UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

 

FORM 10-K 

_______________

 

FRIENDLY ENERGY EXPLORATION

(Exact name of registrant as specified in its charter)

Nevada	000-31423	91-1832462
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of Incorporation)		Identification Number)
	502 North Division Street Carson City, Nevada 89703  (Address of principal executive offices)
	(702) 953-0411
	(Registrant’s Telephone Number)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      . No  X .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes      . No  X .

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  X .  No      .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      .  No      .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.      .

 

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

      .                                      

Accelerated Filer  

      .   

Non-Accelerated Filer  

      .                 

Smaller Reporting Company

  X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       .  No   X .

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2012 was $56,869 based upon the price ($0.0036) at which the common stock was last sold as of the last business day of the fiscal year, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws. Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board under the symbol “FEGR”

As of March 12, 2013, there were 32,140,807 shares of the registrant’s $0.001 par value common stock issued and outstanding.

Documents incorporated by reference: None

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Table of Contents

		Page
	PART I
Item 1	Business	6
Item 1A	Risk Factors	8
Item 1B	Unresolved Staff Comments	8
Item 2	Properties	8
Item 3	Legal Proceedings	9
Item 4	Mine Safety Disclosures	9
	PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6	Selected Financial Data	10
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	13
Item 8	Financial Statements and Supplementary Data	F-1
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	14
Item 9A	Controls and Procedures	14
Item 9B	Other Information	15
	PART III
Item 10	Directors and Executive Officers and Corporate Governance	15
Item 11	Executive Compensation	18
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	19
Item 13	Certain Relationships and Related Transactions	20
Item 14	Principal Accountant Fees and Services	20
	PART IV
Item 15	Exhibits	21

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FORWARD-LOOKING STATEMENTS

 This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:

·

The availability and adequacy of our cash flow to meet our requirements;

·

Economic, competitive, demographic, business and other conditions in our local and regional markets;

·

Changes or developments in laws, regulations or taxes in our industry;

·

Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

·

Competition in our industry;

·

The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;

·

Changes in our business strategy, capital improvements or development plans;

·

The availability of additional capital to support capital improvements and development; and

·

Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.

 

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Term

 

Except as otherwise indicated by the context, references in this report to “Company”, “FEGR”, “we”, “us” and “our” are references to Friendly Energy Exploration.   All references to “USD” or United States Dollars refer to the legal currency of the United States of America.

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EXPLANATORY NOTE

In this Annual Report on Form 10-K (“Form 10-K”), we are restating our financial statements for the fiscal year ended December 31, 2011 as filed with the U.S. Securities and Exchange Commission (“SEC”) on Form 10-K on April 6, 2012, to properly account for certain previously issued warrants and beneficial conversion feature in connection with a convertible note.

Restatement of Financial Statements

The Company granted warrants under a non-brokered subscription agreement on July 15, 2011 in connection with a convertible note.  8,333,333 warrants were granted with each warrant entitling the holder to purchase one additional share of common stock of the Corporation at $0.015 per share until July 15, 2013. No value was assigned to Warrants when the transaction was initially booked in year 2011. We were not aware of the error when those financial statements were issued. We recently determined to use the Black Scholes option pricing model for the warrants valuation. Inputs, including expected terms, volatility, expected dividends, and risk free rate, were appropriate based on management’s best estimation and judgment. After further evaluation under FASB ASC 815, we concluded that the Warrants are indexed to its own stock and should be recorded as equity.  This resulted in $71,306 warrant valuation being recorded into equity as of the date of the Amended Designation.

In addition, the beneficial conversion feature associated with the convertible note was not determined at issuance. We have corrected the error by recording the difference between the conversion price and the fair market value of the convertible securities on the commitment date (transaction date).  This resulted in $53,694 being recorded into Additional Paid in Capital as of the date of the Amended Designation.

The value of warrants and beneficial convertible feature was recorded as debt discount and amortized over three years.

The restatement is non-cash in nature and is not related to our operations.

Other than the change referred to above, all other information included in our Annual Report on Form 10-K for the fiscal year December 31, 2011 remains unchanged.

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PART I

ITEM 1.

BUSINESS

Formation and Corporate History

Friendly Energy Exploration (the “Company”) was formed under the laws of the State of Nevada on January 7, 1993, under the name Eco-Systems Marketing (“Eco-Systems”).  Eco-Systems subsequently changed its name to Rama Financial Corporation in August 1997.  In April 1999, the Company’s name changed to Friendly Energy Corporation and then again to Friendly Energy Exploration in March 2008.  The Company is a fully reporting public company.

On March 9, 2000, the Company formed a wholly owned subsidiary named Friendly Energy Services, Inc.  All oil and gas activities are conducted through this subsidiary except for work over and drilling operations.  On March 3, 2010, the Company formed a wholly owned subsidiary named Friendly Energy Drilling, Inc.  All major work over and drilling operations are conducted through this subsidiary.

Our Business

The Company was originally incorporated to engage in any lawful activity for which corporations may be organized under the General Corporation Law of Nevada.  From its inception in 1993 until 2005, the Company was primarily engaged in establishing itself as an electric service provider (“ESP”) for electricity in California after the State deregulated power.  A few years later, the State reversed course and put ESPs out of business.  Subsequently, the Company began marketing cogeneration equipment to companies concerned about high electricity prices and brownouts.  For several years, the Company was dormant and then in 2005, it began investing in oil and gas joint ventures.

The Company is now in the business of oil and gas exploration and operations, and has found a niche market acquiring leases in established, low risk oil fields which have been poorly operated and shut-in.  In the past four years, the Company acquired four oil and gas leases in Texas.  The Company is a registered, “bonded” operator in Texas (Operator No. 286572).  Therefore, the Company is in full control of all operations.    

Overview and Mission

Our primary focus is on acquiring leases and wells in established oil fields to minimize risk.  We expect to build share value through revenue from oil & gas wells.  The Company’s four oil & gas leases have several proven oil and gas zones, and there are many opportunities for in-fill drilling.  The Company plans to acquire additional leases in the future.   

The following was done in 2012:

·

Sold the Panther Creek lease and discontinued the Mud Creek lease.

·

Acquired the Tyra lease in north central Texas.  

The Company plans the following activities in 2013:

·

Complete acquisition of several leases in Texas.

·

Rework a number of wells.

·

Drill several new in-fill wells.

