SEC Info - Brek Energy Corp - ‘10KSB’ for 12/31/02

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

For the fiscal year ended December 31, 2002

For the transition period from__________ to___________

Commission file number 000-27753

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

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

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

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. [ ]

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. $ nil

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: $5,298,019 as of December 31, 2002 ($0.25 close)

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

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); and Exhibit 10.5 (License Agreements).

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

PART I

Item 1. Description of Business.

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.

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 operation focusing on oil and gas projects located 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, 2002, Brek did not produce any product. When Brek begins producing natural gas and condensate from its properties, it intends to sell its product to purchasers in the geographic area of the properties. Natural gas, after processing, will be distributed through pipelines. Brek will recognize 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.

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, 2002, 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 or 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

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.

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

During the fiscal year ended December 31, 2002, Brek did not have any natural gas sales. When Brek has sales Brek will not have any customers as any sales will be handled by the operator of the properties. The natural gas to be sold by Brek is a commodity desired by many companies and Brek or its operator are frequently contacted regarding the sale of its products. At anytime Brek may be selling 10% or more of its natural gas to one purchaser, such a purchaser is not material to Brek since if that purchaser fails to purchase Brek’s natural gas for any reason Brek can readily sell the natural gas to another party at a price close to what was paid by the former purchaser.

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 2002 and 2001. Brek spent $529,906 and $nil on exploration and development activities during the two fiscal years ended 2002 and 2001 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, 2002, Brek had one full time employee and no part time employees.

RISK FACTORS

Brek is in the development stage 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.

Risks associated with Brek’s business and properties:

Risks associated with Brek’s industry:

Risks associated with Brek and its subsidiaries:

Item 2. Description of Property.

Corporate Headquarters

As of December 31, 2002, Brek operated from its principal executive office at 19^th Floor, 80 Gloucester Road, Wanchai, Hong Kong. Brek’s telephone number was 011-852-2801-5181. Since March 1, 2002, Brek has leased the office space under a one year term lease at a rental rate of HK$36,458 a month (approximately US$4,704/month).

Property

As of December 31, 2002, the Riverbend Project comprised approximately 103,227 gross acres in the Uinta Basin of northeastern Utah, of which Brek held interests in approximately 11,141 net acres as of December 31, 2002. Brek’s engineering and geologic focus was concentrated on three tight-sand formations in the Uinta basin: the Wasatch, Mesaverde and Blackhawk formations.

As of December 31, 2002, Brek had a leasehold interest in approximately 123,700 gross acres and 24,369 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.

As of December 31, 2002, Brek had a leasehold interest in approximately 4,068 gross acres and 932 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.

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.

During 2002, two wells were drilled on the Wyoming property and one well was drilled on the Texas property. None of these wells were considered to be prospective. At the end of 2002, no further exploration or development work was planned for the Texas, California or Wyoming properties. During 2002 one well was drilled on the Utah property. During 2004, Brek commenced exploration and development of their Utah properties and plans to continue with exploration and development of these properties as its financial resources permit.

Brek had no production or sales of natural gas prior to its fiscal year ended December 31, 2002.

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. During the years ended December 31, 2001 and 2000, Brek spent $nil in development and exploration activities. As of December 31, 2002, Brek held a 25% working interest in 230,995 gross acres and 36,442 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. As of December 31, 2002, Brek had no producing gas wells or shut-in gas wells on these properties.

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:

As of December 31, 2002, Brek had no producing gas wells or shut-in gas wells 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.

The following table sets forth the undeveloped and developed leasehold acreage, by area, held by Brek as of December 31, 2002. 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.

The following table sets forth Brek’s drilling activity during the year ended December 31, 2002. Brek had no drilling activity during the fiscal years ended December 31, 2001 and 2000.

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.

During the year ended December 31, 2002 , 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.

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, 2002, 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, with the exception of 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, 2002, Brek and Vallenar Energy Corp., to the best of management’s knowledge, were still under investigation by the British Columbia Securities Commission. On April 1, 2003, the British Columbia Securities Commission withdrew the notice of hearing and had 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 further action has transpired by any party since Brek filed its defence and counterclaim.

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 and the 2001 fiscal year.

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 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.

(b) Holders of Record

As of December 31, 2002, there were approximately 139 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.

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:

During 2000, Brek issued 50,000 warrants to a former employee. These warrants were exercisable until June 30, 2002 at a price of $8.55 per share.

March 6, 2000 - $11.40 Offering

On March 6, 2000, Brek issued 3,228,500 units, each of which consisted of one share of common stock and a five-year warrant to purchase one third of a share of common stock for $11.40 per whole share, to 15 non-US investors outside the United States for $9.50 per unit. This issuance was exempt from registration pursuant to Regulation S.

In connection with the private placement on March 6, 2000, Brek granted warrants to an investment bank to purchase 26,923 shares of common stock at an exercise price of $7.80 and 223,925 shares of common stock at an exercise price of $11.40 per warrant. All of the warrants expired on March 9, 2005.

March 2000 - Acquisition of Asia Internet Limited

On March 16, 2000, Brek signed an agreement with the owners of Asia Internet Limited to purchase the entire issued share capital of Asia Internet Limited for a consideration of $1.2 million in cash and 24,870 shares of common stock of Brek. On March 31, 2000, Brek issued 4,974 shares of common stock to Balaji Exports Ltd., 12,435 shares of common stock to Rajan Chellarm Mahboobani, and 7,461 shares of common stock to Ravi Kishinchand Daswani, the share holders of Asia Internet Limited, in exchange for all of the issued and outstanding shares of Asia Internet Limited. 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 10.1 - Stock Purchase Agreement for more details.

July 2000 - Exercise of Warrants

On July 26, 2000, Brek issued 1,000,000 shares of common stock for the exercise of warrants at an exercise price of $7.80 per warrant. These warrants were issued as part of the December 23, 1999 offering and expired on December 22, 2004.

2000 - Stock Options Granted

Under the 1999 Stock Option Plan, Brek granted the following share purchase options during the fiscal year ended December 31, 2000:

On August 29, 2000, Brek approved the granting of new options, with a new exercise price of $5.05 per share, providing the holders first rescinded their existing grants. Holders of 1,145,740 stock options elected to rescind their grants and these were replaced with a like number of new stock options repriced to $5.05 per stock option.

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:

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.

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:

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 vest 25% every 6 months, and expire 3 months after termination of employment.

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.

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, 2002 and 2001. 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 Untied States.

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, is 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 lease

We are in the early stages of development and have insufficient operating history on which to base an evaluation of our 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 oil and gas. Our longer-term ability to emerge from the development stage depends upon our oil and gas properties proving up sufficient reserves and if sufficient reserves are proved, bringing these properties into production.

Since inception we have had recurring operating losses and continuing negative cash flows from operations. Due to these factors the consolidated financial statements have been prepared on a going concern basis. We believe that our cash and cash equivalents, as of December 31, 2002, and the date of this filing, are not sufficient to satisfy our working capital needs and that we must raise funds by borrowing, raising additional equity or liquidating assets to satisfy our operational and working capital requirements in the foreseeable future.

RESULTS OF OPERATIONS

Revenues

We are in the development stage and had no revenue during the year ended December 31, 2002. Due to the disposal of our subsidiary, First Ecom Systems Limited, on September 30, 2002, all revenue from this electronic systems payment processing business was reclassified to discontinued operations for the years ended December 31, 2002, 2001 and 2000. We expect to generate revenue from our oil and gas properties, but it will be nominal until we have drilled enough wells to generate meaningful revenue.

Before these reclassifications, total revenues for year ended December 31, 2001, were $301,978 as compared to $38,223 for the year ended December 31, 2000. At December 31, 2002, systems integration revenue of $816,648 related to Asia Internet Limited, which we acquired on March 31, 2000, was reclassified to discontinued operations. During 2001, $250,567 of the total revenue was due to consolidation of FEDS revenue for the period from June 19, 2001 to October 19, 2001.

Operating Expenses

Total operating expenses increased by $21,983,937 or 9456% from $232,475 for the year ended December 31, 2001, to $22,216,412 for the year ended December 31, 2002. This increase was due to $611,628 in sales and marketing expenses, $6,920,666 in administrative expenses, $836,134 in systems and technology expenses and $3,159,505 in charges for impairment of certain long-lived and prepaid assets being reclassified to discontinued operations at December 31, 2001, due to the disposal of First Ecom Systems Limited on September 30, 2002. The increase was also due to an increase in charges for impairment of certain long-lived assets during 2002 of $16,634,187 which was due to the recording of an impairment charge on our oil and gas properties, $1,901,106 due to impairment of our note receivable and $8,015 due to impairment on our fixed assets. Due to the sale of First Ecom Systems Limited on September 30, 2002, at December 31, 2002, we reclassified First Ecom System Limited’s December 31, 2000, operating expenses in the amount of $12,849,315 to discontinued operations. Our operating expenses have decreased significantly since 2002 due to our having discontinued all electronic payments processing operations.

Before these reclassifications, total operating expenses for the years ended December 31, 2001 and 2000 were $11,760,408 and $12,849,315. The year 2001 included a non-recurring charge of $3,159,505 for impairment of long-lived assets, resulting from the write-down of the carrying value of First Ecommerce Data Services Limited as at September 30, 2001, based on sale proceeds in October 2001, versus a similar charge of $949,418, which resulted from a review of the carrying value of Brek’s electronic payment processing assets in 2000. Of the total operating expenses, $936,586 was due to consolidation of FEDS expenses for the period June 19, 2001 to October 19, 2001. We reclassified the expenses in 2000 of Asia Internet Limited to discontinued operations. The decrease in expenses during 2001 is attributable to a decrease in the number of employees, a decrease in sales and marketing efforts, decreased systems development and the discontinuance of the operations of Asia Internet Limited.

Other Items

Interest income decreased to $40,593 during the year ended December 31, 2002, as compared to $704, 725 during the year ended December 31, 2001. This decrease was due to a decrease in our cash, which we used primarily to cover operating costs in our payments processing subsidiaries until they were discontinued, and to buy oil and gas properties and pay for our oil and gas participation costs.

Interest income decreased to $704,725 during the year ended December 31, 2001 as compared to $1,527,959 during the year ended December 31, 2000. This decrease was due to our decreased cash position during the year and a significant reduction in interest rates. The most significant aspect relating to the decrease in cash was our acquisition of the preferred stock in Gasco Energy Inc.

Interest expense for the years ended December 31, 2002 and 2001 was $nil, because we did not borrow any money during these periods.

Interest expense decreased to $nil during the year ended December 31, 2001 as compared to $2,121 during the year ended December 31, 2000, because we did not borrow any money during 2001.

The losses in equity investments for the year ended December 31, 2002, consisted of $796,370, which was our equity in the losses of Gasco before we exchanged our Gasco preferred shares for a 25% interest in Gasco’s unproved oil and gas properties on July 16, 2002, and $17,011, which was our equity in the losses of Vallenar before we increased our equity interest to 51.53% on June 28, 2002.

The losses of $882,146 in equity investments for the year ended December 31, 2001, consisted of our share of the losses before acquisition of the remaining 50% interest in First Ecommerce Data Services limited on June 18, 2001 ($390,052), and our share of the losses of Gasco Energy, Inc. after we acquired Gasco’s preferred stock on July 19, 2001 ($492,094). During the year ended December 31, 2000, we recorded an equity loss of $292,118 in an affiliate which was wholly attributable to our share of the losses before we acquired the remaining 50% interest in First Ecommerce Data Services Limited.

