{"url_path":"/sec/fecof/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS.**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/849997/0001477932-26-003204-index.html","accession_number":"0001477932-26-003204","cik":"0000849997","ticker":"FECOF","issuer_name":"FEC Resources Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/849997/0001477932-26-003204-index.html","primary_entity_key":"0000849997","primary_entity_name":"FEC Resources Inc."},"word_count":2201,"has_tables":true,"body_markdown":"**ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.**\n\n \n\nWe have experienced significant operating losses over the last few years, and as a result, our ability to continue as a going concern is dependent on achieving profitable operations and/or upon obtaining additional financing.\n\n \n\nOur audited financial statements were prepared in accordance with IFRS as issued by the IASB, which are different from US GAAP (refer to the Auditors’ Report dated March 31, 2026).\n\n \n\nThe 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.   Cash held in Canadian dollars  is subject to exchange rate fluctuations between the Canadian dollars and the U.S. dollars.\n\n \n\nThe following discussion and analysis of financial results should be read in conjunction with our Audited Financial Statements for the year ended December 31, 2025, together with the notes related thereto.  The discussion contains forward-looking statements that involve risks and uncertainties.  Such information, although considered reasonable by our management at the time of preparation, may prove to be inaccurate and actual results may differ materially from those anticipated in the statements made.\n\n \n\n \n\n26\n\n*Table of Contents*\n\n \n\n**Fiscal year ended December 31, 2025 versus December 31, 2024**\n\n \n\nOur accounts show a loss for the twelve months ended December 31, 2025 of $282,798, or $0.00 per share, versus a loss of $244,437 for the same period in 2024. \n\n \n\nThe higher net loss due to higher professional fees (legal and auditing) incurred during the year.\n\n \n\nGeneral and administration expense were $241,376 for the twelve month period ended December 31, 2025 versus $182,241 for the same period in 2024.  Overall expenses were higher than those experienced in the previous year.  Higher professional fees accounted for the difference.  Legal and audit related fees were $112,794 for the twelve month period ended December 31, 2025 versus $54,310 for the same period in the previous year as we engaged professional advice for an in depth review of our strategic options going forward in 2025.  Office and miscellaneous costs were $20,486 for the twelve month period ended December 31, 2025 versus $19,219 for the same period in the previous year.  The difference was not material. Consulting fees for the twelve months ended December 31, 2025 were $86,106 versus $86,397 for the previous year.  The difference was not material. Listing and filing fees were$18,590 for the twelve month period ended December 31 , 2025 versus $19,929 for the same period in the previous year.  The difference was due to higher filing costs in 2024.  For the year ended December 31, 2025, foreign exchange loss was $2,535 versus a loss of $1,500 for the same period in the previous year. Interest expense for the year ended December 31, 2025 was $41,422 versus $62,196 for the same period in the previous year.  The difference was due to the settlement in shares of the PXP Loan on July 31, 2025 resulting in lower interest expense.  Comprehensive loss for the twelve months ended December 31, 2025 was $2,325,671 versus an income of $6,106,163 for the twelve month period ended December 31, 2024.  The difference was a result of the change in fair value of our investment in FEL.\n\n \n\n**Fiscal year ended December 31, 2024 versus December 31, 2023**\n\n \n\nOur accounts show a loss for the year ended December 31, 2024, of $244,437, or $0.00 per share, versus a loss of $191,795 for the same period in 2023.  General and administration expense were $182,241 for the year ended December 31, 2024 versus $159,202 for the same period in 2023.  Overall general and administrative expenses were higher than those experienced in the previous year.  Higher professional fees and higher interest expense on the PXP Loan mainly accounted for the difference.  Professional fees were $54,310 for the year ended December 31, 2024 versus $23,841 for the same period in the previous year as we engaged professional advice with respect to our strategic options going forward in 2025. Office and miscellaneous costs were $19,219 for the year ended December 31, 2024 versus $22,572 for the same period in the previous year.  