **NOTE
            10 - RELATED PARTY TRANSACTIONS, continued**
 On
          July 16, 2002, the Company issued 1,237,500 shares of its common stock
          to the
          Company’s former President and CEO and 1,237,500 shares of its common stock to
          a
          company controlled by the Company’s former President and CEO in exchange for an
          undivided interest in Gasco’s undeveloped mineral leases. (Notes 6, 8 and
          11)
 
 At
          December 31, 2002, the Company had accrued consulting fees payable to the
          former
          President and CEO in the amount of $24,000. During the year ended December
          31,
          2003, this liability was settled by the issuance of common shares of the
          Company. (Note 11)
 
 At
          December 31, 2002, the Company had accrued consulting fees payable to the
          wife
          of the former President and CEO in the amount of $10,000. During the year
          ended
          December 31, 2003, this liability was settled by the issuance of common
          shares
          of the Company. (Note 11)
 
 At
          December 31, 2002, the Company had accrued consulting fees payable to a
          relative
          of the former President and CEO in the amount of $8,000. During the year
          ended
          December 31, 2003, this liability was settled by the issuance of common
          shares
          of the Company. (Note 11)
  During
          the year ended December 31, 2002, the Company paid $12,000 in consulting
          fees to
          a company controlled by a former director of Vallenar.
 
 During
          the year ended December 31, 2002, the Company paid $39,000 in consulting
          fees to
          a former director of Vallenar.
 
 During
          the year ended December 31, 2002, the Company paid $15,000 in consulting
          fees to
          a company controlled by a former director of Vallenar.
 
 During
          the years ended December 31, 2003 and 2002, the Company paid $nil and $351,806
          in directors’ fees and a housing allowance of $7,742 and $17,209 to a director.
          At December 31, 2003 and 2002, $4,148 and $54,000 of these directors’ fees were
          unpaid and included in accrued liabilities. During the year ended December
          31,
          2003, $50,000 in directors fees was settled by the issuance of common shares
          of
          the Company. **(** Note
          11)
 
 During
          the years ended December 31, 2003 and 2002, the Company paid $41,057 and
          $nil in
          consulting fees to a company controlled by a director. At December 31,
          2003 and
          2002, $40,000 and $nil of these fees were unpaid and included in accrued
          liabilities.
 
 During
          the year ended December 31, 2003, the Company paid $30,000 in consulting
          fees
          and during the year ended December 31, 2002, the Company paid $418,324
          in
          directors’ fees and paid a housing allowance of $27,871 to a director of the
          Company. At December 31, 2003 and 2002, $123,463 and $159,038 of these
          fees were
          included in accrued liabilities. During the years ended December 31, 2003
          and
          2002, $50,000 and $70,000 of the directors’ fees were settled through the
          issuance of common shares of the Company. (Note 11)
 
 During
          the years ended December 31, 2003 and 2002, the Company paid $12,000 in
          consulting fees and $54,000 in directors’ fees to a director of the Company. At
          December 31, 2003 and 2002, $12,000 and $13,500 of these fees were unpaid
          and
          included in accrued liabilities. During the year ended December 31, 2003,
          $13,500 in directors fees were settled by the issuance of common shares
          of the
          Company. (Note 11)
 
 At
          December 31, 2003 and 2002, the Company had $22,403 and $nil in accounts
          payable
          to directors or companies controlled by directors.
 
 ***Page
              - 64***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          10 - RELATED PARTY TRANSACTIONS, continued**
 During
          the years ended December 31, 2003 and 2002 the Company paid $nil and $10,320
          in
          directors’ fees to a director. At December 31, 2002, $5,160 of these directors’
fees were unpaid and included in accrued liabilities. During the year ended
          December 31, 2003, this liability was settled by the issuance of common
          shares
          of the Company. (Note 11)
 