During the year ended December 31, 2002, we recorded a write down of our investment in an equity investment of $3,309,536. This loss adjusted the carrying value of our 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 July 16, 2002, the date on which we exchanged our Gasco shares for leasehold interests.

During the year ended December 31, 2002, we recorded a loss on the sale of our investment in shares of uniView Technologies Corporation of $12,611. During the years ended December 31, 2002, 2001 and 2000, we recorded losses of $34,927, $314,339 and $1,632,353 on the write down of our investment in this investment.

During the year ended December 31, 2002, we discontinued the operations of First Ecom Systems Limited, our payment processing business. The discontinuation of these operations resulted in the net operating losses of First Ecom System Limited, for the years ended December 31, 2002, 2001 and 2000, of $1,199,755, $11,225,955 and $12,811,092, being reclassified to discontinued operations.

During the year ended December 31, 2001, we discontinued the operations of our systems integration business which was carried on through our subsidiary Asia Internet Limited. The discontinuation of these operations resulted in a recovery of $1,725,551 which was primarily due to the reversal of unvested stock compensation costs of $1,852,570. During the years ended December 31, 2001 and 2000, we recorded net-operating losses of $236,683 and $4,219,736.

On June 28, 2002, we acquired a further 2 million common shares of Vallenar, which increased our equity interest to 51.53%. At December 31, 2002, we recorded $302,142, which is the minority shareholders’ 48.47% interest in Vallenar’s losses.

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 will be able to realize 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 and cash equivalents of $3,801 and a working capital deficit of $1,376,726 at December 31, 2002. During the year ended December 31, 2002, we used $2,098,755 in cash for operating activities primarily for an operating loss of $27,243,917 and $35,863 in imputed interest on notes receivable. These expenditures were offset by an $813,381 equity loss in affiliates, $302,142 attributed to the minority interest, $228,800 in issuance of shares in settlement of expenses, $106,975 in stock compensation costs, $102,611 in depreciation, $48,976 in losses on disposal of equipment, a $132 loss from discontinued operations, a $113, 420 write-down on equipment, a $12,611 loss on sale of marketable securities, a $34,927 loss recognized on the write-down of marketable securities, $18,543,307 in charges for certain long lived and prepaid assets, $3,309,536 in impairment losses of equity in affiliates, a decrease of $31,307 in accounts receivable and accrued interest receivable, a decrease of $390,428 in other prepaid expenses and deposits, an increase of $776,755 in accounts payable and accrued liabilities, and an increase of $365,717 in amounts due to related parties.

During the year ended December 31, 2002, $1,417,500 in cash was provided by financing activities. These financing activities consisted of receipt of $1,422,500 from the issuance of common shares and receipt of $20,000 from the exercise of stock options, offset by a payment $25,000 in respect of share issue costs.

During the year ended December 31, 2002, $1,403,428 in cash was used in investing activities, These investing activities included cash of $17,537 spent on the purchase of property and equipment, $529,906 spent on our oil and gas properties, $772,563 spent on increasing our equity interest in Vallenar and $361,085 was the effect of the minority interest on the acquisition of the subsidiary, these expenditures were offset by the receipt of loan proceeds of $270,055, receipt of proceeds from the disposal of equipment of $1,837 and receipt of proceeds from the sale of marketable securities of $5,771.

A decrease in working capital of $3,702,199 was due to a decrease in current assets of $2,559,727 plus an increase in current liabilities of $1,142,472. We have accumulated a deficit of $61,080,323 since inception and have stockholders’ equity of $598,107. We have no contingencies or long term commitments except for the Transworld litigation which is disclosed in the contingencies and commitments footnote to the financial statements and the Burlington litigation which is disclosed in the subsequent event footnote to the financial statement, appearing elsewhere herein.

We did not have any fund raising activities during 2001.

At December 31, 2001, we had approximately $2.1 million in cash, cash equivalents and marketable securities available to fund operations. We significantly lowered our on going expenditures and overhead during 2001 buy reducing the number of employees, closing offices and leasing more affordable office space.

Plan of Operation for the Next Twelve Months

This is a discussion of the plan of operation for the twelve months following 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. Subsidiaries of Gasco Energy, Inc. own the majority (75%) working interest in these and the California properties, and Gasco Production Company 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 cannot assure 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 drill oil or gas wells on property in which we own an interest. We cannot control the timing or the cost of this drilling. If a well is drilled 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 until the operator has recovered its costs under the applicable agreement.

CRITICAL ACCOUNTING POLICIES

Development Stage Activities

We do not have significant operations and in accordance with SFAS No. 7, we are considered a development stage company.

Principles of Consolidation

The consolidated financial statements include our financial statements and our subsidiaries. All significant inter-company balances and transactions have been eliminated. Affiliated companies (20% to 50% owned companies) in which we do not have significant influence are accounted for, using the equity method. Our share of earnings (losses) from these companies are included in the accompanying consolidated statements of operations.

The financial statements for the period prior to our merger with JRL Resources reflect the consolidated financial position and results of operations of FEAL. Subsequent to the merger, the financial statements reflect the consolidated financial position and results of operations of BREK (as successor to JRL Resources subsequent to BREK’s formation and JRL Resources prior to BREK’s formation) and its subsidiaries.

Fair Value of Financial Instruments

The carrying values reflected in the consolidated balance sheets for cash and cash equivalents, trade accounts receivable, accrued interest receivable, short term loan, accounts payable and accruals 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.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets less salvage value as follows:

During the year all of the fixed assets were disposed of when the Company changed business direction and disposed of their Hong Kong office.

Goodwill

We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of amortization for goodwill and indefinite life intangible assets. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles such as goodwill, reassessment of the useful lives of existing recognized intangibles with finite lives, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires that we complete a transitional goodwill impairment test six months from the date of adoption. The effects of adopting the non-amortization provisions of SFAS 142, assuming these provisions were adopted for the periods presented, are summarized below.

During the year ended December 31, 2002, goodwill was written off as part of the loss from discontinued operations.

Long-Lived Assets

SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets” requires the recognition of an impairment loss on long-lived assets if the carrying amount exceeds its fair value, as determined using undiscounted cash flows expected to result from the use and eventual disposition of the asset. We adopted SFAS 144, on January 1, 2002. During the year ended December 31, 2002, we recorded $18,543,307 in charges for impairment of certain long-lived assets.

Software Development Costs

Internal and external costs incurred to develop internal-use computer software are expensed during the preliminary project stage and capitalized during the application development stage and amortized over three years. During the years ended December 31, 2002, 2001, and 2000, and the cumulative period from inception to December 31, 2002, $nil, $nil, $130,816 and $225,406 of internal-use computer software development costs were expensed. As of December 31, 2002 and 2001, capitalized software net of accumulated amortization and impairment charges were $nil and $68,411.

Income Taxes

Income tax expense is based on pre-tax financial accounting income. We recognize 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. We have recorded a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized.

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”). 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.

We compute the depletion of exploration and development costs and depreciation of production equipment 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. Our oil and gas wells began producing after December 31, 2002; accordingly we have not recorded any depletion expenses before or during the year ended December 31, 2002.

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.

Stock-based Compensation

We account for stock-based compensation arrangements with employees in accordance with the provisions of APB 25 and comply with the disclosure provisions of SFAS 123. Under APB 25, compensation expense is based on the difference, if any, between the fair value of our stock and the exercise price of options issued on the date of grant. We amortize the unearned compensation over the vesting period of the individual options.

For stock options granted to employees and directors, with exercise prices at or above the market value of the stock on the grant date, we adopted the disclosure-only provisions of SFAS 123. Had compensation cost been recognized based on the fair value at the date of grant consistent with the method prescribed by SFAS No. 123, our net losses and loss per share would have been reduced to the following pro forma amounts at December 31, 2002. Also disclosed below are the pro-forma amounts previously disclosed and pro forma amounts that have been restated due to a prior period adjustment which was caused by an error in the calculation of stock based compensation related to stock options issued, reissued and re-priced during December 2001, 2000 and 1999:

The fair value of the common stock options granted during the years ended December 31, 2002, 2001, 2000 and 1999, for disclosure purposes was estimated on the grant dates using the Black Scholes Pricing Model and the following assumptions:

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 these 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, 2002, we had undeveloped leaseholds of approximately $2.03 million, that 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.

Contractual Obligations

We did not have any contractual obligations at December 31, 2002, or as of the date of this filing, except for lease commitments totaling $88,050 for the first quarter of 2003.

Internal and External Sources of Liquidity

We have funded our operations principally through the private placement of shares and the exercise of stock purchase warrants.

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, 2002 and 2001 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.

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, 2002.

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.

In February 2003, it was determined that a note receivable from Transworld Payment Solutions N.V. in the amount of $1,901,107 was impaired due to Transworld commencing a legal action against a subsidiary of Brek in which Transworld claimed that First Ecom Systems Limited had promised to develop and supply them with certain software. See “Item 3. Legal Proceedings” above for more details.

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 October 31, 2002, Brek received a Nasdaq Staff Determination that Brek’s shares of common stock during the 90-day period ending on October 30, 2002, had not maintained a closing bid price of $1.00 per share for the ten consecutive trading days necessary to qualify for continued listing on the National Market System, and that Brek’s shares of common stock were therefore subject to de-listing from the Nasdaq National Market on November 8, 2002, for failure to comply with Marketplace Rule 4450.

Brek applied to list its shares of common stock on the Nasdaq SmallCap Market, where it would be eligible for re-listing on the National Market System if it maintained a closing bid price of $1.00 for 30 consecutive trading days before January 28, 2003. However, Brek was unable to maintain the minimum closing bid price for the required time period and on December 3, 2002, Brek was removed from the Nasdaq National Market System for failing to maintain minimum listing requirements.

Subsequently, 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”.

Item 5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointments of Principal Officers

In September 2002, both Douglas Moore and Andrew Leitch resigned as directors of Brek.

On October 8, 2002, Greg Pek resigned as both CEO and president of Brek and Richard N. Jeffs was appointed the new CEO and president of Brek to replace Mr. Pek. At that time, Mr. Jeffs was and had been a self-employed businessman since 1990 and a director of a private venture capital company since 1999. See “Item 12. Certain Relationships and Related Transactions” below for more details.

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. The British Columbia Securities Commission rescinded the temporary orders against Brek, Mr. Jeffs and others on December 5, 2002, and withdrew the notice of hearing on April 1, 2003. To the best of management’s knowledge, the British Columbia Securities Commission has issued no further orders or notices in connection with this matter.

As a result of the Temporary Order, Richard N. Jeffs resigned as both the CEO and president of Brek on November 20, 2002. At that time, the Nominating Committee was searching for a qualified candidate who was willing to accept the position, but no replacement was appointed. Even without a CEO, the board of directors believed, until such a candidate was found, Brek would not adversely affected by the lack of a CEO. See “Item 3. Legal Proceedings” above for more details.

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.

Brek’s and its subsidiaries’ management teams as of December 31, 2002 are listed below.

Gregory Pek - Mr. Pek (48 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 (64) 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 (54) 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 (36) 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.

