UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K 

 

   X .   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

       .   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the Transition Period from ________ to _________

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)
	6005 N. Highway 279 Brownwood, Texas 76801  (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.       .   

---

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	. (Do not check if a smaller reporting company)	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 June 30, 2011 was $1,275,913 based upon the price ($0.015) at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, 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.OB”

As of March 26, 2012, there were 130,170,158 shares of the registrant’s $0.001 par value common stock issued and outstanding.

Documents incorporated by reference: None

2

---

Table of Contents

		Page
	PART I
Item 1	Business	5
Item 1A	Risk Factors	8
Item 1B	Unresolved Staff Comments	8
Item 2	Properties	8
Item 3	Legal Proceedings	9
Item 4	[REMOVED AND RESERVED]	10
	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	20
Item 13	Certain Relationships and Related Transactions	20
Item 14	Principal Accountant Fees and Services	21
	PART IV
Item 15	Exhibits	22

3

---

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.

4

---

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 2009, the Company acquired four oil and gas leases in central Texas with twenty-five wells totaling 1,036 acres, of which approximately 560 acres are in defined oil and gas fields.  The Company is a registered, “bonded” operator in Texas (Operator No. 286572).  Therefore, we are in full control of all operations.  In the first quarter of 2010, the Company acquired a fifth oil and gas lease in Central Texas totaling 1,000 acres with twenty-four wells.  

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 has acquired a total of five oil & gas leases on 2,036 acres in Central Texas, including 48 producing and shut-in wells.  Approximately 1,100 acres are in defined oil & gas fields.  These fields have several proven oil and gas zones, which enhances our potential production.  There are many opportunities for in-fill drilling.  The Company plans to acquire additional leases in the future.   

The following has been accomplished in 2011:

·

Refurbished and replaced infrastructure on three leases including tank farms and water injection wells.

·

Reworked 4 wells.  

The Company plans the following activities in 2012:

·

Complete refurbishment and replacement of infrastructure.

·

Rework several additional wells.

·

Recomplete several Fry wells in the deeper Caddo formation.

·

Drill several new in-fill wells.

·

Acquire additional leases.

Our Oil and Gas Properties

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

5

---

Panther Creek Lease: The Panther Creek lease totals 115 acres of which approximately 70% is in defined Fry Sand oil field.  Of the thirteen wells, one is a water supply well, three are water injection wells and nine are Fry sand wells.  The water supply well is 2,885 feet deep.  The Company expects to re-complete this well as a Marble Falls Limestone well or possibly a Barnett Shale well.  The original Fry sand well was drilled to 2,680 feet; we expect to re-complete as a Marble Falls Limestone well or possibly a Barnett Shale well.  It may be feasible to deepen and re-complete some of the other Fry wells in the Caddo Limestone or Marble Falls Limestone.  Panther Creek has a 630-barrel tank farm and all infrastructure is completed.  As at December 31, 2011, there was production on the property from three wells.

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.  Though the formation is "tight" in this area, "fracing" has been successful, and oil production has tested from 25BOPD to 150BOPD accompanied by impressive gas production.  Gas wells have tested as high as 21,200,000 cubic feet of gas per day.  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 examined all 17 wells in the previous 3 months and has determined that 9 of these wells should be completed as producing oil and gas wells.  The Company has installed a new tank farm and three new pump jacks.  As at December 31, 2011, there was production on the property from six wells.  On March 16, 2012, the Company announced that the Company will soon be re-entering several dormant wells for testing on the Byler Lease.  

Mud Creek Lease: The Mud Creek lease totals 355 acres of which approximately 56% is in a defined Fry Sand oil field.  Eight wells that had been producing were plugged several years ago at the mineral owners’ request to get rid of a fraudulent operator.  We expect to reenter all eight wells, but for planning purposes, we have assumed reentry of five wells.  It may be feasible to recomplete some of these Fry wells in the Caddo or Marble Falls.  A new tank farm and other infrastructure are needed on the Mud Creek lease.  As at December 31, 2011, 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.  Nineteen of the wells are currently producing.  The other five wells need some work.  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.  There is very good potential for in-field drilling.  The South Thrifty lease has five tank farms.  As at December 31, 2011, there was production on the property from sixteen wells.

In 2012, the Company announced that it is moving into the next development phase of its South Thrifty lease by testing additional, productive formations in existing wells and drilling at least one new well.  The Company plans to test the shallower Caddo Limestone formation in a number of the lower producing gas wells. This formation principally is an oil bearing formation and has had a very good production life in wells in the region of South Thrifty. Electric and mud logs corroborate the presence of oil at the time of drilling, and with the price of oil continuing to increase, the Company believes that now is the opportune time to begin testing the Caddo in the existing wells.

