FEC RESOURCES INC.
Financial Statements
For the year ended December 31, 2016
(Expressed in United States dollars)
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Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
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BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
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Report of Independent Registered Public Accounting Firm
To the shareholders of FEC Resources Inc.
We have audited the accompanying financial statements of FEC Resources Inc., which comprise the statements of financial position as at December 31, 2016 and 2015 and the statements of comprehensive income (loss), changes in equity and cash flows for each of the years in the three year period ended December 31, 2016, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of FEC Resources Inc. as at December 31, 2016 and 2015 and its financial performance and its cash flows for each of the years in the three year period ended December 31, 2016, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2 in the financial statements, which indicates that the Company has incurred a net loss of $249,569 for the year ended December 31, 2016 and has an accumulated deficit of $19,528,770 since inception. These conditions, along with other matters as set forth in Note 2, indicate the existence of a material uncertainty that casts substantial doubt upon the Company’s ability to continue as a going concern.
/s/BDO Canada LLP
Chartered Professional Accountants
Vancouver, Canada
March 29, 2017
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
FEC RESOURCES INC.
Statements of Financial Position
Expressed in United States Dollars
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December 31
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December 31
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2016
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2015
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ASSETS
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Current assets
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Cash (Note 6)
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$
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312,161
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$
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563,724
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Receivables
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879
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1,165
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Prepaid expenses
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6,690
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6,477
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319,730
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571,366
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Non-current assets
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Property, plant and equipment (Note 7)
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596
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852
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320,326
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$
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572,218
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LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Trade and accrued payables (Note 10)
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$
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58,636
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$
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60,959
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58,636
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60,959
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Shareholders’ Equity
Share capital (Note 9)
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16,732,397
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16,732,397
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Contributed surplus (Note 9)
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3,058,063
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3,058,063
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Deficit
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(19,528,770
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)
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(19,279,201
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)
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261,690
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511,259
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$
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320,326
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$
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572,218
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SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
“Paul Wallace”
“
Lyle Brown”
Director Director
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Expressed in United States Dollars
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Year ended
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Year ended
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Year ended
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December 31
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December 31
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December 31
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2016
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2015
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2014
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General and administrative expenses
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General and administration (Note 11)
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$
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214,571
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$
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297,041
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$
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289,980
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Operating loss
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(214,571
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)
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(297,041
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)
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(289,980
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)
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Gain on sale of shares in FEP (Note 8)
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-
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637,902
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-
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Cancelation of Indexa shares
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(36,000
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)
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-
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-
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Interest income
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1,002
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48
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105
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Net income (loss) and total comprehensive income (loss) for the year
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$
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(249,569
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)
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$
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340,909
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$
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(289,875
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)
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Earnings / (loss) per common share
- Basic and diluted
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$
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(0.00
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)
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$
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(0.00
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)
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$
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(0.00
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)
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Weighted average number of shares outstanding, basic and diluted
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411,274,913
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439,143,765
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439,143,765
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The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF CHANGES IN EQUITY
Expressed In United States Dollars
For the years ended December 31, 2016, December 31, 2015, and December 31, 2014
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Share capital
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Contributed surplus
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Deficit
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Total
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Balance January 1, 2016
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$
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16,732,397
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$
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3,058,063
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$
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(19,279,201
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)
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$
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511,259
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Total comprehensive income for the year
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-
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-
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(249,569
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)
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(249,569
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)
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Balance December 31, 2016
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$
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16,732,397
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$
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3,058,063
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$
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(19,528,770
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)
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$
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261,690
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Share capital
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Contributed surplus
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Deficit
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Total
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Balance January 1, 2015
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$
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16,732,397
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$
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3,058,063
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$
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(19,620,110
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)
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$
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170,350
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Total comprehensive income for the year
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-
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-
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340,909