Kenneth. Telford - Mr. Telford (54) was appointed Brek’s Chief Financial Officer and Secretary in July 2000. Mr. Telford is both a Chartered Accountant (Canada) and Certified Public Accountant (USA). Mr. Telford has been a partner in Sadovnick Telford + Skov, Chartered Accountants in Canada and Telford Sadovnick, PLLC, Certified Public Accountants in the United States since 1994. Mr. Telford was also previously a partner in the international accounting firm Touche Ross & Co. (now Deloitte & Touche) as well as Chief Operating Officer and Chief Financial Officer of an automotive rental company. Mr. Telford has advised numerous companies, operating in both North America and Asia Pacific, on a broad range of financial and business matters including the financial management requirements of U.S. publicly listed companies.

(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

(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, 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, 2002, 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, 2002, Brek did not have a written audit committee charter or similar document.

(h) Code of Ethics

As of December 31, 2002, Brek had not adopted a code of ethics. The board of directors decided not 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.

Item 10. Executive Compensation.

Brek has paid $744,672 in compensation to its named executive officers during its 2002 fiscal year.

SUMMARY COMPENSATION TABLE

^[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, director’s 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 August 29, 2000, 150,000 of these stock options were rescinded and replaced with 150,000 new stock options, of which 100,000 of the stock options were repriced from $9.90 to $5.05 per stock option and 50,000 of the stock options were repriced from $7.65 to $5.05 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 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 $0.41 per share.

^[5]Gregory Pek received 100,000 shares of common stock as severance valued at $70,000.

^[6]Kenneth Telford’s salary did not exceed $100,000 in the fiscal year ended December 31, 2000.

^[7]Kenneth Telford accrued $54,000 in additional salary in the fiscal year ended December 31, 2002.

^[8]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.

^[9]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.

^[10]Ravi Daswani was not an executive office during the fiscal year ended December 31, 2002. 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.

^[11]Ravi Daswani accrued $10,320 in directors’ fees for the fiscal year ended December 31, 2002.

^[12]Ian Robinson accrued $13,500 in additional salary for the fiscal year ended December 31, 2002.

^[13]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.

^[14]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.

^[15]Richard N. Jeffs was owed $24,000 for consulting fees at December 31, 2002.

Grant of Stock Options

During the fiscal year ended December 31, 2002, Brek granted an aggregate 420,000 stock options, with the following stock options being granted to the named executive officers.

Existing Stock Options

No stock options or stock appreciation rights were exercised by any named executive officers during the fiscal year ended December 31, 2002.

Existing stock options in the hands of named executive officers and senior management as of December 31, 2002, were as follows:

Long Term Incentive Plan Awards

Brek did not award any long term incentive plans during the fiscal year ended December 31, 2002.

Director Compensation

During the fiscal year ended December 31, 2002, directors, who are not officers of Brek, were paid fees of $10,320 per year in connection with their serving on the Board. The Chairman of the Board received $54,000 per year. Directors were also reimbursed for out-of-pocket expenses incurred for attending Board meetings.

Termination of Employment

As of December 31, 2002, 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, with the exception of following:

Gregory Pek

In January 1999, Brek entered into an employment agreement with Gregory Pek. The agreement provided that Brek would pay Mr. Pek a monthly salary of HK$100,000 (approximately US$12,820) plus an additional month's salary per calendar year of service as a year-end payment. In January 2000, Mr. Pek's monthly salary was increased to HK$150,000 (approximately US$19,230); however, in December 2000 Mr. Pek agreed to have his monthly salary temporarily reduced to HK$100,000 (approximately US$12,820). Brek entered into new six-month employment agreements with Mr. Pek covering the period from March 1, 2001 to August 31, 2001. During this period, Mr. Pek’s aggregate monthly salary was HK$165,000 (approximately US$21,150) plus an additional lump-sum payment equal to four months’ salary was paid to Mr. Pek in August 2001. In August 2001, Brek entered into new one-year employment agreements with Mr. Pek that provide for an aggregate monthly salary of HK$165,000 (approximately US$21,150) plus an additional month’s salary per calendar year of service as a year-end payment. These agreements terminated on August 31, 2002, and as a result, Brek paid a termination payment to Mr. Pek in August 2002 equal to three months’ salary.

Kenneth Telford

In March 2001, Brek entered into employment agreements with Kenneth Telford, its Chief Financial Officer. Pursuant to these agreements, Brek paid Mr. Telford an aggregate monthly salary of HK$165,000 (approximately US$21,250) for the period from March 1, 2001 through September 30, 2001, and issued Mr. Telford warrants to purchase 50,000 shares of Brek’s common stock at an exercise price of US$1.25 per share, and paid Mr. Telford an additional lump-sum payment in August 2001 equal to four months’ salary. The agreements also provided for an additional month’s salary per calendar year of service as a year-end payment. In August 2001 Brek entered into new one-year employment agreements with Mr. Telford that provide for an aggregate monthly salary of HK$165,000 (approximately US$21,250) plus an additional month's salary per calendar year of service as a year-end payment. This agreement would have terminated on August 31, 2002 unless Brek chose to extend the term of the agreement. If Brek did not choose to extend the term of the agreement, the agreement provided that Brek must pay a termination payment to Mr. Telford in August 2002 equal to three months’ salary.

Brek and Mr. Telford agreed to extend his employment for one year beginning in August 2002. Under the new arrangement with Mr. Telford, he will be paid $27,000 per month. In addition, he will have the option of working less than full time if he chooses, and if he receives payment from another employer other than Brek for time devoted to a job other than being an executive of Brek, Brek may reduce its payments to Mr. Telford by an amount equal to 80% of the amount of such other payments in excess of $3,000 (which reduction may not exceed $10,000).

Compensation Committee

During the fiscal year ended December 31, 2002, 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%)

(b) Security Ownership of Management

(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.

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.

During 2001, Brek advanced $270,055 to Vallenar Energy Corp. Gregory Pek and Ken Telford are also directors of Vallenar Energy Corp., and Richard N. Jeffs is also a shareholder of Vallenar Energy Corp.

On July 16, 2002, Gasco Energy, Inc. entered into a purchase agreement with Brek and other stockholders of Gasco Energy, Inc., including Richard Jeffs and Wet Coast Management Corp., which is owned and controlled by Richard 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.

(b) Transactions with Promoters

During the fiscal year ended December 31, 2002, Richard Jeffs, Gregory Pek and Kenneth Telford 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.

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:

(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:

(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:

(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:

(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 %.

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.

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.

Exhibit 31

BREK ENERGY CORPORATION

CERTIFICATIONS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Richard N. Jeffs, certify that:

Date: October 31, 2005

/s/ Richard N. Jeffs

Richard N. Jeffs

Chief Executive Officer

BREK ENERGY CORPORATION

CERTIFICATIONS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Richard N. Jeffs, certify that:

Date: October 31, 2005

/s/Richard N. Jeffs

Richard N. Jeffs

Chief Financial Officer

Exhibit 32

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, 2002 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:

/s/Richard N. Jeffs

Richard N. Jeffs

Chief Executive Officer

October 31, 2005

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, 2002 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:

/s/Richard N. Jeffs

Richard N. Jeffs

Chief Financial Officer

October 31, 2005

Exhibit A

Financial Statements

Page - 47

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 - 48

16140 SAND CANYON AVE., SUITE 100

IRVINE, CALIFORNIA 92618

HALL&COMPANY Certified Public Accountants, Inc. (949) 910-HALL (4255)

TAX, FINANCIAL AND BUSINESS ADVISORY SERVICES FAX (949) 910-4256

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

August 30, 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 sheet of Brek Energy Corporation as of December 31, 2002, and the related consolidated statements of operations, stockholdersâ€™ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companyâ€™s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Brek Energy Corporation as of December 31, 2000 and 2001 were audited by other auditors whose report dated March 20, 2002, expressed an unqualified opinion.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 Companyâ€™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 audit provides 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, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

HALL & COMPANY

Irvine, California

Page - 49

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

		December 31,
		2002			2001
ASSETS
Current Assets

Cash and cash equivalents	$	3,801		$	2,088,484
Trade accounts receivable		877			28,858
Accrued interest receivable		-			3,326
Marketable securities (Note 3)		-			53,309
Prepaid insurance		-			288,869
Prepaid deposits		-			39,226
Other prepaid expenses and deposits		32,447			94,780

		37,125			2,596,852

Note receivable (Note 5)		1			1,865,244
Loan receivable (Note 6)		-			270,055
Property and equipment, net (Note 7)		-			257,321
Oil and gas properties (Note 8)		2,032,860			-
Equity in affiliate (Note 10)		-			18,507,906


TOTAL ASSETS	$	2,069,986		$	23,497,378


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued liabilities	$	1,048,134		$	271,379
Due to related parties (Note 12)		365,717			-


TOTAL LIABILITIES		1,413,851			271,379

Commitments and contingencies (Note 19)

Minority interest (Note 9)		58,028			-

STOCKHOLDERS' EQUITY

Share capital (Note 13)
Authorized
300,000,000 common shares, $0.001 par value
Issued and outstanding
26,560,037 and 19,210,037 common shares		26,561			19,211
Additional paid in capital		53,635,745			50,250,332
Common stock purchase warrants		8,016,124			8,016,124
Deficit accumulated during the development stage		(61,080,323	)		(35,059,668	)



TOTAL STOCKHOLDERS' EQUITY		598,107			23,225,999


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,069,986		$	23,497,378

The accompanying notes are an integral part of these consolidated financial statements

Page - 50

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

											Cumulative
		Twelve Months									from Inception
		Ended December 31,								September 16, 1998
		2002			2001			2000		to December 31, 2002


Revenue	$	-		$	-		$	-		$	-


Expenses

Operating expenses
General and administrative		3,673,105			232,475			-			3,905,580
Charges for impairment of certain
long-lived assets, (Notes 5, 7 and 8)		18,543,307			-			-			18,543,307


Total operating expenses		22,216,412			232,475			-			22,448,887

Loss from operations		(22,216,412	)		(232,475	)		-			(22,448,887	)

Other (Expenses) Income
Interest income		40,593			704,725			1,527,959			2,310,038
Interest expense		-			-			(2,121	)		(473,545	)
Loss on sale of marketable securities, (Note 3)		(12,611	)		-			-			(12,611	)
Loss on write-down of marketable securities, (Note 3)		(34,927	)		(314,339	)		(1,632,353	)		(1,981,619	)
Losses in equity investees (Notes 9 and 10)		(813,381	)		(492,094	)		-			(1,305,475	)
Write down in investment in equity investee, (Note 10)		(3,309,536	)		-			-			(3,309,536	)

Total other (expenses) income		(4,129,862	)		(101,708	)		(106,515	)		(4,772,748	)
-
Loss from continuing operations		(26,346,274	)		(334,183	)		(106,515	)		(27,221,635	)
-
Minority interest, (Note 9)		302,142			-			-			302,142


Net loss before discontinued operations		(26,044,132	)		(334,183	)		(106,515	)		(26,919,493	)

Income (loss) from discontinued operations, (Note 11)
Net loss -payment processing		(1,199,653	)		(11,225,955	)		(12,811,092	)		(31,590,922	)
Net loss -system integration		-			(236,683	)		(4,219,736	)		(4,456,419	)
Equity in loss of affiliate		-			(390,052	)		(292,118	)		(682,170	)
(Loss) gain on discontinuance (net of $Nil tax effect)		(132	)		1,725,551			-			1,725,419