·

Acquire additional leases.

Our Oil and Gas Properties

Our four oil and gas leases in Texas consist of the following:  

Byler Lease: The Byler lease totals 372 acres of which approximately 57% is in a defined Fry Sand oil field.  The Fry sand is at a depth of 1,300 feet and is part of the Strawn Series which is a prolific oil producer in the region.  The Byler lease also contains the Marble Falls Limestone which is part of the lower Pennsylvanian System at approximately 2,300 feet.  Of the 17 existing wells on the lease, two are water injection wells, eleven are Fry wells and four are Marble Falls wells.  The Company has installed a new tank farm and three new pump jacks.  As at December 31, 2012, there was no production on the property.

 

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Hutchins Lease: The Hutchins lease totals 194 acres of which approximately 30% is in defined oil fields.  The Company’s lease is for the upper production zones included the Fry Sands.  There were four Fry Sand wells which were plugged in 2001 when the operator had financial problems and oil and gas prices were very low.  We expect to reenter the one of the Fry Sand wells.  There is good potential for in-field drilling.  A new tank farm and other infrastructure are needed on the Hutchins lease.  As at December 31, 2012, there was no production on the property.

South Thrifty Lease: The South Thrifty lease totals 1,000 acres of which approximately 54% is in defined oil fields.  There are five Chappel Reef and Ellenberger oil wells and eighteen Chappel Reef gas wells.  There is also a water injection well.   One of the wells had an initial potential of 792 barrels per day.  Cheap and used casing was installed, which created a hole after only a short time and reduced production to 50 barrels per day and eventually zero.  There is good potential for in-field drilling.  The South Thrifty lease has five tank farms.  As at December 31, 2012, there was production on the property from several gas wells.  The other wells need some work.  

Tyra Lease: The Tyra lease was acquired in the fourth quarter of 2012.  It totals 20 acres and has one well.  There is potential for a second in-fill well.

Additional Acquisitions

The Company is currently negotiating the acquisition of additional leases in Texas and hopes to expand its operations across Texas in the future.  

Competition

The oil and gas exploration and production industry is highly competitive.  The Company expects to encounter competition from other oil and gas companies in all areas of its operations, including acquisition of leases.

Competitors include major integrated oil and natural gas companies, natural gas pipeline companies, numerous independent oil and natural gas companies, individuals and drilling and income programs.  Many of the Company's competitors are large, well-established companies with substantially larger operating staffs and greater capital resources than the Company has and which, in many instances, have been engaged in the energy and/or natural resource production and development business for a much longer time than our Company.  These companies may be able to offer more attractive rates for natural gas gathering commitments and to pay more for productive oil and natural gas properties and exploratory prospects than the Company's financial or human resources would permit.  The Company's ability to acquire additional properties, discover reserves and attract experienced joint venture partners in the future will be dependent on its ability to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.  In addition, joint venture partners may not be available to the Company on terms or at prices, which the Company can afford.

The Company will be focusing on smaller projects generally involving shallow wells in overlooked areas of established oil and gas fields.  This will substantially reduce competition and will likely eliminate any competition from major oil and natural gas exploration companies.

Patents, Trademarks, and Licenses

The Company has not applied for any patents or trademarks and does not intend to do so in the foreseeable future.

Government Regulation

The Company's operations are and will be affected by extensive regulation by various federal, state and local laws and regulations relating to the exploration and possible development, production, gathering and marketing of oil and gas.  Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds or other financial responsibility requirements, reports concerning operations, wells, unitization and pooling of properties, and taxation.  From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas.  The Company anticipates the main federal, state and local laws, rules and regulations which will apply to its planned exploration and operation activities will be mainly environmental and regulatory relating to oil spills, contamination of aquifers and streams, use of hazardous materials, trash accumulation and disposal and surface damage.

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Environmental Laws

Operations of the Company are also subject to numerous environmental laws, including, but not limited to, those governing management of waste, protection of water, air quality, the discharge of materials into the environment, and preservation of natural resources.  Non-compliance with environmental laws and the discharge of oil, gas, or other materials into the air, soil or water may give rise to liabilities to the government and third parties, including civil and criminal penalties, and may require the Company to incur costs to remedy the discharge.  Laws and regulations protecting the environment have become more stringent in recent years, and may in certain circumstances impose retroactive, strict, and joint and several liability rendering entities liable for environmental damage without regard to negligence or fault.  From time-to-time the Company may have to agree to indemnify sellers of producing properties, from whom the Company has acquired reserves, against certain liabilities for environmental claims associated with such properties.  There can be no assurance that new laws or regulations, or modifications of or new interpretations of existing laws and regulations, will not increase substantially the cost of compliance or otherwise adversely affect the Company's operations and financial condition or that material indemnity claims will not arise against the Company with respect to properties acquired by or from the Company.  While the Company does not anticipate incurring material costs in connection with environmental compliance and remediation, it cannot guarantee that material costs will not be incurred.  The Company estimates that any costs of complying with environmental laws, rules and regulations will mainly be associated with short delays and minimal costs in time and labor.  Some of the most significant environmental regulations which will affect the Company's proposed operations will be avoiding archeological sites, avoiding damage to grasslands and avoiding oil spills.

WHERE YOU CAN GET ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC.  You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549.  You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

ITEM 1A.

RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

 

Our corporate office is located at 502 North Division Street, Carson City, Nevada 89703. Our telephone number is (702) 953-0411.  We do not foresee any significant difficulties in obtaining any required additional facilities.  The Company does not presently own any interests in real estate.

The Company has acquired four oil and gas leases in Texas.  The Company is a registered, “bonded” operator in Texas (Operator No. 286572).  Therefore, the Company is in full control of all operations.

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As of the dates specified in the following table, the Company held the following properties in the following amounts:

			December 31, 2012 $		December 31, 2011 $
Oil & Gas Properties - Unproved
	Byler Lease		45,143		45,143
	Hutchins Lease		2,400		2,400
	South Thrifty Lease		55,894		56,556
	Tyra Lease		10,000		0
	Panther Lease		0		8,596
	Mud Creek Lease		20,000		20,000
	Red Oak Project		242,000		242,000
	Talpa Project		50,000		50,000
	West Peach Project		36,970		36,970
			462,407		453,069
	Impairment		(348,970)		(328,970)
		Total oil & gas properties	113,437		132,695

The Company defines cash equivalents as all highly liquid investments with a maturity of 3 months or less when purchased.