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340,909
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Balance December 31, 2015
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$
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16,732,397
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$
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3,058,063
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$
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(19,279,201
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)
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$
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511,259
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Share capital
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Contributed surplus
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Deficit
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Total
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Balance January 1, 2014
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$
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16,732,397
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$
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3,058,063
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$
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(19,330,235
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)
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$
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460,225
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Total comprehensive loss for the year
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-
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-
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(289,875
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)
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(289,875
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)
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Balance December 31, 2014
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$
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16,732,397
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$
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3,058,063
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$
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(19,620,110
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)
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$
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170,350
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The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF CASH FLOWS
Expressed In United States Dollars
For the year ended
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December 31
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December 31
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December 31
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2016
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2015
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2014
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Cash used in
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OPERATING ACTIVITIES
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Net income (loss) for the year
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$
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(249,569
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)
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$
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340,909
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$
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(289,875
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)
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|
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|
|
|
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Non-cash items included in income (loss)
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Amortization (Note 7)
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256
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365
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|
522
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Gain on sale of shares in FEP
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-
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(637,902
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)
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-
|
|
|
|
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(249,313
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)
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|
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(296,628
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)
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(289,353
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)
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Changes in working capital related to operating activities
Receivables
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286
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279
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(7
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)
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Prepaid expenses
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(213
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)
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10,427
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1,533
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Trade and accrued payables
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(2,323
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)
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19,553
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(363
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)
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Net cash used in operating activities
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(251,563
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)
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(266,369
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)
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(288,190
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)
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INVESTING ACTIVITY
Proceeds from sale of shares in FEP
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-
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637,902
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-
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Net cash provided by financing activities
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|
-
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637,902
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-
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|
|
|
|
|
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|
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Net (decrease) increase in cash
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|
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(251,563
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)
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371,553
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(288,190
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)
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Cash – beginning of the year
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563,724
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|
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192,191
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|
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480,381
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Cash – end of the year
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$
|
312,161
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$
|
563,724
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|
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$
|
192,191
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|
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 1
Corporate Information
FEC Resources Inc. (“FEC” or the “Company”) was incorporated under the laws of Alberta, Canada and is engaged primarily in the business of exploration and development of oil and gas and other mineral related opportunities, either directly or indirectly through companies in which the Company invests. The Company is not currently directly involved in any oil and gas or mineral related exploration activities. The Company is listed in the United States on the OTC Pink (“OTC Pink”), having the symbol FECOF.
At December 31, 2016, the Company held an investment in Metalore Mining Corporation in the Philippines which is accounted for using the equity method. The Company also has an 18.42% interest Forum Energy plc (“FEP”) in the United Kingdom. The Company has concluded that it still has significant influence over FEP and has continued to account for it using the equity method. (Note 8). In addition, at December 31, 2016, the Company held a 1.08% interest in Lascogon Mining Corporation (“Lascogon”) classified as available-for-sale investment.
The principal address of the Company is 203, 200 Barclay Parade S.W. Calgary, Alberta T2P 4R5. The Company’s ultimate parent company is PXP Energy Corporation (formerly Philex Petroleum Corporation) (“PXP”), 27 Brixton Street, Barangay Kapitolyo, Pasig City, Metro Manila, Philippines 1603.
Note 2
Basis of Preparation and Going Concern
a)
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Statement of Compliance
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These financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The financial statements were authorized for issue by the Board of Directors on March 29, 2017.
The financial statements have been prepared on a historical cost basis and are presented in United States dollars, which is also the Company’s functional currency.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 2
Basis of Preparation
(continued)
c)
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Nature of Operations and Going Concern
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The exploration and development of oil and gas reserves and the pursuit of other energy and mineral reserves involves significant financial risks. The success of the Company is dependent upon the success of its investments and their ability to discover economically recoverable reserves and to bring such reserves into profitable production, and is subject to a number of risks, including environmental risks, contractual risks, legal risks and political risks, fluctuations in the price of oil and gas and other factors beyond the Company’s control. The Company has not generated revenue from operations. The Company had net loss of $249,569 during the twelve months-ended December 31, 2016 and has an accumulated deficit since inception of $19,528,770. As of December 31, 2016, the Company has cash resources of $312,161 which is considered sufficient to meet its obligations for at least twelve months from the end of the reporting period.
Management considers that the current economic environment is difficult and the outlook for oil and gas exploration companies presents significant challenges in terms of raising funds through issuance of shares. To the extent necessary, the Company has relied on its ability to raise funds via dispositions of quantities of its shareholdings in Forum Energy plc (“FEP”) to PXP under terms that are consistent with the best interests of shareholders, in order to finance its operations. The Company has been successful in disposing quantities of its shareholdings in FEP in previous fiscal years. However, there can be no assurance the Company will continue to be able to dispose of quantities of its shares in FEP under suitable terms. In addition, management has instituted measures to preserve cash through significantly decreasing its corporate costs.