Total income (loss) from discontinuance		(1,199,785	)		(10,127,139	)		(17,322,946	)		(35,004,092	)

Loss before cumulative effect of accounting change		(27,243,917	)		(10,461,322	)		(17,429,461	)		(61,923,585	)

Cumulative effect of accounting change		-			-			(380,000	)		(380,000	)

Net Loss	$	(27,243,917	)	$	(10,461,322	)	$	(17,809,461	)	$	(62,303,585	)


Basic and diluted loss per share applicable
to common stockholders
Continuing operations	$	(1.11	)	$	(0.02	)	$	(0.01	)
Discontinued operations		(0.05	)		(0.53	)		(0.96	)
Cumulative effect of accounting change		-			-			(0.02	)

	$	(1.16	)	$	(0.55	)	$	(0.99	)


Weighted average shares outstanding		23,408,585			19,210,037			18,064,980

The accompanying notes are an integral part of these consolidated financial statements

Page - 51

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

For the years ended December 31, 2002, 2001, 2000, 1999 and for the period from September 16, 1998 (Inception) to December 31, 1998

										Deficit
								Common		Accumulated
	Common Stock Issued				Additional			Stock		During the
	Number of				Paid in			Purchase		Development
	Shares		Amount		Capital			Warrants		Stage			Total

Balance, September 16, 1998 (Inception)	-	$	-	$	-		$	-	$	-		$	-


Balance, December 31, 1998	-		-		-			-		-			-

Impact of merger with JRL Resources Corp.	4,040,000		4,040		(4,940	)		-		-			(900	)
Issuance of shares of common stock
in lieu of organizational costs	8,000,000		8,000		300,000			-		-			308,000
Issuance of common stock and warrants	2,916,667		2,917		17,004,583			360,000		-			17,367,500
Stock based compensation	-		-		646,532			-		-			646,532
Proceeds received on issuance of debt													-
securities with detachable warrants	-		-		410,000			-		-			410,000
Net loss for the year	-		-		-			-		(6,788,885	)		(6,788,885	)


Balance, December 31, 1999,
as previously stated	14,956,667		14,957		18,356,175			360,000		(6,788,885	)		11,942,247

Prior period adjustment	-		-		(207,200	)		-		207,200			-


Balance, December 31, 1999, as restated	14,956,667		14,957		18,148,975			360,000		(6,581,685	)		11,942,247

Issuance of common stock										-			-
(net of issuance costs of $2,095,562)	3,228,500		3,229		20,915,835			-					20,919,064
Fair value of warrants issued with common stock	-		-		-			7,656,124		-			7,656,124
Stock based compensation	-		-		3,947,837			-		-			3,947,837
Stock issued in business combination	24,870		25		623,963			-		-			623,988
Shares issued on exercise of warrants	1,000,000		1,000		7,799,000			-		-			7,800,000
Cumulative effect of accounting change for
beneficial feature of convertible debt	-		-		380,000			-		-			380,000
Net loss for the year	-		-		-			-		(17,809,461	)		(17,809,461	)


Balance, December 31, 2000,
as previously stated	19,210,037		19,211		51,815,610			8,016,124		(24,391,146	)		35,459,799

Prior period adjustment	-		-		(1,852,245	)		-		1,852,245			-


Balance, December 31, 2000, as restated	19,210,037		19,211		49,963,365			8,016,124		(22,538,901	)		35,459,799

Issuance of warrants	-		-		174,900			-		-			174,900
Cancellation of stock options relating to
discontinued operations	-		-		(1,947,378	)		-		-			(1,947,378	)
Net loss for the year	-		-		-			-		(10,461,322	)		(10,461,322	)


Balance, December 31, 2001,
as previously stated	19,210,037		19,211		48,190,887			8,016,124		(33,000,223	)		23,225,999

Prior period adjustment	-		-		836,183			-		(836,183	)		-


Balance, December 31, 2001, as restated	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			-		-			1,422,500
Share issue costs	-		-		(25,000	)		-		-			(25,000	)
Issuance of penalty shares	80,000		80		56,720			-		-			56,800
Issuance of shares of common stock in
exchange for oil and gas properties	4,125,000		4,125		2,858,625			-		-			2,862,750
Issuance of shares of common stock													-
settlement of debt	250,000		250		171,750			-		-			172,000
Issuance of shares of common stock
upon exercise of stock options	50,000		50		19,950			-		-			20,000
Stock compensation expense	-		-		106,975			-		-			106,975
Net 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

The accompanying notes are an integral part of these consolidated financial statements

Page - 52

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

										Cumulative
											from Inception,
		Year Ended December 31,								September 16, 1998 to
		2002			2001			2000			December 31, 2002

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss for the period	$	(27,243,917	)	$	(10,461,322	)	$	(17,809,461	)	$	(62,303,585	)

Adjustments to reconcile net loss to net cash used in operating activities:
Equity loss of affiliates		813,381			882,146			292,118			1,987,645
Minority interest		302,142			-			-			302,142
Organizational costs in excess of cash paid		-			-			-			300,000
Issuance of shares in settlement of expenses		228,800			-			-			228,800
Stock compensation costs (recovery)		106,975			(1,772,478	)		3,947,837			2,928,866
Depreciation		102,611			446,366			575,587			1,374,946
(Gain) loss on disposal of equipment		48,976			125,537			(6,085	)		172,232
Loss from discontinued operations		132			6,943			-			7,075
Write-down of equipment		113,420						-			113,420
Accretion of discount on loan		-			-			-			410,000
Cumulative effect of accounting change for beneficial
feature of convertible debt		-			-			380,000			380,000
Amortization of goodwill		-			325,672			291,282			616,954
Imputed interest on notes receivable		(35,863	)		-			-			(35,863	)
Loss on sale of marketable securities		12,611			-			-			12,611
Loss recognized on write-down of marketable securities		34,927			314,339			1,632,353			1,981,619
Charges for certain long-lived and prepaid assets		18,543,307			3,159,505			2,405,829			24,108,641
Impairment loss of equity in affiliates		3,309,536			-			-			3,309,536

		(3,662,962	)		(6,973,292	)		(8,290,540	)		(24,104,961	)

Changes in operating assets and liabilities net of businesses acquired:
Accounts receivable and accrued interest receivable		31,307			96,852			(52,548	)		75,611
Prepaid financial advisory fee		-			-			672,022			-
Other prepaid expenses and deposits		390,428			110,906			(651,061	)		(525,505	)
Amounts due from stockholders		-			-			12,540			-
Accounts payable and accrued liabilities		776,755			(232,942	)		65,498			980,797
Amounts due to related parties		365,717			-			(239,727	)		365,717
Deferred rent		-			-			(62,017	)		-
Deferred revenue		-			(5,604	)		(12,471	)		-

NET CASH USED IN OPERATING ACTIVITIES		(2,098,755	)		(7,004,080	)		(8,558,304	)		(23,208,341	)


CASH FLOWS USED IN INVESTING ACTIVITIES

Purchases of property and equipment		(17,537	)		(316,323	)		(520,614	)		(2,053,646	)
Cash spent on oil and gas properties		(529,906	)		-			-			(529,906	)
Acquisition of subsidiary		(772,563	)		-			-			(772,563	)
Proceeds from disposal of equipment		1,837			33,284			22,803			63,730
Proceeds from sale of subsidiary		-			1,418,473			-			1,418,473
Proceeds from sale of marketable securities		5,771			-			-			5,771
Effect of minority interest on acquisition of subsidiary		(361,085	)		(2,232,059	)		(1,409,319	)		(4,002,463	)
Investment in marketable securities		-			-			(2,000,000	)		(2,000,000	)
Investment in and advances to affiliate		-			(1,752,467	)		(3,400,000	)		(5,152,467	)
Acquisition of Gasco Energy, Inc.		-			(19,000,000	)		-			(19,000,000	)
Loan receivable		270,055			(270,055	)		-			-

NET CASH USED IN INVESTING ACTIVITIES		(1,403,428	)		(22,119,147	)		(7,307,130	)		(32,023,071	)


CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock		1,422,500			-			30,670,750			50,226,250
Share issue costs		(25,000	)		-			(2,460,458	)		(2,804,208	)
Proceeds from exercise of stock options		20,000			-			-			20,000
Proceeds from exercise of warrants		-			-			7,800,000			7,800,000
Proceeds from short-term loans with detachable warrants		-			-			-			1,000,000
Proceeds from short-term loans		-			-			-			750,000
Repayment of short-term loans		-			-			(27,007	)		(1,750,000	)
Principal payments under capital lease obligations		-			-			(5,746	)		(6,829	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,417,500			-			35,977,539			55,235,213


Net increase (decrease) in cash and cash equivalents		(2,084,683	)		(29,123,227	)		20,112,105			3,801

Cash and cash equivalents at the beginning of year/period		2,088,484			31,211,711			11,099,606			-


Cash and cash equivalents at at the end of year/period	$	3,801		$	2,088,484		$	31,211,711		$	3,801


Supplemental cash information:

Cash paid during the year/period for:
Interest	$	-		$	-		$	2,121		$	63,745

Non Cash Transactions:
Issuance of shares for oil and gas properties	$	2,862,750
Issuance of penalty shares	$	56,800
Issuance of shares of common stock in settlement of debt	$	172,000
Stock compensation expense	$	106,975
Loan receivable offset against acquisition price of subsidiary	$	270,000
Share 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 - 53

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Details of the issuance of common stock are set out in Note 13.

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. (Note 11)

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. (Notes 8, 10, 13 and 20)

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%. (Note 9)

Development Stage Activities

The Company has not commenced significant operations and in accordance with SFAS No. 7, the Company is considered a development stage company.

Page - 54

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Affiliated companies (20% to 50% owned companies) in which the Company does not have significant influence are accounted for, using the equity method. The Company’s share of earnings (losses) from these companies are included in the accompanying consolidated statements of operations.

The financial statements for the period prior to the merger with JRL Resources reflect the consolidated financial position and results of operations of FEAL. Subsequent to the merger, the financial statements reflect the consolidated financial position and results of operations of BREK (as successor to JRL Resources subsequent to BREK’s formation and JRL Resources prior to BREK’s formation) and its subsidiaries.

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.

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, accrued interest receivable, short term loan, accounts payable and accruals 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.

Page - 55

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Revenue Recognition

Oil and gas revenue will be recognized as income when the oil or gas is produced and sold.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets less salvage value as follows:

Leasehold improvements Over the term of the leases

Computer equipment and processing system 3 years

Furniture, fixtures and office equipment 5 years

During the year all of the fixed assets were disposed of when the Company changed business direction and disposed of their Hong Kong office. (Note 7)

Goodwill

The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of amortization for goodwill and indefinite life intangible assets. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles such as goodwill, reassessment of the useful lives of existing recognized intangibles with finite lives, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The effects of adopting the non-amortization provisions of SFAS 142, assuming these provisions were adopted for the periods presented, are summarized below.