 During
          the years ended December 31, 2003 and 2002 the Company paid $nil and $10,320
          in
          directors’ fees to a director. At December 31, 2003 and 2002, the Company was
          indebted to this director in the amounts of $8,943 and $14,103. During
          the year
          ended December 31, 2003, $5,160 of this liability was settled by the issuance
          of
          common shares of the Company. (Note 11)
 
 During
          the year ended December 31, 2002, the Company paid $7,457 in directors’ fees to
          a former director. At December 31, 2002, $5,160 of these directors’ fees were
          unpaid and included in accrued liabilities. During the year ended December
          31,
          2003, $2,580 of this liability was settled by the issuance of common shares
          of
          the Company. (Note 11)
 
 During
          the year ended December 31, 2002 the Company paid $7,743 in directors’ fees to a
          former director. At December 31, 2002, $5,160 of these directors’ fees were
          unpaid and included in accrued liabilities. During the year ended December
          31,
          2003, $2,580 of this liability was settled by the issuance of common shares
          of
          the Company. (Note 11)
 
 **NOTE
          11 - COMMON STOCK**
 On
          April 14, 2003, the Company issued 277,776 common shares at $0.18 per share
          by
          way of a private placement for total proceeds of $50,000.
 
 On
          April
          14, 2003 the Company converted $308,947 in accounts payable and $27,700
          in loans
          payable into 1,875,817 common shares at $0.18 per share. (Note 10)
 
 During
          April 2002, the Company issued 2,845,000 common shares, under a Reg. S
          private
          placement, at $.050 per share for cash of $1,422,500 less related share
          issue
          costs of $25,000.
 
 On
          July
          31, 2002, the Company issued 4,125,000 common shares in exchange for an
          undivided interest in oil and gas properties at a deemed value of $2,862,750.
          The former President and Chief Executive Officer has a direct and indirect
          interest in 2,475,000 of these shares. (Notes 6, 8 and 10)
 
 On
          August
          23, 2002, the Company issued 80,000 common shares, at a deemed value of
          $56,800,
          to certain subscribers of the March 28, 2002 private placement as a 10%
          penalty
          for failing to make its S-3 Registration Statement effective within 120
          days, as
          required under the terms of their private placement agreements.
 
 On
          September 10, 2002, the Company issued 100,000 common shares at a price
          of $0.70
          to the Company’s former Chief Executive Officer, as part of his severance
          package. (Note 10)
 
 On
          September 19, 2002, 50,000 employee stock options, issued under the 2001
          stock
          option warrant plan, were exercised for 50,000 common shares at $.40 per
          share
          for cash proceeds of $20,000.
 
 On
          September 24, 2002, the Company issued 50,000 common shares at $0.68 to
          each of
          two directors and an officer (150,000 common shares in total) of the Company
          in
          settlement of $102,000 in accrued accounts payable.
 
 On
          April
          14, 2003, the Company issued 277,776 common shares at $0.18 per share by
          way of
          a private placement for total proceeds of $50,000.
 
 ***Page
              - 65***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
  **NOTE
          11 - COMMON STOCK, continued**
 On
          April 14, 2003 the Company converted $308,947 in accounts payable and $27,700
          in
          loans payable into 1,875,817 common shares at $0.18 per share. (Note
          10)
 
 **NOTE
          12 - STOCKHOLDER RIGHTS PLAN**
 On
          March 1, 2002, the Company approved a Rights Agreement whereby a dividend
          was
          declared of one right for each share of the Company’s common stock issued and
          outstanding on March 20, 2002, including any shares issued subsequent to
          March
          20, 2002. Each right entitles the holder to purchase 5 shares of the Companies
          common stock at an exercise price of $0.01 per right, if certain events
          occur
          relating to a person or group acquiring or attempting to acquire 10% or
          more of
          the outstanding common shares of the Company without the approval of the
          Company’s board of directors. The rights are exerciseable until December 31,
          2020.
 
 At
          December 31, 2003 and 2002, the Company had reserved 143,568,150 and 132,800,185
          shares for the exercise of rights for the issued, outstanding and subscribed
          shares and 17,118,410 and 17,368,410 for the potential exercise of outstanding
          options and warrants.
 