Management has concluded that the combination of these circumstances casts substantial doubt on the ability of the Company to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
Note 3
Summary of Significant Accounting Policies
The accounting policies set out below have been applied consistently to all years presented in these financial statements.
a)
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Investment in associates
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Investments in companies over which the Company has the power to exercise significant influence (but not control) are accounted for using the equity method. The equity method is a basis of accounting whereby the investment is initially recorded at cost and the carrying value is adjusted thereafter to include the Company’s pro-rata share of post-acquisition income or loss. The amount of the adjustment is included in the determination of net income (loss) by the Company and the investment account of the Company is also increased or decreased to reflect the Company’s share of capital transactions and changes in accounting policies and corrections of errors. Profit distributions received or receivable from the investments will reduce the carrying value of the investment. Any premium paid for an associate above the fair value of the Company's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalized and included in the carrying amount of the associate.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 3
Summary of Significant Accounting Policies
(continued)
Impairment
Investments accounted for on the equity basis are assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset, with the result that they have a loss in value that is other than a temporary decline.
An impairment loss is calculated as the difference between the investment’s carrying amount and the present value of the estimated future cash flows expected to be generated by the investment. All impairment losses are recognized in profit or loss. In the event the recoverable amount subsequently increases to a value greater than the carrying amount, an impairment gain is recognized up to the original pre-impaired value.
During the years ended December 31, 2016, 2015 and 2014 the Company did not recognize any impairment losses or reverse any previously recognized impairment losses.
b)
Property, plant and equipment
Recognition and Measurement
On initial recognition, property, plant, and equipment are recorded at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company. This includes the appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions.
Property, plant and equipment is subsequently measured at cost less accumulated depreciation less any impairment losses.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Gains and Losses
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in profit or loss.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 3
Summary of Significant Accounting Policies
(continued)
Depreciation
|
Property, plant and equipment is carried at cost less accumulated depreciation. The Company depreciates its computer equipment at the rate of 30% per annum utilizing the declining balance method.
|
|
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
|
|
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
|
c)
|
Foreign Currency Translation
|
The functional currency of the Company is the United States dollar. The Company and its investments accounted for by the equity method operate in Canada, the United Kingdom and the Philippines.
For the Company and any of its investee companies with a United States dollar functional currency, at the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into United States dollars by the use of the exchange rate in effect at that date. At the year-end date, unsettled monetary assets and liabilities are translated into United States dollars by using the exchange rate in effect at the year-end date and the related translation differences are recognized in comprehensive income/loss.
Exchange gains and losses arising on the retranslation of monetary available-for-sale financial assets are treated as a separate component of the change in fair value and recognized in comprehensive income/loss. Exchange gains and losses on non-monetary available-for-sale financial assets form part of the overall gain or loss recognized in respect of that financial instrument.
Non-monetary assets and liabilities that are measured at historical cost are translated into United States dollars by using the exchange rate in effect at the date of the initial transaction and are not subsequently restated. Non-monetary assets and liabilities that are measured at fair value or a revalued amount are translated into United States dollars by using the exchange rate in effect at the date the value is determined and the related translation differences are recognized in net income/loss or other comprehensive loss/income consistent with where the gain or loss on the underlying non-monetary asset or liability has been recognized.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 3
Summary of Significant Accounting Policies
(continued)
For the Company’s investee companies with a functional currency other than Unites States Dollars, any cumulative translation adjustments would be included in Accumulated other comprehensive income (‘‘AOCI’’) if material and would represent unrealized translation gains and losses on the Company’s net investment in equity-accounted investees that are translated using the current rate method. The exchange gains and losses would become realized in earnings upon the disposition, liquidation or dilution of the investment that gave rise to such amounts.
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive loss/income.
Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax basis, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss.
Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting year the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
e)
|
Earnings / Loss Per Share
|
Basic earnings/loss per share is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant year.
Diluted earnings/loss per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments were converted.
There were no dilutive instruments (consisting of shares issuable on the exercise of options and warrants) outstanding during the years ended December 31, 2016, December 31, 2015 and December 31, 2014. Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 3
Summary of Significant Accounting Policies
(continued)
Financial Assets
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.