	2002			2001			2000
Reported net loss	$	(27,243,917	)	$	(10,461,322	)	$	(17,809,461	)
Add: Goodwill amortization		-			325,671			291,282
Adjusted net loss	$	(27,243,917	)	$	(10,135,651	)	$	(17,518,179	)

Reported basic and diluted loss per share	$	(1.16	)	$	(0.54	)	$	(0.98	)
Add: Goodwill amortization, per basic and diluted share		-			.02			.02
Adjusted basic and diluted loss per share	$	(1.16	)	$	0.52	)	$	(0.96	)

During the year ended December 31, 2002, goodwill was written off as part of the loss from discontinued operations. (Note 11)

Long-Lived Assets

SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets” requires the recognition of an impairment loss on long-lived assets if the carrying amount exceeds its fair value, as determined using undiscounted cash flows expected to result from the use and eventual disposition of the asset. SFAS 144, was adopted by the Company on January 1, 2002. During the year ended December 31, 2002, the Company recorded $18,543,307 in charges for impairment of certain long-lived assets. (Notes 5, 7 and 8)

Page - 56

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Software Development Costs

Internal and external costs incurred to develop internal-use computer software are expensed during the preliminary project stage and capitalized during the application development stage and amortized over three years. During the years ended December 31, 2002, 2001, and 2000, and the cumulative period from inception to December 31, 2002, $Nil, $Nil, $130,816 and $225,406 of internal-use computer software development costs were expensed. As of December 31, 2002 and 2001, capitalized software net of accumulated amortization and impairment charges were $Nil and $68,411. (Notes 7 and 11)

Debt Issued with Stock Purchase Warrants

Debt issued with detachable stock purchase warrants is accounted for in accordance with the provisions of Accounting Principles Board Opinion No. 14 (“APB 14”), “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”. Under APB No. 14, the portion of the proceeds of debt securities issued with detachable stock purchase warrants which is allocable to the warrants is accounted for as additional paid-in capital. The allocation is based on the relative fair values of the two securities at the time of issue. Any resulting discount or premium on the debt securities is accounted for as such and amortized over the term of the debt securities.

Foreign Currency

The functional currency of the Company is the Hong Kong dollar. The reporting currency of the Company is the United States dollar. Balance sheet accounts of the Company are translated into United States dollars at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates for the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in consolidated net 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, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002. Advertising costs amounted to $129,810, $87,607, $241,485, and $711,081 for the years ended December 31, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002.

Start-up and Pre-operating Costs

Start-up and pre-operating costs are expensed as incurred.

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, 2002, 2001 and 2000.

Page - 57

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Stock-based Compensation

The Company accounts for stock-based compensation arrangements with employees in accordance with the provisions of APB 25 and complies with the disclosure provisions of SFAS 123. Under APB 25, compensation expense is based on the difference, if any, between the fair value of the Company’s stock and the exercise price of options issued on the date of grant. The unearned compensation is being amortized over the vesting period of the individual options.

For stock options granted to employees and directors of the Company, with exercise prices at or above the market value of the stock on the grant date, the Company adopted the disclosure-only provisions of SFAS 123. Had compensation cost been recognized based on the fair value at the date of grant consistent with the method prescribed by SFAS No. 123, the Company’s net losses and loss per share would have been increased to the following pro forma amounts at December 31, 2002. Also disclosed below are the pro-forma amounts previously disclosed and pro forma amounts that have been restated due to a prior period adjustment which was caused by an error in the calculation of stock based compensation related to stock options issued, reissued and re-priced during December 2001, 2000 and 1999:

	For the Year Ended
	December 31, 2002
Net Loss
As reported	$(27,243,917)
Pro forma	$(27,767,867)

Basic and Diluted Loss Per Share
As reported	$(1.16)
Pro forma	$(1.19)

	Year Ended	Year Ended	Year Ended
	Dec 31, 2001	Dec 31, 2000	Dec 31, 1999
Net Loss
As reported	$(10,461,322)	$(17,809,461)	$(6,788,885)
Pro forma
-as previously disclosed	$(9,542,863)	$(20,598,526)	$(8,113,944)
-as restated	$(11,228,256)	$(21,520,755)	$(8,010,239)

Basic and Diluted Loss Per Share
As reported	$(0.55)	$(0.99)	$(0.56)
Pro forma
-as previously disclosed	$(0.50)	$(1.14)	$(0.67)
-as restated	$(0.58)	$(1.19)	$(0.67)

Page - 58

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Stock-based Compensation, continued

The fair value of the common stock options granted during the years ended December 31, 2002, 2001, 2000 and 1999, for disclosure purposes was estimated on the grant dates using the Black Scholes Pricing Model and the following assumptions:

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

	2001 As Restated	2001 As Previously Disclosed
Expected dividend yield	-	-
Expected price volatility	151%	93.15% to 150.69%
Risk-free interest rate	5.5%	5.5%
Expected life of options	5 years	3 and 5 years

	2000 As Restated	2000 As Previously Disclosed
Expected dividend yield	-	-
Expected price volatility	110%	93.15% to 129.54%
Risk-free interest rate	5.5%	5.5%
Expected life of options	5 years	3 years

	1999 As Restated	1999 As Previously Disclosed
Expected dividend yield	-	-
Expected price volatility	51.45% to 91.20%	54.45% to 91.2%
Risk-free interest rate	5.5%	5.5%
Expected life of options	5 years	3 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.

The Company accounts for the re-pricing and re-issuing of stock options under the variable accounting provisions of FIN 44.

Page - 59

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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. The Company’s oil and gas wells began producing subsequent to December 31, 2002; accordingly the Company has not recorded any depletion expenses prior to or during the year ended December 31, 2002.

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. (Notes 8 and 20)

Basic and Diluted Net Income (Loss) Per Common Share (“EPS”)

Basic loss per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution of securities that could occur if securities or other contracts to issue common stock (such as, convertible preferred stock, warrants to purchase common stock and common stock options) were exercised or converted into common stock.

Potential common shares are excluded from the diluted loss per share computation in net loss periods as their effect would be anti-dilutive.

For the years ended December 31, 2002, 2001 and 2000, options to purchase 1,680,000, 3,069,500 and 4,272,250 shares of common stock and warrants to purchase 1,893,682, 2,158,682 and 2,893,682 shares of common stock were outstanding at various times throughout the reported years. Also, for the year ended December 31, 1999, one convertible security to purchase 125,000 shares of common stock at $8.00 per share was outstanding for approximately five months during 1999. At December 31, 2002, 2001 and 2000, options to purchase 1,630,000, 1,280,000 and 1,809,500 shares of common stock and warrants to purchase 1,843,682, 1,893,682 and 1,893,682 shares of common stock were outstanding. The effects of all of these securities were not included in the computation of diluted loss per share, because the Company has been in a net loss position for all periods since the beginning of operations and the effect would be anti-dilutive.

Page - 60

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Accounting Change

In November 2000, the EITF reached a partial consensus on Issue No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF 00-27”). Since consensus was reached on Issue No. 98-5 in May 1999, there has been diversity in practice as to the measurement of certain beneficial features of convertible instruments. The consensus reached in EITF 00-27 clarifies the measurement of such beneficial features. To the extent that this represents a change in the manner in which an entity previously measured beneficial features of instruments issued subsequent to May 1999, Issue 00-27 requires an entity to re-perform the measurement and report any additional charge as a cumulative effect of change in accounting principle.

In connection with convertible debt issued in 1999, the Company recorded a beneficial conversion feature of approximately $50,000 at December 31, 1999. However, in accordance with guidance set forth in EITF 00-27, at December 31, 2000, the Company recognized an additional beneficial conversion charge of approximately $380,000. (Note 16) The charge is measured by the difference between the effective conversion price of the debt and the fair value of shares of common stock into which the debt is convertible, as measured at the date of issuance. This charge is recognized in the accompanying consolidated statements of operations, as a cumulative effect of accounting change for the year ended December 31, 2000 and as an increase in additional paid in capital in the accompanying consolidated statements of changes in stockholders’ equity and comprehensive income.

Page - 61

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

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, 2002, the Company had undeveloped leaseholds of approximately $2.03 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 from the passage of time and revisions to either the timing or the amount of the original present value estimate. The Company will be required to adopt this standard on January 1, 2003. The Company does not anticipate that the adoption of this statement will have a significant impact on its financial position and results of operations.

Page - 62

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Recent Accounting Pronouncements, continued

In May 2002, FASB issued SFAS No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections”. Such standard requires any gain or loss on extinguishments of debt to be presented as a component of continuing operations (unless specified criteria are met) whereas SFAS 4 required that such gains and losses be classified as an extraordinary item in determining net income. Upon adoption of SFAS 145, the Company will reclassify any extraordinary gains and losses on the extinguishments of debt recorded in prior periods to continuing operations. The adoption of SFAS 145 did not have a material effect on the Company’s financial position or results of operations.

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 does not anticipate that this statement will have a material impact on the Company’s financial statements or results of operations.

In October 2002, the FASB issued SFAS No. 147 (“SFAS 147”), “Acquisitions of Certain Financial Institutions”. SFAS 147 provides guidance on the accounting for the acquisition of a financial institution. SFAS 147 applies to all financial institution acquisitions except those between two or more mutual enterprises.

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 is not expected to have a material effect on the Company’s financial position or results of operations.

Page - 63

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Recent Accounting Pronouncements, continued

In December 2002, the FASB issued SFAS No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123”. SFAS 148 amends SFAS 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirement of SFAS 123 to require more prominent disclosure in both annual and interim consolidated financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. The adoption of this Statement did not have a significant impact on the Company’s financial position or results of operations. The Company will continue to account for its stock-based compensation using the methods detailed in its stock-based compensation accounting policy.

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. Management believes that the adoption of FIN 46 will 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 is not expected to have a material effect on the Company’s financial condition or results of operations.

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 is not expected to have a material effect on the Company’s financial condition or results of operations.

Page - 64

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

Recent Accounting Pronouncements, continued

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 Company does not expect that adoption of FIN 46R will have a material effect on its financial position or results of operations.

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 $34,927, $314,339, $1,632,353, and $1,981,619 for the years ended December 31, 2002, 2001 2000, and the cumulative period from inception to December 31, 2002. The carrying value of the marketable securities was written down to its market value as the declines in value were 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.

NOTE 4 - PREPAID FINANCIAL ADVISORY FEE

In 1999, the Company paid a fee of $1,500,000 to a consultant to introduce the Company to financial institutions and other investors, assist in negotiation of debt or equity financing, design and implement public relations and investor relations programs, and develop an advertising strategy for the Company.

These services were rendered to the Company over the period from March 5, 1999 to August 31, 2000 and the amount paid was deferred and amortized over the life of the service agreement on a straight-line basis. For the years ended December 31, 2002, 2001 and 2000, and the cumulative period from inception to December 31, 2002, the Company recognized approximately $Nil, $Nil, $672,000 and $1,500,000 in operating expenses in respect of the consultant’s fee.

NOTE 5 - 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 $35,863 and $9,348 were recorded as interest income in the years ended December 31, 2002, and 2001.

Page - 65

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - NOTE RECEIVABLE, continued

During the year, 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 for the year ended December 31, 2002, 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 is recorded as an operating expense in the consolidated statements of operations, in the charges for impairment of certain long-lived and prepaid assets section. (Notes 10 and 20)

	2002		2001
Present value of guarantee notes receivable	$	1,901,107	$	1,865,244
Less: Impairment charge		1,901,106		-
Less: Present value of amount due within one Year		1		-
	$	-	$	1,865,244

NOTE 6 - LOAN RECEIVABLE

At December 31, 2002 and 2001, the Company had a loan receivable in the amount of $Nil and $270,055. The note was receivable on demand, secured by 800,000 common shares of the payee and bore interest at 6%. The interest was paid on repayment of the note. (Notes 9 and 12)

NOTE 7 - PROPERTY AND EQUIPMENT

		2002		2001
Computer equipment and processing system		-	$	513,591
Furniture, fixtures and office equipment		-		67,294
		-	$	580,885
Less: Accumulated depreciation		-		(323,564	)
	$	-	$	257,321

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, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002, was $102,611, $446,366, $207,125, $575,587, and $1,374,946. At December 31, 2002 all of the depreciation expenses were reclassified on the consolidated statements of operations to loss from discontinued operations, net loss - payment processing.