Proven Reserves:  The oil & gas leases have a number of existing wells, many of which were shut-in.  We are in the process of re-working these existing wells.  All of these leases are in Texas.  At this time, we do not have proven developed or undeveloped reserve estimates for these leases, but plan to have proven reserve estimates made in 2013.

Products Sold:  The Company has sold $143,126 worth of oil & gas products during the last three fiscal years.

Drilling Activities:  No exploratory or development wells have been drilled by the Company during the last three fiscal years.  

Present Activities:  The Company has no wells in the process of being drilled.  Several of the Company’s existing wells will soon be re-worked.

Delivery Commitments:  The Company has no commitments to provide a fixed and determinable quantity of oil or gas in the near future under existing contracts or arrangements.

ITEM 3.

LEGAL PROCEEDINGS

In 2012, an investor filed suit against the Company concerning an investment made in the Asher #1 well in Oklahoma, which produced little income, and an investment in the Peach Tree well in Oklahoma, which was a dry hole.  The amount of the investments was $244,500.  The investor alleges that the monies were a loan and not an investment and alleges that $244,000 is still due and payable.  We hope to resolve this matter out of court.  To be conservative for the purposes of the Company’s financials, we have recorded a loan liability in the amount of $244,000.

Other than the above mentioned suit, we know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation.  There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is currently quoted on the OTC Bulletin Board. Our common stock has been quoted on the OTC Bulletin Board since October 13, 2010 trading under the symbol “FEGR.”  Prior to October 13, 2010, our stock was traded on the Pink Sheets under the symbol “FEGR.PK”.  Because we are quoted on the OTC Bulletin Board, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.

The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCBB for the period from January 1, 2011 through December 31, 2012, based on our fiscal year end December 31. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.  The prices have been adjusted for the 20-for-1 reverse split of common shares in November 2012.

		First Quarter				Second Quarter				Third Quarter			Fourth Quarter
2012 – High		$0.0200				$0.0065				$0.0700			$0.0300
2012 – Low		$0.0038				$0.0042				$0.0140			$0.0053
2011 – High		$0.6960				$0.4000				$0.5600			$0.3400
2011 – Low		$0.2200				$0.2200				$0.2400			$0.0600

Record Holders

As of March 12, 2012, an aggregate of 32,140,807 shares of our common stock were issued and outstanding and were owned by approximately 591 holders of record, based on information provided by our transfer agent.

 

Recent Sales of Unregistered Securities

 

None.

Re-Purchases of Equity Securities

None.

Dividends

We have not paid any cash dividends on our Common Stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our Common Stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts.  Therefore, there can be no assurance that any dividends on our Common Stock will be paid in the future.

ITEM 6.   

SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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ITEM 7.  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections.  We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements.  These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted.  You should read this report completely and with the understanding that actual future results may be materially different from what we expect.  The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report.  We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Working Capital

	December 31, 2012	December 31,  2011
Current Assets	$254,598	$284,691
Current Liabilities	$2,947,912	$3,139,589
Working Capital (Deficit)	$(2,947,896)	$(3,139,589)

Cash Flows

	December 31, 2012	December 31, 2011
Cash Flows from (used in) Operating Activities	$(523,934)	$(557,117)
Cash Flows from (used in) Investing Activities	$(470,741)	$(22,101)
Cash Flows from (used in) Financing Activities	$981,605	$594,129
Net Increase (decrease) in Cash During Period	$(13,070)	$14,911

Operating Revenues

Operating revenues for the period ended December 31, 2012 was $27,474 and is comprised of oil and gas revenues.

Operating revenues for the period ended December 31, 2011 was $63,211 and is comprised of oil and gas revenues.

Operating Expenses and Net Loss

Operating expenses for the period ended December 31, 2012 was $498,508 and is comprised mostly of oil well operations costs and deferred salaries.

Operating expenses for the period ended December 31, 2011 was $630,064 and is comprised mostly of oil well operations costs and deferred salaries.

Net loss for the period ended December 31, 2012 was $457,716 and is comprised of operating expenses and interest expenses less oil and gas revenues.

Net loss for the period ended December 31, 2011 was $813,991 and is comprised of operating expenses and interest expenses less oil and gas revenues.

Liquidity and Capital Resources

As at December 31, 2012, the Company’s cash and total asset balance was $254,598 compared to $284,691 as at December 31, 2011.  The decrease in total assets is attributed mainly to a decrease in the value of oil and gas properties due to the sale of the Panther lease.

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As at December 31, 2012, the Company had total liabilities of $2,947,9126 compared with total liabilities of $3,139,589 as at December 31, 2011.  The increase in total liabilities was attributed to primarily to an increase of interest payable and of deferred salaries.  

As at December 31, 2012, the Company had a working capital deficit of $2,693,315 compared with a working capital deficit of $2,854,898 as at December 31, 2011.  The increase in working capital deficit was attributed to primarily to an increase of interest payable and of deferred salaries.

Cashflow from Operating Activities

During the period ended December 31, 2012, the Company used $523,934 of cash for operating activities compared to the use of $557,117 of cash for operating activities during the period ended December 31, 2011.  The change in net cash used in operating activities is mainly attributed to a decrease in the net loss.

Cashflow from Investing Activities

During the period ended December 31, 2012, the Company used $470,741 of cash for investing activities compared to the use of $22,101 of cash for investing activities during the period ended December 31, 2011.  The change in net cash used in investing activities is attributed to a payoff of promissory note balances using common stock.

Cashflow from Financing Activities

During the period ended December 31, 2012, the Company received $981,605 of cash for financing activities compared to receipt of $594,129 of cash for financing activities during the period ended December 31, 2011.  The small change in net cash used in financing activities is attributed mainly to an increase in common stock financing offset by a decrease in preferred stock financing.

Going Concern

 

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities.  For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Financings

 

We will continue to rely on equity sales of our common shares in order to continue to fund our business operations.  Issuances of additional shares will result in dilution to existing stockholders.  There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.  The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements.  A complete summary of these policies is included in Note 2 of the notes to our financial statements.  In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 7A.   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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ITEM 8.   