 **NOTE
          13 - STOCK OPTIONS**
 The
          Company’s 2001 stock option/warrant plan provides for the granting of up to
          5,000,000 stock options or warrants to officers, consultants, directors
          and key
          employees. All share options/warrants granted under the 2001 option/warrant
          plan
          either vest immediately, at 25% per quarter over a period of one year or
          on a
          performance basis. The options do not cancel upon termination of employment
          and
          all options, if remaining unexercised, expire five years after the date
          of
          issue.
 
 On
          July
          15, 2002, the Company granted options to employees and directors to purchase
          up
          to 370,000 shares of the Company’s common stock at a price of $0.55 per share.
          The options vest immediately, expire on July 15, 2007 and have a fair value
          of
          $0.73 per share.
 
 On
          July
          15, 2002, the Company granted options to directors to purchase up to 50,000
          shares of the Company’s common stock at a price of $0.55 per share. The options
          vest 25% immediately and 25% every 6 months and expire 3 months after
          termination of employment and have a fair value of $0.73 per share.
 
 During
          the year ended December 31, 2003, the Company did not grant any additional
          options to purchase shares of common stock to employees, directors or
          consultants. During the first quarter of 2003, the Company cancelled 50,000
          options to purchase shares of commons stock, with an exercise price of
          $0.55 per
          share.
 
 ***Page
              - 66***
 
 **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          13 - STOCK OPTIONS, continued**
 The
          following is a summary of the activity of the Company’s 2001 stock
          option/warrant plan for the year ended December 31, 2003:
 
 Shares
                    Under
                Weighted
                    AverageOption
                Exercise
                    PriceOutstanding,
                    at December 31, 2001
                1,260,000
                $
                    0.40Granted
                420,000
                0.55Exercised
                (50,000)
                0.40Outstanding,
                    at December 31, 2002
                1,630,000
                0.44Cancelled
                (50,000)
                0.55Outstanding,
                    at December 31, 2003
                1,580,000
                $
                    0.44
 
 The
          weighted average fair value of the options granted in 2003 and 2002 was
          $0.65.
 
 At
          December 31, 2003 and 2002 the weighted-average remaining contractual life
          of
          the outstanding options was 2.45 and 3.48 years.
 
 The
          following table presents additional information related to the options
          outstanding as of December 31, 2003.
 
 **Exercise
                    Price per Share**
                **Number
                    of Shares Outstanding**
                **Number
                    of Shares Exercisable**$0.40
                1,210,000
                1,210,000$0.55
                370,000
                370,000Total
                1,580,000
                1,580,000
 
 During
          the years ended December 31, 2003 and 2002, the Company recorded compensation
          costs of $nil and $106,975.
 
 **NOTE
          14 - WARRANTS**
 During
          the years ended December 31, 2003 and 2002, the Company did not issue or
          cancel
          any warrants.
 
 **Warrants
          Outstanding**
 At
          December 31, 2003, the Company had the following share purchase warrants
          outstanding:
 
 Number
                    of Shares
                Exercise
                    Price Per Share
                Expiry
                    Date100,000
                $8.50
                August
                    9, 2004416,667
                7.80
                December
                    23, 20041,076,167
                11.40
                March
                    5, 200526,923
                7.80
                March
                    9, 2005223,925
                11.40
                March
                    9, 2005
  
 ***Page
              - 67***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          15 - INCOME TAXES**
 Income
          tax expense has not been recognized for the years ended December 31, 2003
          and
          2002 and no taxes were payable at December 31, 2003 or 2002, because the
          Company
          has incurred losses since its inception.
 