Page - 66

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - OIL AND GAS PROPERTIES

The Company has a 25% interest in 103,227 gross acres (11,141 net acres) in the Uinta Basin region in Utah, 123,700 gross acres (24,369 net acres) in the Greater Green River Basin of Wyoming and 4,068 gross acres (932 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,
		2002			2001

Property acquisition costs
Acquired in share exchange with Gasco (Note 10)	$	14,402,000		$	-
Acquired in exchange for common shares of the
Company (Note 10, 12 and 13)		2,862,750
Acquired upon acquisition of Vallenar (Note 9)		872,391
Exploration and development expenditures		529,906
		18,667,047			-
Less: Impairment charges		(16,634,187	)		-

	$	2,032,860		$	-

Page - 67

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - OIL AND GAS PROPERTIES, continued

At December 31, 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:

		Costs		Impairment		Cost Net of
		Charges		Impairment		Charges
Proved Properties
Wyoming

Exploration & development costs	$	416,178	$	(416,178)	$

Unproved Properties

Property acquisition costs:
Utah		8,459,726		(6,427,166)		2,032,560
Wyoming		8,459,727		(8,459,627)		100
California		345,294		(345,194)		100
Texas		872,391		(872,291)		100

Exploration & development costs:
Wyoming		7,661		(7,661)		-
Utah		7,662		(7,662)		-
California		2,998		(2,998)		-
Texas		95,410		(95,410)		-

	$	18,667,047	$	(16,634,187)	$	2,032,860

During 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.

At the end of 2002 the Company recorded impairment charges against its unproven properties in Texas, California and Wyoming because no exploration or development work is expected to be performed on these properties. The Company recorded an impairment of their Utah property based on a reserves study completed subsequent to December 31, 2002. (Note 20)

NOTE 9 - 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.

Page - 68

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - MINORITY INTEREST, continued

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 8)

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 - 69

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - EQUITY METHOD INVESTEES

First Ecommerce Data Services Limited

During 2000, the Company acquired a 50% interest in FEDS, a joint venture operation with the Bank of Bermuda, a principal shareholder of the Company, from the Bank of Bermuda for $3 million. The excess of the purchase price over the Company’s share of the net assets of FEDS at the date of investment based on their estimated fair market value at the date of acquisition was allocated to goodwill. Goodwill amounted to approximately $1.2 million and was being amortized over seven years. In addition, the Company had advanced FEDS an unsecured, non-interest bearing loan of $400,000.

2000

Cost of investment..........................................................................................$3,000,000

Share in losses of affiliate.................................................................................(292,118)

2,707,882

Loan.......................................................................................................................400,000

$3,107,882

=======

On June 18, 2001, the Company acquired the remaining 50% of the issued shares of FEDS such that FEDS became a wholly-owned subsidiary of the Company. The purchase consideration was $3,581,993 cash for the shares. In addition, the Company acquired a shareholder’s loan from the Bank of Bermuda to FEDS in the amount of $668,007. Total consideration paid to the Bank of Bermuda was $4,250,000. Direct costs of $39,542 were incurred in respect of this transaction.

Prior to June 18, 2001, the Company recorded its share of the losses in FEDS under the equity method. The Company’s share of such losses were $390,052 for the period from January 1 to June 18, 2001, and $292,118 for the year ended December 31, 2000. (Note 11)

Subsequent to June 18, 2001, the acquisition was accounted for using purchase accounting and accordingly, the results of operations from FEDS have been included in the Company’s consolidated financial statements from June 19, 2001, onwards. The excess of the Company’s costs over the fair value of the identifiable net assets of $2,480,877 was recorded as additional goodwill and was being amortized on a straight-line basis over seven years.

Page - 70

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - EQUITY METHOD INVESTEES, continued

First Ecommerce Data Services Limited, continued

Assets acquired and liabilities assumed in the acquisition were as follows:

Bank and fixed deposits....................................................................................................$2,057,483

Trade accounts receivable.......................................................................................................11,959

Prepaid expenses and deposits.............................................................................................164,901

Property, plant and equipment...........................................................................................1,486,077

Accounts payable and other accrued liabilities.................................................................(77,636)

Long term liabilities............................................................................................................(1,361,468)

Estimated fair value of net assets at June 18, 2001 $2,281,316

=======

Consideration:

Cash, net of shareholders’ loan of $668,007..................................................................$3,581,993

Share of net assets (50%).................................................................................................(1,140,658)

Direct costs...............................................................................................................................39,542

Goodwill at acquisition....................................................................................................$2,480,877

=======

Cash outflow from acquisition of subsidiary is made up of:

Consideration paid......................................................................................................... $4,250,000

Bank and fixed deposits acquired..................................................................................(2,057,483)

Direct costs..............................................................................................................................39,542

$2,232,059

======

On October 19, 2001, the Company sold its 100% interest in FEDS for cash of $1,663,986 plus 40% of FEDS operating profits for the next three years with a minimum guaranteed amount of $2 million and a maximum of $3 million.

The sale of FEDS resulted in no gain or loss being recorded at December 31, 2001, because the Company had recognized an impairment loss of $3,159,505 at September 30, 2001. Revenues and loss from operations, for the period (including impairment loss of $3,159,505) from FEDS included in the consolidated statements of operations were $250,567 and $664,278, respectively from June 19, 2001 to October 19, 2001. (Note 11)

Page - 71

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - EQUITY METHOD INVESTEES, continued

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 103,227 gross acres in the Uinta Basin region in Utah, 123,700 gross acres in the Greater Green River Basin of Wyoming and 4,068 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			2001
Investment in affiliate, July 19, 2001	$	19,000,000		$	19,000,000
Less: 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 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 8, 12 and 13) These transactions gave the Company a combined 25% undivided interest in all of Gasco’s undeveloped mineral leases.

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 its 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 8)

Page - 72

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - EQUITY METHOD INVESTEES, continued

Gasco Energy, Inc., continued

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 20)

NOTE 11 - 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 years ended December 31, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002 have been reclassified from operations to the income (loss) from discontinued operations section of the consolidated statements of operations. These net losses were $1,199,785, $11,225,955, $12,811,092, and $31,590,922 for the years ended December 31, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002.

FESL’s revenues from the payment processing business were $67,918, $301,978, $38,223 and $408,119 for the years ended December 31, 2002, 2001, 2000 and the cumulative period from inception to December 31, 2002. FESL’s losses from operations for the years ended December 31, 2002, 2001, 2000 and for the period from inception to December 31, 2002 were $847,906, $851,883, $823 and $1,700,612.

First Ecommerce Data Services Limited

At December 31, 2002, the Company reclassified its share of equity in losses of affiliate of $390,052 for the period from January 1 to June 18, 2001, and $292,118 for the year ended December 31, 2000 to the income (loss) from discontinued operations section of the statements of operations. (Note 10)

Asia Internet Limited

During the first quarter of 2001 the Company decided to discontinue its systems integration business, which was carried on through its wholly-owned subsidiary, Asia Internet Limited (“AIL”). The discontinued operations resulted in a gain on discontinuance of $1,725,551 due to reversal of $1,852,570 of unvested stock compensation costs previously recorded to AIL employees, net of severance pay of $127,019. The assets and liabilities of the discontinued operations included in the accompanying consolidated balance sheet at December 31, 2001 were $7,736 and $148,818. Revenues for the system integration business were $92,237, $816,648, and $908,885, for the years ended December 31, 2001 and 2000 and the period from September 16, 1998 (inception) to December 31, 2001. Net losses-system integration, for the years ended December 31, 2001 and 2000 and the period from September 16, 1998 (inception) to December 31, 2001 were $236,683, $4,219,736 and $4,456,419, have been recorded as in the income (loss) from discontinued operations section of the consolidated statements of operations.

Page - 73

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - RELATED PARTY TRANSACTIONS

During the year ended 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. Subsequent to December 31, 2002, this loan was settled by issuance of common shares of the Company. (Note 20)

During the years ended December 31, 2002, 2001 and 2000, 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, $241,700 and $Nil.

During the years ended December 31, 2002, 2001 and 2000 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, $Nil and $647. 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. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

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 8, 10 and 13)

The Company had accrued consulting fees payable to the former President and CEO in the amount of $24,000. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company had accrued consulting fees payable to the wife of the former President and CEO in the amount of $10,000. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company had accrued consulting fees payable to a relative of the former President and CEO in the amount of $6,000. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company paid $12,000 in consulting fees to a company controlled by a former director of Vallenar and $39,000 in consulting fees to a former director of Vallenar.

The Company paid $15,000 in consulting fees to a company controlled by a former director of Vallenar.

The Company paid $351,806 in fees and a housing allowance of $17,209 to an officer. At December 31, 2002, $54,000 of these fees were unpaid and included in accrued liabilities. Subsequent to December 31, 2002, $50,000 of this liability was settled by the issuance of common shares of the Company. (Note 20)

Page - 74

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - RELATED PARTY TRANSACTIONS, continued

The Company paid $418,324 in directors’ fees and paid a housing allowance of $27,871 to a former CEO. During the year $70,000 of these directors’ fees were paid through the issuance of 100,000 common shares of the Company. (Note 13) At December 31, 2002, $159,038 of the above directors’ fees were unpaid and included in accrued liabilities. Subsequent to December 31, 2002, $50,000 of this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company paid $54,000 in directors’ fees to its Chairman. At December 31, 2002, $13,500 of these directors’ fees were unpaid and included in accrued liabilities. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company paid $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. Subsequent to December 31, 2002, this liability was settled by the issuance of common shares of the Company. (Note 20)

The Company paid $10,320 in directors’ fees to a director. At December 31, 2002, the Company was indebted to this director in the amount of $14,103. Subsequent to December 31, 2002, $5,160 of this liability was settled by the issuance of common shares of the Company. (Note 20)

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. Subsequent to December 31, 2002, $2,580 of this liability was settled by the issuance of common shares of the Company. (Note 20)

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. Subsequent to December 31, 2002, $2,580 of this liability was settled by the issuance of common shares of the Company. (Note 20)

During the year ended December 31, 2001:

The Company paid consulting fees to former directors of $28,628.

The Company advanced $270,055 to Vallenar. A director and an officer of the Company are also directors of Vallenar, and certain shareholders of the Company’s affiliate, Gasco are also shareholders of Vallenar. The loan was subsequently converted to equity interest. (Note 6)

During the year ended December 31, 2000:

On March 31, 2000, the Company acquired AIL in exchange for cash and shares with a total fair market value of $1.8 million; prior to March 31, 2000, AIL was considered a related party to the Company as a 30% shareholder of AIL is also a director and stockholder of the Company. AIL provided technical support, system maintenance and other professional services to the Company and purchased computer and office equipment on behalf of the Company. During the year ended December 31, 2000, and prior to the acquisition of AIL by the Company, the Company paid $91,871 to AIL for the above services. During the year ended December 31, 2000, the amounts charged by AIL to the Company for technical support, system maintenance and other professional services, and purchase of computer and office equipment on the Company’s behalf were $283,157 for services and $15,290 for purchases.