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FRIENDLY ENERGY EXPLORATION

(An Exploration Stage Company)

For the Years Ended December 31, 2012 and 2011

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Stockholders’ Deficit	F-6
Consolidated Statements of Cash Flows	F-7
Notes to the Consolidated Financial Statements	F-8

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Friendly Energy Exploration

We have audited the consolidated balance sheet of Friendly Energy Exploration. (the “Company”) as of December 31, 2012 and the related statements of operations, changes in stockholders' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and the result of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 12 to the consolidated financial statements, the 2011 consolidated financial statements have been restated to correct a misstatement. We audited the adjustments necessary to restate the warrant and earnings per share information provided in Note 12. In our opinion, such adjustments are appropriate and have been properly applied.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the consolidated financial statements, the Company has incurred an accumulated deficit of $7,905,713 from inception to December 31, 2012. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/Anton & Chia, LLP

April 15, 2013

Newport Beach, CA

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To:  The Board of Directors and Shareholders

Friendly Energy Corporation

6005 N. Highway 279

Brownwood, TX 76801

I have audited the accompanying consolidated balance sheet of Friendly Energy as of December 31, 2011 and 2010 and the related consolidated statements of operations and of cash flows for the years then ended, and I have audited the period from inception of the development stage (January 7, 1993) through February 10, 2005 and the period from inception of the exploration stage (February 11, 2005) through December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management.  My responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  I believe that my audit provides a reasonable basis for my opinion.

In my opinion, based on my audit, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Friendly Energy as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years ended December 31, 2011 and 2010, and the period from inception of the development stage (January 7, 1993) through February 10, 2005 and the period from inception of the exploration stage (February 11, 2005) through December 31, 2011, in conformity with United States generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has suffered recurring losses.  This raises substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has determined that it is not required to have, nor was I engaged to perform, an audit of the effectiveness of its documented internal controls over financial reporting.

/s/ John Kinross-Kennedy    

John Kinross-Kennedy

Certified Public Accountant

Irvine, California

March 26, 2012

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FRIENDLY ENERGY EXPLORATION
An Exploration Stage Company
CONSOLIDATED BALANCE SHEETS
				December 31, 2012		December 31, 2011
						(As Restated)
ASSETS
Current assets
	Cash and cash equivalents		$	-	$	13,069
	Accounts receivable			85,605		72,276
		Total current assets		85,605		85,345
	Oil and Gas Properties - unproved			113,436		132,695
	Property and equipment, net			46,807		57,900
	Notes receivable			7,500		7,500
	Other assets			1,250		1,250
Total Assets			$	254,598	$	284,691
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
	Bank overdraft		$	16	$	-
	Accounts payable			81,698		74,908
	Payroll tax liabilities			151,895		138,074
	Interest payable			36,674		376,119
	Loan payable			411,206		342,252
	Loans payable-related parties			504,318		252,650
		Total current liabilities		1,185,808		1,184,003
Long-term Liabilities
	Loan payable			-		490,000
	Convertible note, net of unamortized discount			57,420		15,753
	Judgment payable			156,684		141,832
	Deferred salaries			1,548,000		1,308,000
		Total long-term liabilities		1,762,104		1,955,585
Total Liabilities				2,947,912		3,139,589
STOCKHOLDERS' DEFICIT
	Common stock, $0.001 par value; 500,000,000 shares     authorized, 16,208,193 and 5,359,040 shares,     respectively, issued and outstanding			16,208		5,359
	Preferred Stock, $0.001 par value, 20,000,000 shares     authorized, 9,927,302 and 3,777,302 shares,     respectively, issued and outstanding			9,927		3,777
	Warrants, 8,333,888 exercisable at $0.015  per share			71,306		71,306
	Additional paid-in capital			5,114,958		4,512,657
	Accumulated deficit during the development stage			(2,201,562)		(2,201,562)
	Accumulated deficit during the exploration stage			(5,704,151)		(5,246,435)
		Total stockholders' deficit		(2,693,315)		(2,854,898)
		Total liabilities and stockholders' deficit	$	254,598	$	284,691
The accompanying notes are an integral part of these consolidated financial statements

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F-6

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

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FRIENDLY ENERGY EXPLORATION

 (AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

1.

DESCRIPTION OF BUSINESS AND HISTORY

Friendly Energy Corp., a Nevada corporation, (hereinafter referred to as the “Company” or “Friendly Energy”) was incorporated in the State of Nevada on January 7, 1993 under the name Eco-Systems Marketing.  The company was originally in the business of selling electric power and related services to small and medium sized businesses in a newly deregulated California market.  The Company is now in the business of oil and gas exploration and operations.  The Company has acquired several oil and gas leases in central Texas with more than 25 wells.

The Company is considered an exploration stage company in accordance with by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, Development Stage Entities.  The Company entered the oil and gas exploration business in February 2005, so the cumulative columns in the financial statements include activities for the development stage prior to February 2005 and for the exploration stage beginning February 2005.

On March 9, 2000, the Company formed a wholly owned subsidiary named Friendly Energy Services, Inc.  All oil and gas activities are conducted through this subsidiary except for work over and drilling operations.  On March 3, 2010, the Company formed a wholly owned subsidiary named Friendly Energy Drilling, Inc.  All major work over and drilling operations are conducted through this subsidiary.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going concern – The Company incurred net losses of $5,704,151 from the period of February 11, 2005 (date of entering the oil and gas exploration business) through December 31, 2012 and has commenced its operations on a limited basis. The Company is still in the exploration stage, raising substantial doubt about the Company’s ability to continue as a going concern.  The Company may seek additional sources of capital through the issuance of debt or equity financing, but there can be no assurance the Company will be successful in accomplishing its objectives.

The ability of the Company to continue as a going concern is dependent on additional sources of capital and the success of the Company’s plan.  The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Principles of consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany transactions and balances have been eliminated.

Use of estimates – The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Oil and Gas Properties – The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool on a country by country basis. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made the Company assesses annually whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.

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The Company applies a ceiling test to the capitalized cost in the full cost pool. The ceiling test limits such cost to the estimated present value, using a ten percent discount rate, of the future net revenue from proved reserves, based on current economic and operating conditions. Specifically, the Company computes the ceiling test so that capitalized cost, less accumulated depletion and related deferred income tax, do not exceed an amount (the ceiling) equal to the sum of: (A) The present value of estimated future net revenue computed by applying current prices of oil and gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current cost) to be incurred in developing and producing the proved reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; plus (B) the cost of property not being amortized; plus (C) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; less (D) income tax effects related to differences between the book and tax basis of the property.