 The
          components of the Company’s net losses are as follows:
 
 2003
                
                2002United
                    States of America
                
                $
                    (4,043,273)
                
                $
                    (13,270,288)Hong
                    Kong
                
                
                (13,312
                )
                
                (1,200,964
                )Other
                    countries (British Virgin Islands, Bermuda and Canada)
                
                
                -
                
                
                (53,385
                )$
                (4,056,585
                )
                $
                (14,524,637
                )
 
 
 As
          of
          December 31, 2003 and 2002, the Company had the following deferred tax
          assets
          that primarily relate to net operating losses. A 100% valuation allowance
          has
          been established, as management believe it is more likely than not that
          the
          deferred tax assets will not be realized.
 
 2003
                
                2002Federal
                    loss carryforwards
                
                $
                8,916,052
                
                $
                7,783,936State
                    loss carryforwards, Nevada
                
                
                -
                
                
                -Foreign
                    loss carryforwards
                
                
                2,925,763
                
                
                2,923,633Less:
                    Valuation allowance
                
                
                (11,841,815
                )
                
                (10,707,569
                )$
                -
                
                $
                -
 
 The
          Company’s valuation allowance increased during 2003 and 2002 by $1,134,246 and
          $3,909,207.
 
 At
          December 31, 2003 and 2002 the Company had the following net operating
          loss
          carryforwards (“NOL’s”):
 
 2003
                
                2002United
                    States
                
                $
                30,748,254
                
                $
                26,704,981Foreign
                    (Hong Kong, Bermuda and British Virgin Islands)
                
                
                20,282,273
                
                
                20,268,961$
                51,030,527
                
                $
                46,973,942
 
 The
          federal NOL’s expire through December 31, 2023 and the Hong Kong NOL’s can be
          carried forward indefinitely.
 
 ***Page
              - 68***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 
 **NOTE
          16 - SEGMENTED INFORMATION**
 During
          the year ended December 31, 2002, the Company disposed of its payment processing
          business, the Company now has only one business, an oil and gas business
          in the
          United States of America.
 
 **NOTE
          17 - COMMITMENTS AND CONTINGENCIES**
 **Lease
          Commitments**
 The
          Company had no lease commitments at December 31, 2003.
 
 Rent
          expense for the years ended December 31, 2003 and 2002, was $11,441 and
          $96,481.
 
 **Going
          Concern**
 During
          the year ended December 31, 2002, the Company changed its business direction
          and
          has been focusing on its oil and gas business. As such, the Company has
          accumulated a deficit in excess of $61 million to date and additional financing
          will be required by the Company to support development of its oil and gas
          properties until such time as the Company achieves positive cash flow from
          operations. These factors raise substantial doubt about the Company’s ability to
          continue as a going concern. The Company’s ability to achieve and maintain
          profitability and positive cash flow is dependent upon its ability to locate
          profitable oil and gas properties, generate revenues from its oil and gas
          production and control production costs. Based upon current plans, the
          Company
          expects to incur operating losses in future periods. There is no assurance
          that
          the Company will be able to generate revenues in the future. The accompanying
          financial statements do not include any adjustments that might be necessary
          if
          the Company is unable to continue as a going concern.
 
 **Contingent
          liabilities**
 In
          February 2003 the debtor and guarantor of the note receivable commenced
          legal
          action against the Company, in Bermuda, claiming that the Company and its
          former
          subsidiary, First Ecom Systems Limited, had promised to develop and supply
          them
          with certain software. As a result of this litigation the debtor ceased
          making
          the required installment payments on March 1, 2003. Although the directors
          believed that this lawsuit is without merit as there was no condition to
          develop
          software for the debtor, due to lack of financial resources the Company
          did not
          defend its position and no further actions by either party have transpired
          since
          February 2003. (Note 4)
 On
            June
            9, 2003, a petition was filed against the Company by Burlington Resources
            Oil
& Gas Company , LP (“Burlington”) claiming that Brek failed to pay for costs
            incurred by Burlington in drilling oil and gas wells in Texas. Burlington
            claimed damages of $658,831. On July 16, 2003, Brek Petroleum Inc. filed
            its
            original answer to the petition. (Note 18)
 
 As
          is
          customary in the oil and gas industry, the Company may at times have commitments
          in place to reserve or earn certain acreage positions or wells. If the
          Company
          does not pay such commitments, the acreage positions or wells may be lost.
 