Page - 75

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - RELATED PARTY TRANSACTIONS, continued

A former director and shareholder of the Company was a partner in a law firm (the “Firm”) to which the Company paid legal fees in the ordinary course of its business. The amount paid by the Company and charged by the firm during the year ended December 31, 2000, was $373,497. Effective June 15, 2000, the director resigned from the firm and entered into a consultancy agreement directly with the Company for a monthly fee of $16,129. For the year ended December 31, 2000, $106,153 was paid to this former director.

A director of the Company received consulting fees of $25,000, which was paid in the ordinary course of business.

NOTE 13 - COMMON STOCK

During the year ended December 31, 2002:

The Company issued 2,845,000 common shares, under a Reg. S private placement, at $0.50 per share for cash of $1,422,500 less related share issue costs of $25,000, during April 2002.

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 8, 10 and 12)

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 12)

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.

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 bonuses payable.

During the year ended December 31, 2001, there were no common stock transactions.

During the year ended December 31, 2000:

On July 26, 2000, 1,000,000 common shares were issued, due to the exercise of warrants issued on November 26, 1999, for total proceeds of $7,800,000. (Note 16)

Pursuant to an agreement to acquire all of the outstanding shares of AIL in March 2000, the Company issued 24,870 shares at a deemed total value of $623,988.

Page - 76

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMON STOCK, continued

On March 6, 2000, the Company sold 3,228,500 units at $9.50 per unit for cash proceeds of $30,670,750, pursuant to a private placement. Each unit consists of one share of the Company’s common stock and one stock purchase warrant to purchase one third of a share of the Company’s common stock at $11.40 per share. The Company recorded share issue costs of $2,095,562 in respect of this private placement. (Note 16)

During the year ended December 31, 1999:

On January 28, 1999, the Company issued 8,000,000 common shares to financial advisors for services, at a deemed fair value of the services provided of $300,000, rendered in connection with organizational activities of the Company plus a nominal amount of cash of $8,000 for total consideration of $308,000 or $0.0385 per share.

On March 3, 1999, the Company issued 500,000 common shares at $4 per share for total net proceeds of $2,000,000.

On September 8, 1999, the Company issued 166,667 common shares at $9 per share for total net proceeds of $1,500,000.

On November 26, 1999, the Company issued 1,000,000 common shares at $6.50 per share for total net proceeds of $6,230,000, net of share issue costs of $270,000. Each of these shares had attached a five-year warrant to purchase one new common share for $7.80 per share. These warrants, which were exercisable at any time up to November 25, 2004, were exercised in July 26, 2000. (Note 16)

On December 23, 1999, the Company issued 1,250,000 common shares at a price of $6.50 per share for total proceeds of $7,637,500, net of share issue costs of $487,500. Each of these shares had attached a five-year warrant to purchase one-third of one new common share for $7.80 per whole share and is exercisable at any time up to December 22, 2004. (Note 16)

NOTE 14 - STOCKHOLDER RIGHTS PLAN

On March 1, 2002, the Company declared a dividend of one right for each share of the Company’s common stock issued and outstanding on March 20, 2002. Each right entitles the holder to purchase five shares of the Companies common stock at an exercise price of $0.01 per right, if certain events occurred relating to a person or group acquiring or attempting to acquire 10% or more of the outstanding of common shares of the Company without the approval of the Company’s board of Directors. The rights are exercisable until December 31, 2020. Additional shares issued by the Company subsequent to March 20, 2002 are automatically included in the share rights plan.

As of December 31, 2002, the Company had reserved 132,800,185 shares for the exercise of these rights for the outstanding issued shares and 17,368,410 for the potential exercise of outstanding options and warrants.

Page - 77

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - STOCK OPTIONS

The Company has two stock option plans, the 1999 Stock Option Plan and the 2001 Stock Option/Warrant Plan. The 1999 Stock Option Plan allows the Company to grant up to 3,000,000 stock purchase options and the 2001 Stock Option/Warrant Plan allows the Company to grant up to 5,000,000 stock purchase options or warrants.

1999 Stock Option Plan

The Company’s 1999 stock option plan generally provides for the granting of non-qualified and incentive stock options for the purchase of common stock to officers, consultants, directors and key employees. Non-qualified options can be granted at a price not less than 85% of the market price of the common stock at the date of grant. Incentive stock options can be granted at the market price at the date of grant, if granted to a director or consultant who is also an officer or key employee of the Company or at 110% of market price if granted to a shareholder holding ten percent or more of the Company’s common shares.

All share options granted under the 1999 Option Plan are exercisable at 50% one year after the date of issue and the remaining 50% two years after the date of issue. All options, if remaining unexercised, expire five years after the date of issue. All vested options lapse within three months of termination of employment.

Under the 1999 Stock Option Plan, the Company granted the following share purchase options:

Date of Grant	Number of Options	Exercise Price	Fair Value at date of Grant

February 1, 2000	797,000	$9.90	$10.13
February 25, 2000	15,000	9.90	30.00
March 1, 2000	50,000	9.90	30.44
April 1, 2000	315,000	9.90	25.09
April 17, 2000	95,000	13.50	14.00
May 12, 2000	7,000	14.00	14.03
June 19, 2000	50,000	9.90	11.25
August 29, 2000	1,145,750	5.05	5.91
August 29, 2000	285,000	5.05	5.91
June 22, 1999	1,137,500	7.65	9.06
September 15, 1999	100,000	7.65	6.88
November 4, 1999	335,000	7.65	8.06

On August 29, 2000, the Company approved the granting of new options, with a new exercise price of $5.05 per share, providing the holders first rescinded their existing grants. Holders of 1,145,740 stock options elected to rescind their grants and these were replaced with a like number of new grants. The modified grants were accounted for using variable accounting according to FASB Interpretation No. 44.

During the year ended December 31, 2002, 20,000 vested options were forfeited.

Page - 78

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - STOCK OPTIONS, continued

A summary of the activity of the Company’s 1999 stock option plan is presented below:

	Shares Under Option	Weighted Average Exercise Price

Outstanding, at December 31, 1999	1,512,500	$7.65
Granted	2,759,750	7.52
Forfeited	(1,317,000)	7.98
Rescinded	(1,145,750)	9.68
Outstanding, at December 31, 2000	1,809,500	5.93
Forfeited	(964,500)	6.21
Rescinded	(825,000)	5.52
Outstanding, at December 31, 2001	20,000	9.34
Forfeited	(20,000)	9.34
Outstanding December 31, 2002	-	$ -

The weighted average fair value of the options granted in 2002, 2001 and 2000 were $nil, $12.03 and $7.13.

2001 Stock Option/Warrant Plan

The Company’s 2001 stock option/warrant plan generally 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.

The Company granted the following share options to employees, directors and consultants:

Date of Grant	Number of Options	Exercise Price	Fair Value at Date of Grant
July 15, 2002	420,000	$0.55	$0.73
October 31, 2001	1,260,000	$0.40	$0.41

On October 31, 2001, the Company 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 totaling 765,000 options. (Note 16) The modified grants were accounted for using variable accounting according to FASB Interpretation No. 44.

On October 31, 2001, the Company granted new options to employees, directors and consultants to purchase up to 495,000 shares of the Company’s common stock at a price of $0.40 per share. The options vest immediately, expire on October 31, 2006 and had a fair value on the grant date of $0.41 per share. 150,000 of these options were granted to consultants. During 2002, 50,000 of these options were exercised.

Page - 79

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - STOCK OPTIONS, continued

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.

A summary of the activity of the Company’s 2001 stock option/warrant plan:

	Shares Under	Weighted Average
	Option	Exercise Price
Outstanding, at December 31, 2000	-	-
Granted	1,260,000	$0.40
Outstanding, at December 31, 2001	1,260,000	0.40
Granted	420,000	0.55
Exercised	(50,000)	0.40
Outstanding, at December 31, 2002	1,630,000	$0.44

The weighted average fair value of the options granted in 2002 and 2001 was $0.65 and $0.38.At December 31, 2002 and 2001 the weighted-average remaining contractual life of the outstanding options was 3.48 and 4.07 years.

Compensation Expense - Prior Period Adjustment

At December 31, 2002, it was discovered there was an error in the calculation of stock based compensation related to stock options issued in prior years. The Company corrected this error at December 31, 2002. The cumulative effect of this correction is a decrease in additional paid in capital of $1,223,262 and a decrease in the accumulated deficit of $1,223,262 as of December 31, 2002. Had this error been corrected in prior years, it would have decreased (increased) the net losses, as reported in the following table:

Compensation Expense	As Reported			As Restated			Prior Period Adjustment

December 31, 1999	$	646,532		$	439,332		$	( 207,200	)

December 31, 2000		3,947,837			2,095,592			(1,852,245	)

December 31, 2001		(1,772,478	)		(936,295	)		836,183
Totals	$	2,821,891		$	1,598,629		$	(1,223,262	)

During the year ended December 31, 2002, the Company recorded compensation costs of $106,975.

Page - 80

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - WARRANTS

Warrants Issued March 29, 2001

On March 29, 2001, the Company issued 265,000 warrants to certain directors and employees to purchase a total of 265,000 shares of the Company’s common stock at $1.25 per share. The market value of the Company’s shares at the date of issue was $0.84 per share. These warrants were exercisable through March 31, 2004. During the year ended December 31, 2001, 30,000 of these warrants were returned and forfeited and 235,000 of these warrants were rescinded in exchange for replacement grants of stock options. (Note 15)

Warrants Exercised July 26, 2000

On July 26, 2000, a warrant for one million shares of the Company was exercised at a price of $7.80 per share. (Note 13)

Warrants Issued June 30, 2000

On June 30, 2000, the Company issued 50,000 warrants to a former employee to purchase 50,000 shares of the Company’s common stock at $8.55 per share. The market value of the Company’s shares at the date of issue was $9.84. These warrants were exercisable for a period of two years from the date of issue. The fair value of the warrants was accounted for in operating expenses and estimated on the date of issue using the Black-Scholes Option-pricing model with the following assumptions used: risk-free interest rate of 5.5%; expected life of five years; 87% expected volatility; and no dividends. These warrants were not exercised and expired on June 30, 2002.

Warrants Issued March 6, 2000

On March 6, 2000, the Company sold a total of 3,228,500 units at $9.50 per unit pursuant to a private placement for cash proceeds of $30,670,750. Each unit consists of one share of the Company’s common stock and one warrant to purchase one third of a share of the Company’s common stock. The warrants, are exercisable through March 5, 2005, entitle the holder to purchase one-third of a share of common stock at $11.40 per share. (Note 13)

The portion of stock proceeds allocated to the warrants was $7,656,124, which has been recorded as a separate component of additional paid-in capital. In consideration for arranging the private placement, the Company granted warrants to purchase 26,923 shares at $7.80 per share, and 223,925 shares at $11.40 per share, of the Company’s common stock to an investment bank. These warrants expire on March 9, 2005. Included in the fair value of warrants issued with common stock of $7,656,124 is $1,374,446 allocated to the fair value of the warrants issued to the investment bank in connection with the private placement.