For unproven properties, the Company excludes from capitalized costs subject to depletion, all costs directly associated with the acquisition and evaluation of the unproved property until it is determined whether or not proved reserves can be assigned to the property. Until such a determination is made, the Company assesses the property at least annually to ascertain whether impairment has occurred. In assessing impairment the Company considers factors such as historical experience and other data such as primary lease terms of the property, average holding periods of unproved property, and geographic and geologic data. The Company adds the amount of impairment assessed to the cost to be amortized subject to the ceiling test.

Property and equipment – Property and equipment are stated at cost less accumulated depreciation.  Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are generally 3 to 27 years.  The amounts of depreciation provided are sufficient to charge the cost of the related assets to operations over their estimated useful lives.  

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Income taxes – We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Net loss per common share – The Company computes net income (loss) per share in accordance with ASC 260, Earning per Share.  ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Stock-Based Compensation -- The Company records stock-based compensation in accordance with ASC 718, Share-Based Payments, using the fair value method. All transactions in which goods or services are the 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 issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

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Revenue recognition – Revenues associated with sales of crude oil, and natural gas, and all other sources are recorded when title passes to the customer, net of royalties, discounts and allowances, as applicable. Revenues from natural gas production from properties in which Friendly Energy Exploration has an interest with other producers are generally recognized using the entitlement method. Excise, value-added and similar taxes assessed by a governmental authority on a revenue-producing transaction between a seller and a customer are presented on a gross basis.

Financial Instruments - Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, notes receivable, investment, accounts payable, payroll tax liabilities, judgment payable, deferred salaries, interest payable, loans payables, and amounts due to related parties. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Debt Discount Amortization. Debt discounts for notes payable are amortized to interest expense, using a method that approximates the interest method over the term of the related debt instruments.

Recent accounting pronouncements – Effective January 2012, FASB adopted ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 represents the converged guidance of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on fair value measurement. A variety of measures are included in the update intended to either clarify existing fair value measurement requirements, change particular principles requirements for measuring fair value or for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend to change the application of existing requirements under Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements. ASU 2011-04 was effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.

January 2012, FASB adopted ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 is intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence of accounting guidance in this area with that of the IASB. The amendments require that all nonowner changes in shareholders’ equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the provisions of ASU 2011-05 that require the presentation of reclassification adjustments on the face of both the statement of income and statement of other comprehensive income. Amendments under ASU 2011-05 that were not deferred under ASU 2011-12 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this update did not have a material impact on the financial statements.

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In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The Company is evaluating the effect, if any, adoption of ASU 2011-11 will have on its financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The Company is evaluating the effect, if any; the adoption of ASU 2013-02 will have on its financial statements.

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies.  Due to the tentative and preliminary nature of those proposed standards, the Company’s management has not determined whether implementation of such standards would be material to its financial statements.

3.

 OIL & GAS PROPERTIES

						December 31, 2012 $						December 31, 2011 $
Oil & Gas Properties - Unproved
	Byler Lease				45,143						45,143
	Hutchins Lease				2,400						2,400
	South Thrifty Lease, net of depletion				55,894						56,556
	Tyra Lease				10,000						0
	Panther Lease, net of depletion				0						8,596
	Mud Creek Lease				20,000						20,000
	Red Oak Project				242,000						242,000
	Talpa Project				50,000						50,000
	West Peach Project				36,970						36,970
					462,406						461,665
	Impairment				(348,970)						(328,970)
		Total oil & gas properties				113,436						132,695

Byler Lease – In 2009, the Company purchased, through its wholly-owned subsidiary, a 100% interest in oil and gas properties in central Texas for $33,650.  In 2010, there were additional lease costs of $333, and in 2011 there were additional lease costs of $11,160.  The property totals 372 acres and consists of 17 wells.  The Company remits a 22% royalty payment.  As at December 31, 2012, there was no production on the property.

Hutchins Lease - In 2009, the Company purchased, through its wholly-owned subsidiary, a 100% interest in shallow oil and gas properties in central Texas for $2,400.  The property totals 194 acres.  Upon production, the Company will remit a 15.125% royalty payment.  As at December 31, 2012, there was no production on the property.  

South Thrifty Lease - In the first quarter of 2010, the Company purchased, through its wholly-owned subsidiary, a 50% interest in oil and gas properties in central Texas for $67,500.  After the depletion allowance, the balance is $56,556.  The property totals 1,000 acres.  The Company remits approximately a 22% royalty payment (the royalty payment varies for the wells).  As at December 31, 2012, there was production on the property from several gas wells.  

Tyra Lease - In the last quarter of 2012, the Company acquired, through its wholly-owned subsidiary, a 51% interest in oil and gas properties in north central Texas for $10,000.  The property has one well on 20 acres.  The Company remits approximately a 20% royalty payment.  As at December 31, 2012, there was production on the property.

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Panther Creek Lease - In 2009, the Company purchased, through its wholly-owned subsidiary, a 100% interest in oil and gas properties in central Texas for $15,000.  After the depletion allowance, the balance is $8,596.  The property totals 155 acres.  The Company sold its interest in the lease for $30,000 in December 2012.  

Mud Creek Lease - In 2009, the Company purchased, through its wholly-owned subsidiary, a 100% interest in oil and gas properties in central Texas for $10,000.  In 2011 there were additional lease costs of $11,160.  The property totals 355 acres.  In 2012, management elected not to continue with further exploration of the property and impaired all capitalized costs.    

Red Oak Project - Friendly Energy Exploration, through its wholly owned subsidiary, Friendly Energy Services, Inc. (FES), participated in the drilling of a 3,200 foot deep oil and gas well in southwest Iowa. FES owns a 42.5% working interest in the well.  In 2009, management elected not to continue with further exploration of the property and impaired all capitalized costs.  

Talpa Project - Friendly Energy Exploration purchased, through its wholly owned subsidiary, Friendly Energy Services, Inc. (FES), a 25% working interest in an 1,100 acre oil and gas lease in Texas.  In 2009, management elected not to continue with further exploration of the property and impaired all capitalized costs.  