The difference was a result of our ongoing effort to reduce costs where possible. Consulting fees for the year ended December 31, 2024 were $86,397 versus $86,749 for the previous year.  The difference was not material. Listing and filing fees were $19,929 for the year ended December 31, 2024 versus $25,183 for the same period in the previous year.  The difference was due to the initial conversion in 2023 of our 2022 and 2023 filings to XBRL pursuant to new filing requirements.  For the year ended December 31, 2024, foreign exchange loss was $1,500 versus a loss of $191 for the same period in the previous year.  The average foreign exchange for 2024 was 1.3698 versus 1.3497 in 2023. Interest expense for the year ended December 31, 2024 was $62,196 versus $32,593 for the same period in the previous year.  The difference was due to the increased interest on the loans from PXP in 2024 as a result of an increase in the overall loan amount and the increase in interest rates.  Comprehensive income for the year ended December 31, 2024 was $5,861,726 versus a loss of $191,795 for the year ended December 31, 2023.  The difference was a result of the change in fair value of our investment in FEL.\n\n \n\n \n\n27\n\n*Table of Contents*\n\n \n\n**Balance Sheet**\n\n \n\nOur current assets were $23,776 at December 31, 2025 versus $14,245 for the year ended December 31, 2024. The difference is a result of the higher cash.  Our investment in Forum Energy was reflected at a carrying value of $6,242,423 in the financial statements as at December 31, 2025 (2023 - $8,568,094).  The decrease was due to the change in fair value of our investment in FEL in 2025.  Our assets reflect our investment in Forum Energy on a fair value basis.\n\n \n\n**Liquidity and Capital Resources**\n\n \n\nOur working capital deficit at December 31, 2025 was $50,794 versus $922,999 at December 31, 2024 and shareholders’ equity was $6,191,629 at December 31, 2025 (2024 - $7,645,095).  On December 31, 2025, our cash balance was $14,864 which was higher than on December 31, 2024.  On December 31, 2025 our short-term loans payable was $40,248 versus $895,637 on December 31, 2024.  In addition, our trade and accrued payables balance on December 31, 2025 was $34,322 versus $41,607 on December 31, 2024. These differences mainly accounted for the changes in working capital.\n\n \n\nCash used in operating activities for the year ended December 31, 2025 was $249,084 versus $156,936 for the same period in 2024 mainly as a result of the differences described in the results of operations above.\n\n \n\nCash provided by financing activities was $258,192 for the year ended December 31, 2025 versus $155,286 for the year ended December 31, 2024.  The difference was due to a higher amount of loans received from PXP in 2025.   \n\n \n\nCash used in investing activities was $Nil for the year ended December 31, 2025 and 2024 versus $204,000 for the year ended December 31, 2023. In 2023, we advanced an additional $204,000 to FEL as part of a financing undertaken by FEL.\n\n \n\nOn March 10, 2022, we announced that we agreed to fund an additional cash call for pre-drilling costs received from FEL in the amount of $198,620, bringing the total to $423,020, which included $224,400 previously advanced.  The advance to FEL was via non-interest bearing loans.  In order to be able to fund the $198,620, the Company accepted a PXP Loan. \n\n \n\nOn October 31, 2023 and November 29, 2023, we advanced $68,000 and $136,000, respectively, to FEL representing 6.8% of a $3,000,000 financing being undertaken by FEL, bringing the total advances by us to $627,020.   The funds to participate in the financing were obtained via further PXP Loans.\n\n \n\nThe PXP Loan bears interest of LIBOR plus 3.5% and both interest and principal are repayable on the earlier of: (a) August 31, 2025, (b) any equity issuance by us, (c) any sale of FEL shares by us, or (d) any third party borrowing by us.  We also received an additional $260,950 for working capital from PXP during the year ended December 31, 2025 (2024 - $155,286; 2023 - $356,500 under the same terms and conditions as the PXP Loan.  As at December 31, 2025, the outstanding PXP Loan balance was $40,238 (2024 - $895,637), which included accrued interest of $248 (2024 - $105,431; 2023 - $42,235).  Total interest expense amounted to $41,422 for the year ended December 31, 2025 (2024 – 62,196; 2023 – 32,593).  