The allocations were based on the relative fair value of the warrants and the fair value was estimated on the date of issue using the Black-Scholes option-pricing model using the following assumptions: risk-free interest rate of 5.5%; expected life of five years; 116% expected volatility; no dividends.

Warrants Issued December 23, 1999

On December 23, 1999, the Company issued 1,250,000 common shares at a price of $6.50 per share. Attached to each share was a five-year warrant to purchase one-third of a share of the Company’s common stock for $7.80 until December 22, 2004. (Note 13)

Page - 81

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - WARRANTS, continued

Warrants Issued August 10, 1999

On August 10, 1999, the Company entered into an agreement with a company (the “Lender”) for the advance of $1,000,000 for three months. Pursuant to the terms of the loan agreement, the loan bore interest at 12% per annum and was convertible into common shares of the Company at $8.00 per share at the lender’s option. The repayment date of the loan was extended to January 10, 2000 and on December 30, 1999, the loan was repaid in full. As discussed in Note 2, the intrinsic value of the conversion feature at the date of issuance of the loan was $50,000 which was accounted for as additional paid-in capital. The Company recognized an additional $380,000 deemed financing cost for the beneficial conversion feature of the convertible short-term note during the fourth quarter of 2000, as a cumulative effect of a change in accounting principle.

Pursuant to this agreement the lender was granted warrants to purchase 100,000 common shares of the Company at $8.50 per share, exercisable for five years, commencing on August 10, 1999. The relative fair value of these warrants was deemed to be $360,000 and was recorded as a separate component of additional paid-in capital. The fair value of warrants issued was estimated on the date of issue using the Black-Scholes option-pricing model with the following assumptions used: risk-free interest rate of 5.5%; expected life of five years; 76.7% volatility; no dividends.

Warrants Outstanding

At December 31, 2002, the Company had the following share purchase warrants outstanding:

Number of Shares	Price Per Share	Expiry Date
100,000	$8.50	August 9, 2004
416,667	7.80	December 22, 2004
1,076,167	11.40	March 5, 2005
26,923	7.80	March 9, 2005
223,925	11.40	March 9, 2005

NOTE 17 - INCOME TAXES

Income tax expense has not been recognized for the years ended December 31, 2002, 2001 or 2000 and no taxes were payable at December 31, 2002 or 2001, because the Company is in the development stage and has incurred losses since its inception.

The components of the Company’s net tax losses are as follows:

		2002			2001			2000
United States of America	$	(13,270,288	)	$	(6,353,148	)	$	(9,160,736	)
Hong Kong		(1,200,964	)		(3,748,476	)		(6,977,789	)
Other countries (British Virgin Islands, Bermuda and Canada)		(53,385	)		(359,698	)		(1,670,936	)
	$	(14,524,637	)	$	(10,461,322	)	$	(17,809,461	)

Page - 82

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - INCOME TAXES, continued

As of December 31, 2002 and 2001, 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.

	2002			2001
Federal loss carryforwards	$	7,783,936		$	4,066,883
State loss carryforwards, Nevada		-			-
Foreign loss carryforwards		2,923,633			2,731,479

Less: Valuation allowance		(10,707,569	)		(6,798,362	)
	$	-		$	-

The Company’s valuation allowance increased during 2002 and 2001 by $3,909,207 and $3,357,159.

At December 31, 2002 and 2001 the Company had the following net operating loss carryforwards (“NOL’s”):

	2002		2001
United States	$	26,704,981	$	13,429,791
Foreign		20,268,961		19,019,514

	$	46,973,942	$	32,449,305

The federal NOL’s expire through December 31, 2022 and the Hong Kong NOL’s can be carried forward indefinitely.

NOTE 18 - 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 19 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases office and other premises under non-cancelable operating leases. The lease commitments for the next five years are:

2003	$88,050


Total:	$88,050

Rent expense for the years ended December 31, 2002, 2001, 2000 and the cumulative period from inception were $96,481, $372,178, $611,509, and $1,356,599 respectively.

Page - 83

BREK ENERGY CORPORATION

(Formerly First Ecom.com, Inc.)

(A Development Stage Company)

DECEMBER 31, 2002

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - COMMITMENTS AND CONTINGENCIES, continued

Going Concern

During the year the Company changed 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 generat

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)

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

Class	Outstanding at December 31, 2002
shares of common stock - $0.001 par value	26,560,037

Period ended	High	Low
31 December 2002	$0.68	$0.22
30 September 2002	$0.81	$0.55
30 June 2002	$1.13	$0.61
31 March 2002	$0.70	$0.39
31 December 2001	$0.62	$0.30
30 September 2001	$0.90	$0.32
30 June 2001	$1.35	$0.81
31 March 2001	$1.88	$0.75

High & Low Bids
Period ended	High	Low	Source
31 December 2002	$0.32	$0.20	Pink Sheets LLC
30 September 2002	n/a	n/a	n/a
30 June 2002	n/a	n/a	n/a
31 March 2002	n/a	n/a	n/a
31 December 2001	n/a	n/a	n/a
30 September 2001	n/a	n/a	n/a
30 June 2001	n/a	n/a	n/a
31 March 2001	n/a	n/a	n/a

Brek Energy Corp – ‘10KSB’ for 12/31/02

On: Friday, 11/18/05, at 9:10pm ET · As of: 11/21/05 · For: 12/31/02 · Accession #: 1104540-5-249 · File #: 0-27753

Previous ‘10KSB’: None · Next: ‘10KSB’ on 11/21/05 for 12/31/03 · Latest: ‘10KSB/A’ on 9/27/07 for 12/31/06

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	For the Years Ended December 31
		2002		2001	2000
Property Acquisition Costs:
Unproved	$	18,137,141		nil	nil
Proved		nil		nil	nil
Exploration and Development Costs:	$	529,906		nil	nil
Impairment Charges:		($16,634,187	)	nil	nil

Total	$	2,032,860		nil	nil

	Undeveloped Acres		Developed Acres
	Gross	Net	Gross	Net
Utah	103,277	11,141	nil	nil
Wyoming	123,700	24,369	nil	nil
California	4,068	932	nil	nil
Texas	51,194	8,865	nil	nil

Total Acres	282,239	45,307	nil	nil

	2002
	Gross	Net
Exploratory Wells
Productive	3.0	0.3
Dry	0.0	0.0

Total Wells	3.0	0.3

Development Wells
Productive	0.0	0.0
Dry	0.0	0.0

Total Wells	0.0	0.0

Date of Grant	Number of Options	Exercise Price
February 1, 2000	797,000	$9.90
February 25, 2000	15,000	9.90
March 1, 2000	50,000	9.90
April 1, 2000	315,000	9.90
April 17, 2000	95,000	13.50
May 12, 2000	7,000	14.00
June 19, 2000	50,000	9.90
August 29, 2000	1,145,750	5.05
August 29, 2000	285,000	5.05

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
Kenneth Telford	Chief Financial Officer	Director, President, Treasurer, and Secretary	Director, CEO, Chief Financial Officer, and Secretary	Director, Vice-President, Treasurer and Secretary

					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	2000 2001 2002	238,172 218,710 189,286 ^[1]	nil 107,097 nil	nil 15,484 ^[2] 27,871 ^[2]	nil nil nil	200,000 ^[3] 75,000 ^[4] 25,000	nil nil nil	nil nil 70,000 ^[5]
Kenneth Telford CFO July 2000 - Oct 2003	2000 2001 2002	n/a ^[6] 259,994 297,806 ^[7]	n/a ^[6] 117,419 34,000 ^[8]	n/a 13,005 ^[2] 17,209 ^[2]	n/a nil nil	n/a 200,000 ^[9] 50,000	n/a nil nil	n/a nil nil
Ravi Daswani COO Mar 1999 - Aug 2001 Co-CEO Oct 2000 - Aug 2001	2000 2001 2002	238,172 154,839 n/a ^[10]	nil 109,677 34,000 ^[10]	nil 4,473 ^[2] n/a	nil nil n/a	200,000 ^[3] 75,000 ^[4] n/a	nil nil n/a	nil nil nil ^[11]
Ian Robinson Chairman Jan 2001 - present	2000 2001 2002	n/a 15,500 40,500 ^[12]	n/a 64,516 34,000 ^[13]	n/a nil nil	n/a nil nil	n/a 75,000 ^[14] 25,000	n/a nil nil	n/a nil nil
Richard N. Jeffs CEO / President Oct 2002- Nov 2002	2000 2001 2002	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	n/a n/a nil ^[15]

Name	Number of securities underlying options / SARs granted (#)	Percent of total options / SARs granted to employees in fiscal year	Exercise or base price ($/share)	Expiration date
Gregory Pek	25,000	8.5%	$0.55	July 15, 2007
Ian Robinson	25,000	8.5%	$0.55	July 15, 2007
Ken Telford	50,000	16.9%	$0.55	July 15, 2007
Richard N. Jeffs	nil	nil	n/a	n/a

Name	Shares acquired on exercise (#)	Value realized ($)	Number of securities underlying unexercised options/SARs at FY-end (#)		Value of unexercised in-the-money options/SARs at FY-end ($)
Name	Shares acquired on exercise (#)	Value realized ($)	Exercisable	Unexercisable	Exercisable	Unexercisable
Gregory Pek	0	nil	81,250	18,750	0	0
Ian Robinson	0	nil	81,250	18,750	0	0
Kenneth Telford	0	nil	212,500	37,500	0	0
Richard N. Jeffs	0	nil	150,000⁽¹⁾	0	0	0

(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	2,685,000 ^{[2] [3]}	10.05% ^[4]
shares of common stock	Gregory Pek 902 Henley Building 5 Queens Road Central, Hong Kong	1,607,500 ^[5]	6.03% ^[6]

(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	1,607,500 ^[2]	6.03% ^[3]
shares of common stock	Ian Robinson 902 Henley Boulevard 5 Queen Road Central, Hong Kong	795,000 ^{[4] [5]}	2.98% ^[6]
shares of common stock	James Pratt 32 Greenwich Road, Greenwich Sydney, NSW 2065 Australia	120,000 ^[7]	0.45% ^[8]
shares of common stock	Ravi Daswani 902 Henley Building 5 Queens Road Central, Hong Kong	560,461^[9]	2.10% ^[10]
shares of common stock	Kenneth Telford 902 Henley Building 5 Queen’s Road Central, Hong Kong	400,000 ^[11]	1.49% ^[12]
shares of common stock	Directors and Executive Officers (as a group)	3,482,961^[13]	12.80% ^[14]

Exhibit	Description	Status
Exhibit A	Audited Financial Statements for the period ended December 31, 2002	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.	Included
10.5	License agreements dated October 19, 2001 among First Ecom.com, Inc., First Ecom Systems Limited, and Transworld Payment Solutions NV.	Included
21	List of Subsidiaries, filed as an attached exhibit to Brek’s Form 10-KSB (2002 - Annual Report) filed on November, 2005, and incorporated herein by reference.	Included
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

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	November 2005
/s/ Shawne Malone	Member of the Board of Directors	31 October 2005

Brek Energy Corp – ‘10KSB’ for 12/31/02

On: Friday, 11/18/05, at 9:10pm ET · As of: 11/21/05 · For: 12/31/02 · Accession #: 1104540-5-249 · File #: 0-27753

Previous ‘10KSB’: None · Next: ‘10KSB’ on 11/21/05 for 12/31/03 · Latest: ‘10KSB/A’ on 9/27/07 for 12/31/06

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