West Peach Creek Project - Friendly Energy Exploration had planned to drill a 5,400 foot deep well in central Oklahoma through its wholly owned subsidiary, Friendly Energy Services, Inc. (FES).  If the geophysicist and operator each purchase a 10% working interest, as expected, then FES will own an 80% working interest in the well.  The location is on the West Peach Creek Prospect, a development/exploratory prospect, located on the western edge of the giant St. Louis Oil Field.  In 2009, management elected not to continue with further exploration of the property and impaired all capitalized costs.  

 

4.

PROPERTY & EQUIPMENT

Property and equipment consist of the following as of December 31, 2012 and 2011:

	December 31, 2012		December 31, 2011
Furniture and Fixtures	21,980		21,980
Computers and Equipment	29,489		29,489
Oil Field Equipment	65,477		67,392
	116,946		118,861
Less: accumulated depreciation	(70,140)		(60,961)
Property and equipment, net	$46,806		$  57,900

5.

RELATED PARTY TRANSACTIONS

In 2011, the officers agreed with the Company to defer their salaries totaling $240,000, see note 10.  The officers have accrued the following deferred salaries since 2005:

	December 31, 2012		December 31, 2011
Douglas Tallant, CEO	$1,183,000		$1,003,000
Donald Trapp, CFO	$365,000		$305,000
	$1,548,000		$1,308,000

The officers have loaned the company funds due on demand with 8% interest annually as shown below:

	December 31, 2012		December 31, 2011
Douglas Tallant, CEO	$136,937		$15,320
Donald Trapp, CFO	$367,381		$237,329
	$504,318		$252,650

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6.

OTHER CURRENT LIABILITIES

The Company has accrued for unpaid federal payroll taxes in the amounts of $151,895 and $138,074 for the years ended December 31, 2012 and 2011, respectively.  $37,268 is owed from 2000 and 2001 unpaid federal payroll taxes; the Company has filed the payroll taxes with the Internal Revenue Service.  $114,627 and $100,806 is owed for accrued payroll taxes on deferred salaries for 2012 and 2011; the Company will file the payroll tax forms with the Internal Revenue Service or related state taxing authorities at such time as the deferred salaries are paid.

The Company has accrued interest in the amount of $36,674 and $376,119 for year ended December 31, 2012 and 2011, respectively.  The accrued interest includes interest on unpaid payroll taxes and related party loans.

Four companies have loaned the company monies in the amount of $411,206 at year ended December 31, 2012, and two companies have loaned the Company monies in the amount of $342,252 at year ended December 31, 2011.  

7.

INCOME TAXES

No provision was made for federal income tax for the year ended December 31, 2012, since the Company had net operating losses.

The Company has available a net operating loss carry-forward of approximately $7,900,000, which begins to expire in 2013 through 2031 unless utilized beforehand. Net operating loss carry forwards may be used to reduce taxable income through the year 2034. The availability of the Company’s net operating loss carry forwards are subject to limitation if there is a 50% or more positive change in the ownership of the Company’s stock. As presented below, the Company generated a deferred tax asset through the net operating loss carry forward. However, a 100% valuation allowance has been established because the ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which the net operating loss carry forwards are available. Management considers projected future taxable income, the scheduled reversal of deferred tax liabilities and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the period in which the net operating loss carry forwards are available to reduce income taxes payable, management has established a valuation allowance such that the net deferred tax asset is $0 as of December 31, 2012.  We have identified U.S. Federal and Texas as our “major” tax jurisdiction and generally we remain subject to Internal Revenue Service examination of our 2009 through 2011 U.S. Federal income tax returns and remain subject to Texas Comptroller of Public Accounts examination of our 2009 through 2011 Texas Franchise Tax Returns.

	December 31, 2011		December 31, 2011
Deferred tax assets:
Net operating loss carry forwards	$                          7,905,713		$                          7,447,997
Less: valuation allowance	(7,905,713)		(7,447,997)
Net deferred tax assets	$                                       -		$                                       -

8.

STOCKHOLDERS’ DEFICIT

a)

On April 1, 2011, the Company issued 1,400,000 shares of preferred stock for cash at $0.21 per share.

b)

On July 1, 2011, the Company issued 200,000 shares of preferred stock for cash at $0.25 per share.

c) During 2011, as noted above in the common shares section, 1,400,000 shares of preferred stock were converted to 14,000,000 shares of common stock.

d) During 2012, the Company issued 7,250,000 shares of preferred stock for debt settlement at $0.022 per share.

e) During 2012, as noted above in the common shares section, 1,100,000 shares of preferred stock were converted to 550,000 shares of common stock.

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9.

STOCK OPTIONS

The Company granted no options under the Company’s Stock Option Plan in the 2012 and had no stock-based compensation expense.

The following table summarizes stock option plan activities:

	Number of Options	Weighted Average Exercise Price $	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value $
Granted in 2005	2,000	$      25.00
Granted in 2006	3,000	$      31.25
Granted in 2007	15,000	$        5.00
Granted in 2009	75,000	$      0.010
Balance 12-31-2011	95,000	$        2.31	7.1	$            -
Balance 12-31-2012	95,000	$        2.31	6.1	$            -

Additional information regarding stock options as of December 31, 2012, is as follows:

Year Granted	Number of Options	Exercise Price	Expiration Date
2005	2,000	$         25.00	04/20/15
2006	3,000	$         31.25	09/28/16
2007	15,000	$           5.00	12/27/17
2009	75,000	$         0.010	07/23/19

There are no non-vested stock options and as of December 31, 2012 and 2011, the Company had no unrecognized compensation expense relating to unvested options.  

10.

CONVERTIBLE NOTE AND WARRANTS

The company has entered an subscription agreement which a convertible note of $125,000 with 8,333,333 warrants attached, the note is payable over a five-year period, accrues interest at the rate of 2% per annum payable in cash or common stock of the Company at the option of the holder of the Note, and is convertible into Company common stock at $0.01 per share. The Company granted warrants under a non-brokered subscription agreement on July 15, 2011 in connection with a loan.  8,333,333 warrants were granted with each warrant entitling the holder to purchase one additional share of common stock of the Corporation at $0.015 per share until July 15, 2013.