 **NOTE
          18 - SUBSEQUENT EVENTS**
 
 **Burlington
            Litigation**
 On
            March
            1, 2004, the Company and Burlington entered into a settlement agreement
            whereby
            the Company agreed to pay Burlington a total of $691,874, in twelve equal
            monthly payments, commencing August 14, 2004, plus legal and court imposed
            interest.
  **Oil
          and Gas Properties**
 Based
          on
          a December 31, 2004 reserves study, the Company recorded an impairment
          charge on
          their Utah oil and gas properties. Based on this study the Company valued
          the
          Utah oil and gas properties at an amount equal to the present value, discounted
          at 10%, of the estimated future net revenues from proved oil and gas reserves
          of
          approximately $5.7 million (calculated, based on estimated net revenues
          of $18.5
          million) plus the cost, or estimated fair value, if lower of unproved
          properties, less estimated future expenditures to be incurred in developing
          and
          producing the proved reserves of approximately $3.4 million. The present
          value
          of estimated future net revenues was computed by applying current prices
          of oil
          and gas to estimated future production of proved oil and gas reserves as
          of
          December 31, 2004, assuming the continuation of existing economic conditions.
          (Note 6)
 
 The
          Company has an option to acquire an additional 2.5% interest in these
          undeveloped mineral leases by paying $5,250,000 on or before January 1,
          2004 and
          if they exercise this option, the Company has the option of acquiring an
          additional undivided 2.5% interest by paying $5,250,000 on or before January
          1,
          2005. The Company did not exercise either of these options. (Note
          8)
  ***Page
              - 69***
  **BREK
            ENERGY CORPORATION**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2003**
 **NOTE
          18 - SUBSEQUENT EVENTS, continued**
 **Common
          Shares and Warrants**
 During
          the year ended December 31, 2004, the Company issued 23,438,623 units for
          cash
          of $3,141,893 and 1,804,167 units, to an officer, as a finder’s fee of $226,250
          for arranging placement of 18,041,670 of the 23,438,623 units. These units
          were
          issued at prices between $0.05 and $0.20 per unit. Each unit is comprised
          of one
          common share and one share purchase warrant, each warrant entitles the
          holder to
          purchase one share of the Company’s common stock, is exercisable at prices
          between $0.25 to $0.35 per share and expires within one to three years.
          The fair
          value of the warrants was estimated to be $842,036 (25% of the $3,368,143
          in
          debt or proceeds received from the sale of the units).
 
 During
          the year ended December 31, 2004, the Company issued 1,375,000 units for
          debt of
          $68,750, the units were issued at $0.05 per unit. Each unit is comprised
          of one
          common share and one share purchase warrant, each warrant entitles the
          holder to
          purchase one common share of the Company’s stock, is exercisable at $0.35 per
          share and expires in one year. The fair value of the warrants was estimated
          to
          be $17,188 (25% of the $68,750 in debt).
 
 During
          the seven month period ended July 31, 2005, the Company issued 3,333,335
          units
          for cash of $1,000,000 and 333,334 units, to an officer, as a finder’s fee of
          $100,000, for arranging placement of these units. The units were issued
          at $0.30
          per unit. Each unit is comprised of one common share and one share purchase
          warrant, each warrant entitles the holder to purchase one share of the
          Company’s
          common stock, is exercisable at $0.50 per share and expires within two
          years of
          the date of issuance. The fair value of the warrants was estimated to be
          $275,000 (25% of the $1,100,000 in debt or proceeds received from the sale
          of
          the units).
 
 On
          July
          25, 2005, an officer of the Company, exchanged 400,000 warrants for 400,000
          shares of the Company’s stock at $0.25 per share.
  On
            September 29, 2005, an officer of the Company exchanged 100,000 warrants
            for 100,000 shares of the Company's stock, at $0.25 per
            share.
 
 ***Page
              - 70***