Non-derivative financial assets that do not meet the definition of loans and receivables are classified as available-for-sale and comprise principally the Company’s investments in entities not qualifying as subsidiaries or associates. Available-for-sale investments are carried at fair value with changes in fair value recognized in other comprehensive income/loss.
The Company has designated cash as loans and receivables, which is measured at amortized cost.
Impairment on Financial Assets
At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.
With the exception of equity instruments classified as available for sale, if, in a subsequent period, the amount of the impairment loss decreases and the decrease relates to an event occurring after the impairment was recognized; the previously recognized impairment loss is reversed through profit or loss. On the date of impairment reversal, the carrying amount of the financial asset cannot exceed its amortized cost had impairment not been recognized.
Financial Liabilities
Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability was incurred, and comprise of trade payables and accrued liabilities. These liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. This ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of the period which are unpaid.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 3
Summary of Significant Accounting Policies
(continued)
Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s common shares are classified as equity instruments.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
h)
|
Finance income and expenses
|
Finance expense comprises interest expense on borrowings, accretion of the discount on provisions and impairment losses recognized on financial assets.
Interest income is recognized as it accrues in profit or loss, using the effective interest method.
Foreign currency gains and losses, reported under finance income and expenses, are reported on a net basis.
Note 4
Standards, Amendments and Interpretations
The Company has prepared its consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2016.
The following new standards, amendments and interpretations, which have not been early adopted in these financial statements, will or may have an effect on the Company’s future results and financial position:
IFRS 16 Leases
IFRS 16, Leases (“IFRS 16”) will replace IAS 17, "Leases". IFRS 16 eliminates the distinction between operating and finance leases and requires most leases to be recorded on the balance sheet for lessees under a single model unless the lease term is twelve months or less or the underlying asset has low value. IFRS 16 has an effective date for annual periods beginning on or after January 1, 2019 with early adoption permitted if IFRS 15 is also applied. The Company is assessing the impact, if any, the adoption of IFRS 16 will have on its financial statements.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 4
Standards, Amendments and Interpretations (continued)
IAS 7 Statement of Cash Flows (Amended)
(“IAS 7”). The Amendments to IAS 7 require disclosures that enable financial statement users to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments are effective for annual periods beginning on or after January 1, 2017. The adoption of this standard will not have a material impact on the Company’s financial statements.
Note 5
Critical Accounting Estimates and Judgments
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income/loss in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.
Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below:
i)
|
Lascogon Contingent Consideration – Note 8 (iii)
|
There were 30,000,000 common shares of the Company issued into escrow which are to be awarded to Indexa Corp., the vendor of the investment in Lascogon, upon the declaration of commerciality of the mining project as full and final consideration for the investment; these shares are considered contingent consideration. These shares were to be released from escrow if the project was declared commercial. The fair value of the escrow shares was zero when they were issued as the likelihood of the Lascogon being in a position to declare commerciality was remote. During the year, a settlement was reached whereby the shares were cancelled and returned to treasury for a payment of $36,000 to Indexa Corp.
ii)
|
Investments in Associates
|
|
The Company periodically or when circumstances change, reviews its investments in its associates to ascertain whether it has maintained significant influence over these investments and also, reviews whether there exists any evidence that the investments in associates are required to be impaired.
|
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 5
Critical Accounting Estimates and Judgments (continued)
iii)
|
Deferred tax assets and liabilities
|
Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. We recognize liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record our best estimate of the tax liability including the related interest and penalties in the current tax provision. We believe we have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.
iv)
|
Determination of natural resource reserves and natural resources estimates
|
The required process of estimating reserves of natural resources is critical to several accounting estimates that appear in our financial disclosures. It requires significant judgments based on available geological, geophysical, engineering and economic data. These estimates may change substantially as data from ongoing development and production activities becomes available, and as economic conditions impacting oil and natural gas prices, operating costs, and royalty burdens change. Reserve estimates impact net income through depletion and the application of an impairment test. Revisions or changes in the reserve estimates can have either a positive or negative impact on net income.