On July 31, 2025, the Company issued 131,563,725 in settlement of the PXP Loan outstanding on that date comprised of $1,011,156 principal and $146,605 in interest for a total of $1,157,761.\n\n \n\n \n\n28\n\n*Table of Contents*\n\n \n\nOn December 21, 2023, $626,820 of advances made to FEL by us were converted to shares in FEL at a price of $0.30 per share.  The $626,820 conversion into FEL shares represented 6.8% of $9,217,939 of debt settled by FEL.\n\n \n\n**Capital Resources**\n\n \n\nWe currently own 6.80% of Forum Energy. If Forum Energy is required to raise additional funds through equity issuances, we would have to purchase our proportionate share of these equity issuances to maintain our current equity position.\n\n \n\nWe anticipate that we will require additional funds for working capital in 2026 and we are evaluating options in order to raise the additional funds.  If we are unable to raise additional funds, there is significant doubt that we will be able to continue as a going concern.  Currently, PXP has agreed to fund our operations for the foreseeable future, under the same terms and conditions as the PXP Loan, $1,157,761 of which was settled by way of issuance of 131,563,725 of out shares on July 31, 2025.\n\n \n\nSince the delisting of FEL from the London Stock Exchange, there is no liquidity via a public market for the FEL shares.  As we are wholly reliant on the information disclosed by PXP concerning the business of FEL, we may not be able to obtain information necessary to facilitate a wider sales process and may be reliant on significant shareholders of PXP for the disposition of any of our FEL shares.  We have looked at all options, including raising funds to operate and participate in future FEL financings by way of debt or equity financings. \n\n \n\n**Off-Balance Sheet Arrangements**\n\n \n\nWe have no off-balance sheet arrangements.\n\n \n\n**Contractual Obligations**\n\n \n\nNone\n\n \n\n**Critical Accounting Policies and Estimates**\n\n \n\n**Basis of preparation and accounting policies**\n\n \n\nWe have prepared our consolidated financial statements in accordance with IFRS Accounting Standards as issued by the IASB. IFRS Accounting Standards represents standards and interpretations approved by the IASB. 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 Accounting Standards and interpretations effective as of December 31, 2025.\n\n \n\n**Critical Accounting Estimates**\n\n \n\nThe preparation of financial statements requires management to make certain judgments and estimates.  Changes in these judgments and estimates could have a material impact on our reported financial result and financial condition.\n\n \n\n \n\n29\n\n*Table of Contents*\n\n \n\nWe make 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.\n\n \n\nThe determination of the fair value of our investment in FEL is a significant accounting estimate.\n\n \n\n**Recent Accounting Related Pronouncements**\n\n \n\nThe Company has prepared its financial statements in accordance with IFRS Accounting Standards as issued by the IASB. IFRS Accounting Standards represents standards and interpretations approved by the IASB. IAS’s, and interpretations issued by the IFRIC’s SIC’s. The financial statements have been prepared in accordance with IFRS Accounting Standards and interpretations effective as of December 31, 2025.\n\n \n\nNew IFRS Accounting Standards and interpretations or changes to existing standards with future effective dates are either not applicable or not expected to have a significant impact on the financial statements of the Company.\n\n \n\nAs at the date of authorization of these financial statements, the IASB had issued certain pronouncements that are mandatory for the Company’s accounting periods commencing on or after March 1, 2025. In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”) which replaces IAS 1 Presentation of Financial Statements. This standard aims to improve how companies communicate in their financial statements, with a focus on information about financial performance in the statement of profit or loss, in particular additional defined subtotals, disclosures about management-defined performance measures and new principles for aggregation and disaggregation of information. IFRS 18 is accompanied by limited amendments to the requirements in IAS 7 Statement of Cash Flows. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027. Companies are permitted to apply IFRS 18 before that date. The Company is currently assessing the impact the new standard will have on its financial statements. Other recent accounting pronouncements are not applicable or do not have a significant impact to the Company, have been excluded."}