According to ASC 470-20-30-5, in circumstances in which convertible securities are issued with any detachable instruments, such as warrants, in order to determine the amount to be allocated to the beneficial conversion feature, the issuer must first allocate the proceeds between the convertible instrument and the detachable instruments using the relative fair value method.  Then the value of the beneficial conversion feature would be computed using the proceeds allocated to the conversion securities.  Costs of issuing the instruments do not affect the calculation and should not be offset against the proceeds in the calculation. The amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument.  The relative future value allocation is as follows:                      

Notes payable	Warrants	Total
$       53,694	$      71,306	$        125,000

The original loan has been recorded as a $125,000 convertible note.  To account for the future value allocation, $125,000 is debited as a convertible note-debt discount, the future value allocation of $71,306 is credited as warrants, and the future value allocation of $53,694 is credited as additional-paid-in-capital.  The debt discount is amortized over three years, with the amortization amount debited as interest expense.

F-14

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11.

COMMITMENTS AND CONTINGENCIES

Employment contracts –

Douglas Tallant - The Company entered into an employment agreement with Douglas Tallant effective January 1, 2007.  Pursuant to the terms of the agreement, Mr. Tallant is to be paid an annual salary of $180,000 in consideration of which Mr. Tallant agreed to act as the Company’s President.  The term of the agreement is for an indefinite period, unless otherwise terminated pursuant to the terms of the agreement.

Donald Trapp - The Company entered into an employment agreement with Donald Trapp effective February 1, 2005.  Pursuant to the terms of the agreement, Mr. Trapp is to be paid an annual salary of $60,000 in consideration of which Mr. Trapp agreed to act as the Company’s Corporate Secretary and Treasurer.  The term of the agreement is for an indefinite period, unless otherwise terminated pursuant to the terms of the agreement.  

12.

LITIGATION

In 2005, an employee received a defaulted judgment against the Company concerning the case Bowers v. Friendly Energy Corporation, San Diego Superior Court Case No. 775084.  The default judgment in the principle sum of $434,211.50 was reduced to a principal amount of $110,000, with interest from October 13, 2000.  With accrued interest and less principal paid of $140,000, the balance at December 31, 2012 and 2011 is $156,684 and $141,832, as reported in the liability section of the balance sheet.

In 2012, an investor filed suit against the Company concerning an investment made in the Asher #1 well in Oklahoma, which produced little income, and an investment in the Peach Tree well in Oklahoma, which was a dry hole.  The amount of the investments was $244,500.  The investor alleges that the monies were a loan and not an investment and alleges that $244,000 is still due and payable.  We hope to resolve this matter out of court.  To be conservative for the purposes of the Company’s financials, we have recorded a loan liability in the amount of $244,000.  

13.

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

       

       The Company granted warrants under a non-brokered subscription agreement on July 15, 2011 in connection with a convertible note.  8,333,333 warrants were granted with each warrant entitling the holder to purchase one additional share of common stock of the Corporation at $0.015 per share until July 15, 2013. No value was assigned to Warrants when the transaction was initially booked in year 2011. We were not aware of the error when those financial statements were issued. We recently determined to use the black scholes option pricing model for the warrants valuation. Inputs, including expected terms, volatility, expected dividends, and risk free rate, were appropriate based on management’s best estimation and judgment. After further evaluation under FASB ASC 815, we concluded that the Warrants are indexed to its own stock and should be recorded as equity.  This resulted in $71,306 warrant valuation being recorded into equity as of the date of the Amended Designation.

       In addition, the beneficial conversion feature associated with the convertible note was not determined at issuance. We have corrected the error by recording the difference between the conversion price and the fair market value of the convertible securities on the commitment date (transaction date).  This resulted in $53,694 being recorded into additional paid in capital as of the date of the amended designation.

       The value of warrants and beneficial convertible feature was recorded as debt discount and amortized over three years.

The following table presents the impact of the financial adjustments on the Company’s previously reported consolidated balance sheet and equity statement for the year ended December 31, 2011.

	December 31, 2011		December 31, 2011
	(As Previously Reported)		(As Restated and Reclassified)
Loan payable	$                             615,000		$                              490,000
Convertible Note			$                              125,000
Convertible Note-Debt Discount			$                           (109,247)

The impact of the financial adjustments on the Company’s previously reported consolidated statement of operation for the year ended December 31, 2011 is an increase in interest expense of $15,753 from the amortization of the convertible note debt discount

F-15

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The following table presents the impact of the financial adjustments on the Company’s previously reported Statement of Stockholders’ Equity for the period ended December 31, 2011.

FRIENDLY ENERGY EXPLORATION
A Development Stage Company
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
								Accumulated	Accumulated
								Deficit	Deficit
							Additional	Development	Exploration	Total
	Common Stock		Preferred Stock		Warrants		Paid-in	Stage	Stage	Stockholders'
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Prior to 2-11-05	From 2-11-05	Deficit
	(as previously reported and reclassified including effect of 2012 reverse stock split)
Balance, December 31, 2010	3,511,940	3,512	3,577,302	$3,577	-	$0	$3,887,590	($2,201,562)	($4,432,444)	($2,739,327)
Common shares issued for cash, $0.200/share	895,000	895	-	-	-	-	178,105	-	-	179,000
Common shares issued for services $0.200/share	252,100	252	-	-	-	-	50,168	-	-	50,420
Preferred shares issued for cash, $0.21/share	-	-	1,400,000	1,400	-	-	292,600	-	-	294,000
Preferred shares issued for cash, $0.25/share	-	-	200,000	200	-	-	49,800	-	-	50,000
Conversion of preferred stock	700,000	700	(1,400,000)	(1,400)	-	-	700	-	-	-
Net Loss	-	-	-	-	-	-	-	-	(794,891)	(794,891)
Balance, December 31, 2011	5,359,040	5,359	3,777,302	$3,777	-	$0	$4,458,963	($2,201,562)	($5,227,335)	($2,960,798)
								Accumulated	Accumulated
								Deficit	Deficit
							Additional	Development	Exploration	Total
	Common Stock		Preferred Stock		Warrants		Paid-in	Stage	Stage	Exploration
	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Prior to 2-11-05	From 2-11-05	Deficit
	(as restated)
Balance, December 31, 2010	3,511,940	$3,512	3,577,302	$3,577	-	$0	$3,887,590	($2,201,562)	($4,432,444)	($2,739,327)
Common shares issued for debt settlement, $0.200/share	520,000	520	-	-	-	-	103,480	-	-	104,000
Common shares issued for cash, $0.200/share	375,000	375	-	-	-	-	74,625	-	-	75,000
Common shares issued for services $0.200/share	252,100	252	-	-	-	-	50,168	-	-	50,420
Preferred shares issued for cash, $0.21/share	-	-	1,400,000	1,400	-	-	292,600	-	-	294,000
Preferred shares issued for cash, $0.25/share	-	-	200,000	200	-	-	49,800	-	-	50,000
Conversion of preferred stock	700,000	700	(1,400,000)	(1,400)	-	-	700	-	-	-
Warrants & beneficial conversion features (as restated)	-	-	-	-	41,667	71,306	53,694	-	-	125,000
Net Loss	-	-	-	-	-	-	-	-	(813,991)	(813,991)
Balance, December 31, 2011	5,359,040	$5,359	3,777,302	$3,777	41,667	$71,306	$4,512,657	($2,201,562)	($5,246,435)	($2,854,898)
The accompanying notes are an integral part of these consolidated financial statements