Note 6
Cash
|
Cash held at banks earns interest at floating rates based on daily bank deposit rates.
|
Note 7
Property, Plant and Equipment
Computer Equipment
|
|
December 31 2016
|
|
|
December 31 2015
|
|
|
December 31 2014
|
|
Cost
|
|
|
|
|
|
|
|
|
|
Opening Cost
|
|
$
|
15,543
|
|
|
$
|
15,543
|
|
|
$
|
15,543
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending Cost
|
|
|
15,543
|
|
|
|
15,543
|
|
|
|
15,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Accumulated Depreciation
|
|
$
|
(14,691
|
)
|
|
$
|
(14,326
|
)
|
|
$
|
(13,804
|
)
|
Charge for the year
|
|
|
(256
|
)
|
|
|
(365
|
)
|
|
|
(522
|
)
|
Ending Accumulated Depreciation
|
|
|
(14,947
|
)
|
|
|
(14,691
|
)
|
|
|
(14,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
$
|
596
|
|
|
$
|
852
|
|
|
$
|
1,217
|
|
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 8
Investment in associates and available for sale investment
Investments in Associates
The Company has the following investments accounted for using the equity method:
i)
|
Investment in Metalore Mining Corporation (“Metalore”)
|
The Company holds a 35% interest in Metalore with its cumulative cost being $789,569 offset by equity share of losses totaling $24,894 and an impairment write-down of $764,675 leaving a carrying value of $Nil (2015: $Nil). Metalore’s project has been abandoned and it has no other operations.
The investment in FEP is summarized as follows:
|
|
Number of
shares held
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
8,550,200
|
|
|
|
-
|
|
Disposition
|
|
|
(2,000,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2015 and 2016
|
|
|
6,550,200
|
|
|
$
|
-
|
|
As at December 31, 2016 the Company’s interest in FEP was 18.42% (2015 – 18.42%).
During the year ended December 31, 2012, FEP wrote down $25,400,000 of its investment in Service Contract 40 “SC40” as a result of receiving a resource estimate from an independent consultant. The Company’s equity share of the losses incurred by FEP was in excess of the carrying value of the investment prior to recording the loss. However, in accordance with the guidance of IFRS, the Company discontinued recording losses once the carrying value of the equity investment was reduced to zero. The Company’s cumulative losses in FEP are $5,895,703 (2015: $5,874,945) and an impairment write-down of $4,720,167. As the cumulative losses exceed the cost of the investment, the investment in FEP was reduced to $Nil (2015: $Nil).
On November 16, 2015 the Company sold 2,000,000 FEP shares to its parent company, PXP, for 21 British pence per share. As a result of the sale of the shares, the Company recorded a gain on sale of $637,902.
Investment in available-for-sale investment
iii)
|
Investment in Lascogon Mining Corporation (“Lascogon”)
|
|
30,000,000 common shares of the Company were issued into escrow, which were to be awarded to the vendor of the investment in Lascogon upon the declaration of commerciality as full and final consideration for the assignment of its rights to the Company, were considered contingent consideration and were to be recorded as an additional cost of the investment, at fair value, should Lascogon reach commerciality. During the year, a settlement was reached whereby the shares were cancelled and returned to treasury for a payment of $36,000.
|
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 8
Investment in associates and available for sale investment – (cont’d)
In May 2012, the Company received a capital call from Lascogon in the amount of 100 million Philippine Pesos or approximately $2,400,000. The capital call was made to address Lascogon’s current deficit and to fund the upcoming work program and exploration budget. The Company was given until December 21, 2012 to forward the requested funds or have its 40% interest diluted to 1.08%. The Company did not forward funds and therefore its interest in Lascogon has been diluted to 1.08% with the result being that Lascogon was no longer considered an associate of the Company as the Company no longer exerts significant influence. Upon the dilution of its interest in Lascogon, the investment was reclassified to an available for sale investment having a fair value of $Nil as at December 31, 2016 and 2015. The current exploration phase under the Mineral Production Sharing Agreement (“MPSA”) expired in January 2014 and, whilst a challenge regarding the cancellation of the MPSA is underway, it remains uncertain whether a further 2 year extension will be granted.
The Company’s cumulative cost in its investment in Lascogon is $2,635,254 offset by equity share of losses totaling $27,640 and an impairment write-down of $2,607,614 leaving a carrying value of $Nil (2015: $Nil).
Note 9
Share Capital
The Company is authorized to issue an unlimited number of common shares without par value; and the Company is authorized to issue an unlimited number of Class A and Class B preferred convertible redeemable voting shares without par value.
Issued:
Common Shares
|
|
Number
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
439,143,765
|
|
|
$
|
16,732,397
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2015, 2014
|
|
|
439,143,765
|
|
|
$
|
16,732,397
|
|
Returned to treasury (i)
|
|
|
(30,000,000
|
)
|
|
|
-
|
|
Balance, December 31, 2016
|
|
|
409,143,765
|
|
|
$
|
16,732,,397
|
|
(i)
|
30,000,000 common shares of the Company were issued into escrow which were to be awarded to Indexa Corp., the vendor of the investment in Lascogon, upon the declaration of commerciality of the mining project as full and final consideration for the investment. As the commerciality of Lascogon was considered to be remote, no value was assigned to the shares (2015: $Nil; 2014: $Nil). On January 18, 2016 a settlement was reached whereby the shares were cancelled and returned to treasury for a payment of $36,000 to Indexa Corp.
|
|
No preferred shares have been issued since the Company’s inception.
|
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 9
|
Share Capital - (continued)
|
b)
|
Nature and Purpose of Equity and Reserves
|
The reserves recorded in equity on the Company’s statements of financial position include Contributed Surplus and Deficit.
Contributed Surplus is used to recognize the value of stock option grants prior to exercise.
Deficit is used to record the Company’s change in deficit from earnings and losses from period to period.
|
The Company has established a stock option plan whereby options may be granted to its directors, officers, consultants, and employees. The exercise price of each option equals the market price of the Company’s stock on the date of the grant and an option’s maximum term is five years. The options vest immediately.
|
There were no stock options outstanding on December 31, 2016 or December 31, 2015 and none were issued between January 1, 2014 and December 31, 2016.
Note 10
Related Party Transactions and Balances
|
During the year ended December 31, 2016 general and administrative expenses included key management personnel compensation totaling $48,000 (2015: $110,500; 2014: $168,000)
|
Included in accounts payable and accrued liabilities at December 31, 2016 is $Nil (2015: $Nil) owed to directors, officers and companies controlled by them for unpaid consulting fees and or expenses.
In addition, at December 31, 2016, the Company owed Lascogon Mining Corporation $18,895 (2015: $18,895). Amounts owing are unsecured, non interest bearing and due on demand.
|
Related party transactions are measured at exchange value.
|
Note 11
|
Nature of Expenses
|
General and administration expenses include
|
|
December 31, 2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Professional fees
|
|
$
|
64,681
|
|
|
$
|
37,205
|
|
|
$
|
38,544
|
|
Bank charges
|
|
|
3,324
|
|
|
|
2,961
|
|
|
|
2,703
|
|
Listing and filing fees
|
|
|
18,105
|
|
|
|
23,479
|
|
|
|
19,985
|
|
Office and miscellaneous
|
|
|
29,924
|
|
|
|
33,552
|
|
|
|
51,673
|
|
Consulting (Note 10)
|
|
|
108,000
|
|
|
|
187,042
|
|
|
|
168,000
|
|
Engineering and geological expenses
|
|
|
-
|
|
|
|
6,753
|
|
|
|
6,448
|
|
Amortization
|
|
|
256
|
|
|
|
365
|
|
|
|
522
|
|
Foreign exchange
|
|
|
(9,719
|
)
|
|
|
5,684
|
|
|
|
2,105
|
|
|
|
$
|
214,571
|
|
|
$
|
297,041
|
|
|
$
|
289,980
|
|
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 12
Income Taxes
Reconciliation of accounting and taxable income, for the years ended December 31 are as follows:
|
|
December 31, 2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Income (loss before income taxes)
|
|
$
|
(249,569
|
)
|
|
$
|
340,909
|
|
|
$
|
(289,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (recovery) based on statutory rate of 27.0% (2015: 26%, 2014: 25.0%)
|
|
|
(67,000
|
)
|
|
|
89,000
|
|
|
|
(72,000
|
)
|
Impact of disallowed capital losses
|
|
|
-
|
|
|
|
268,000
|
|
|
|
-
|
|
Impact of foreign exchange on tax assets as a difference in functional currency
|
|
|
-
|
|
|
|
-
|
|
|
|
94,000
|
|
Foreign currency adjustment on non-monetary items
|
|
|
(256,000
|
)
|
|
|
552,000
|
|
|
|
172,000
|
|
Effect of reduction in statutory rate
|
|
|
-
|
|
|
|
(249,000
|
|
|
|
-
|
|
Non-taxable portion of capital gains
|
|
|
-
|
|
|
|
(86,000
|
|
|
|
-
|
|
Expiry of loss carry forward
|
|
|
333,000
|
|
|
|
332,000
|
|
|
|
270,000
|
|
Changes in unrecognized deferred tax assets
|
|
|
(10,000
|
)
|
|
|
(906,000
|
|
|
|
(464,000
|
)
|
Total income tax expense (recovery)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Effective December 31, 2016, the Canadian Federal Corporate tax rate and the Alberta provincial tax rate were 15% and 12%, respectively.