F-16

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL

None.

ITEM 9A.

CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012.  Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  

     

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2012, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

     

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

     

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2012 based on criteria established in Internal Control—Integrated Framework issued by COSO. 

  

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Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2012, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Managements report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

Continuing Remediation Efforts to address deficiencies in Company’s Internal Control over Financial Reporting

Once the Company is engaged in a business of merit and has sufficient personnel available, then our Board of Directors, in particular and in connection with the aforementioned deficiencies, will establish the following remediation measures:

	1.	Our Board of Directors will nominate an audit committee or a financial expert on our Board of Directors in the next fiscal year.
	2.	We will appoint additional personnel to assist with the preparation of the Company’s financial reporting.

ITEM 9B.  

OTHER INFORMATION.

None.

PART III

ITEM 10.   

DIRECTORS AND EXECUTIVE OFFICERS

Identification of Directors and Executive Officers

The following table sets forth the names and ages of our current directors and executive officers:

Term of Office

Each of our officers is elected by the Company’s Board of Directors to serve until the next annual meeting of Directors or until their successors are duly elected and qualified.  Each of our directors is elected by the Company’s Board of Directors and shall hold office until the next annual meeting of stockholders and until his/her successor shall have been duly elected and qualified.  

Background and Business Experience

The business experience during the past five years of each of the persons presently listed above as an Officer or Director of the Company is as follows:

Mr. Douglas Tallant - Mr. Tallant is the Company’s President, Chief Executive Officer and a member of the Board of Directors.  He has years of experience as an owner of several businesses including the largest automobile dealership in Denver and physical therapy clinics in Denver and Oklahoma City.  In addition to being a successful business owner, Mr. Tallant has gained significant executive experience while managing several public companies including Questex, the developer of the original breathalyzer, and Entec, the developer of a toxic water remediation process that was sold to Bechtel Corporation.  Mr. Tallant was appointed as the Company’s Chief Executive Officer, President and a Director due to his extensive experience managing and owning various businesses.  

15

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Mr. Donald Trapp – Mr. Trapp is the Company’s Chief Financial Officer, Secretary and Treasurer and a member of the Board of Directors.  He has a strong educational background in engineering as well as years of practical experience working in the oil and gas industry, buying and selling oil and gas leases, operating two oil wells, and serving as the General Partner of four oil and gas partnerships in New Mexico.  Mr. Trapp has a Bachelor of Science degree in Nuclear Engineering from M.I.T.  In light of Mr. Trapp’s in-depth knowledge and experience in the oil and gas industry, the Board of Directors concluded that it was in the Company’s best interest for him to serve as an officer and director.  

Identification of Significant Employees

We have no significant employees other than Douglas Tallant, our President, Chief Executive Officer and Director, and Donald Trapp, our Chief Financial Officer, Secretary, Treasurer and Director.

Family Relationship

We currently do not have any officers or directors of our Company who are related to each other.   

Involvement in Certain Legal Proceedings

During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:

(1)

A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

(2)

Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(3)

Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

i.

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

ii.

Engaging in any type of business practice; or

iii.

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

(4)

Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

(5)

Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

(6)

Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

16

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(7)

Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

i.

Any Federal or State securities or commodities law or regulation; or

ii.

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

iii.

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

(8)

Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Audit Committee and Audit Committee Financial Expert

The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors.  All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities.  The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person.

The Company intends to establish an audit committee of the Board of Directors, which will consist of independent directors.  The audit committee’s duties will be to recommend to the Company’s Board of Directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles.  The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls.  The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

Code of Ethics

Our Board of Directors has not adopted a code of ethics due to the fact that we presently only have two directors and we are in the development stage of our operations. We anticipate that we will adopt a code of ethics when we increase either the number of our directors and officers or the number of our employees.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended December 31, 2012, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2012, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2012, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.

17

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ITEM 11.       

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the compensation paid to our executive officers during the twelve month periods ended December 31, 2012, and 2011:

Summary Compensation Table
Name and principal position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($) (1)
Douglas Tallant (2) President, CEO and Director	2012	$180,000	$nil	$nil	$nil	$nil	$nil	$nil	$180,000
	2011	$180,000	$nil	$nil	$nil	$nil	$nil	$nil	$180,000
Donald Trapp (3) CFO, Secretary, Treasurer and Director	2012	$60,000	$nil	$nil	$nil	$nil	$nil	$nil	$60,000
	2011	$60,000	$nil	$nil	$nil	$nil	$nil	$nil	$60,000

(1)

The compensation was paid as deferred salaries.

(2)

Douglas Tallant - The Company entered into an employment agreement with Douglas Tallant effective January 1, 2007.  Pursuant to the terms of the agreement, Mr. Tallant is to be paid an annual salary of $180,000 in consideration of which Mr. Tallant agreed to act as the Company’s President.  The term of the agreement is for an indefinite period, unless otherwise terminated pursuant to the terms of the agreement.

(3)

Donald Trapp - The Company entered into an employment agreement with Donald Trapp effective February 1, 2005.  Pursuant to the terms of the agreement, Mr. Trapp is to be paid an annual salary of $60,000 in consideration of which Mr. Trapp agreed to act as the Company’s Secretary and Treasurer.  The term of the agreement is for an indefinite period, unless otherwise terminated pursuant to the terms of the agreement.  

Narrative Disclosure to Summary Compensation Table

There are no compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.

Outstanding Equity Awards at Fiscal Year-End