The nature and tax effect of the temporary differences giving rise to the deferred tax assets and liabilities at December 31, 2016 and 2015 are summarized as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Non-capital losses
|
|
$
|
811,000
|
|
|
$
|
1,067,000
|
|
Capital assets and other
|
|
|
240,000
|
|
|
|
37,000
|
|
Investments
|
|
|
1,437,000
|
|
|
|
1,394,000
|
|
Unrecognized deferred tax assets
|
|
|
(2,488,000
|
)
|
|
|
(2,498,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As at December 31, 2016, the Company had estimated non-capital losses for Canadian tax purposes of $3,003,000 that expire between 2027 to 2036 which may be carried forward to offset future years’ taxable income.
The potential benefit of these carry-forward non-capital losses has not been recognized in these financial statements as it is not considered probable that sufficient future taxable profit will allow the deferred tax asset to be recovered.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 13
Financial Instruments and Risk Management
|
The Company is exposed through its operations to the following financial risks:
|
In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in the note.
General Objectives, Policies and Procedures
The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors receive quarterly reports from the Company’s Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of foreign currency risk, interest rate risk and equity and commodity price risk.
|
Foreign currency exchange risk
|
The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S. dollars. As at December 31, 2016, the Company had an insignificant amount of cash denominated in Canadian dollars that was subject to exchange rate fluctuations between the Canadian dollar and the U.S. dollar. As at December 31, 2016, the Company held an insignificant amount of financial liabilities denominated in Canadian dollars that would be subject to exchange rate fluctuations between Canadian dollars and U.S. dollars.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 13
Financial Instruments and Risk Management
(continued)
The Company maintains cash deposits in one chartered Canadian bank which, from time to time, exceed the amount of depositors insurance available in each respective account. Management assesses the financial condition of this bank and believes that the possibility of any credit loss is minimal. The maximum exposure of credit risk is the Company’s cash deposit $312,161 (2015: $563,724) and receivables of $879 (2015: $1,165)
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company does not generate cash from operations but rather, the Company will, from time to time, issue shares via equity placements, borrow funds from an affiliated company or undertake to sell a portion of its investment in the shares of FEP should it be necessary to raise funds. The Company manages liquidity by maintaining cash balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2016 the Company’s accounts payable and accrued liabilities were $58,636, all of which fall due for payment within twelve months of the date of the statement of financial position.
The carrying values of accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2016
(
Stated in United States Dollars
)
Note 14
|
Capital Management
|
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders, to meet external capital requirements on credit facilities and to support any growth plans.
The capital of the Company consists of the items included in shareholders’ equity and cash net of debt obligations. The Company monitors capital based on the debt to debt-plus-equity ratio. Debt is total debt shown on the balance sheet, less cash. Debt-plus-equity is calculated as debt shown on the balance sheet, plus total shareholders’ equity which includes share capital, warrants, contributed surplus and deficit. Currently the Company has no debt. The Company’s Board of Directors approves management’s annual capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management.
As at December 31, 2016, the company had no externally imposed capital requirements nor were there any changes in the company’s approach to capital management during the year.
Note 15
Segmental Reporting
The Company has one reportable operating segment which is primarily the business of exploration and development of oil and gas and other mineral related opportunities, through companies in which the Company invests.
Note 16
Subsequent Events
On March 23, 2017, PXP announced that it has increased its shareholdings in Forum Energy Limited (“FEP”) from 48.8% to 69.5% through a subscription for new ordinary shares. The Company did not participate in this financing transaction. There were no changes made to the board of FEP. The PXP investment resulted in the dilution of the Company’s interest in FEP from 18.42% to 8.03%.