With respect to drilling a new well, the Hunt Lease, also in South Thrifty, has had two excellent Ellenberger wells drilled on it at close to 900 BOPD.   The Company intends to continue drilling of this well to test the Ellenberger which is highly fractured in the South Thrifty Field and has had flow rates during testing on two other wells as much as 200 barrels of oil in less than four hours.

Hutchins Lease: The Hutchins lease totals 194 acres of which approximately 30% is in defined oil fields.  There are four Fry Sand wells and one Chappel Reef well.  The latter well was the discovery well for the Chappel Reef and has 300 feet of sands.  There were good oil shows, which were estimated could produce 35 to 40 barrels of oil per day, but the gas was even better—maximum open flow potential was 2,500 MCF per day.  In production, it did 500 MCF per day with gradual decline.  These wells were plugged in 2001 when the operator had financial problems and oil and gas prices were very low.  We expect to reenter the Chappel Reef well and one of the Fry Sand wells.  There is still very good potential for oil and gas production from these wells.  There is very good potential for in-field drilling.  A new tank farm and other infrastructure are needed on the Hutchins lease.  As at December 31, 2011, there was no production on the property.

6

---

Summary of our Oil and Gas Leases

There are several oil & gas zones underlying the five leases in Central Texas.  On the Panther and Byler Leases, the wells are mostly completed as Fry or Gray sands wells at a depth of approximately 1,200 feet.  Four wells are completed in the Marble Falls sands at a depth of approximately 2,700 feet.  None of the wells on the leases were completed in the Caddo gas zone, which is approximately 300 feet below the Fry sands.  We may want to recomplete some of the Fry wells as Caddo wells.  About one-half mile from our Panther Creek lease, a Caddo well was completed in 2009 with an initial potential of 14 BBL/day and 150 MCF/day.  None of our wells have been completed in the Barnett Shale gas zone, which lies a little below the Marble Falls zone; this zone has not been explored much in Brown County.  On the South Thrifty, the wells are completed in the Chappel Reef and Ellenburger formations at a depth of approximately 2,500 feet.   Spacing for Fry and Gray wells has been reduced to 5 acres and spacing for Marble Falls and Chappel Reef wells has been reduced to 10 acres, representing half of the old spacing.  Many in-fill wells could be drilled on the leases.

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.

7

---

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 6005 N. Highway 279, Brownwood, Texas 76801. Our telephone number is (702) 953-0411.  It is our belief that the space is adequate for our immediate needs.  Additional space may be required as we expand our operations.  We do not foresee any significant difficulties in obtaining any required additional facilities.  The Company does not presently own any interests in real estate.

In 2009, the Company acquired four oil and gas leases in central Texas with twenty-five wells totaling 1,036 acres, of which approximately 560 acres are in defined oil and gas fields.  The Company is a registered, “bonded” operator in Texas (Operator No. 286572).  Therefore, we are in full control of all operations.  In the first quarter of 2010, the Company acquired a fifth oil and gas lease in Central Texas totaling 1,000 acres with twenty-four wells.

8

---

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

			December 31, 2011 $		December 31, 2010 $
Oil & Gas Properties - Unproved
	Panther Lease		8,596		12,519
	Byler Lease		45,143		33,983
	Mud Creek Lease		20,000		10,000
	Hutchins Lease		2,400		2,400
	South Thrifty Lease		56,556		62,115
	Red Oak Project		242,000		242,000
	Talpa Project		50,000		50,000
	West Peach Project		36,970		36,970
			461,665		449,987
	Impairment		(328,970)		(328,970)
		Total oil & gas properties	132,695		121,017

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 acquired in 2010 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 2012.

Products Sold:  The Company has sold $63,211 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 are in the process of being 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.

Oil & Gas Properties, Wells, Operations and Acreage:  The following table shows the number of wells and acres as of December 31, 2011.

	Gross	Net
Productive Oil Wells	8	7
Productive Gas Wells	14	7
Developed Acreage	50	40
Undeveloped Acreage	1,986	1,496

“Gross” means the Company owns an interest.  “Net” is the fractional ownership based on the percentage of the working interest owned by the Company.  In this case, the Company owns 100% of the working interest so the “gross” and “net” are the same.  “Productive” means a producing well or a well mechanically capable of production.  “Developed Acreage” is based on the legal well spacing for productive wells.  “Undeveloped Acreage” is based on leased acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or gas.  None of the wells have multiple completions.

Lease Terms:  The Panther Creek lease is held by production into the tank farm.  The Byler Lease is held by production into a tank farm.  The Mud Creek lease requires that production from re-entering a plugged well or drilling a new well commence by April 1, 2012.  The Hutchins lease requires that production from drilling a new well commence by December 31, 2012.  The South Thrifty lease is held by gas production.

ITEM 3.

LEGAL PROCEEDINGS

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.

9

---

ITEM 4.

[REMOVED AND RESERVED]

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.OB.”  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, 2010 through December 31, 2011, 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.  

		First Quarter				Second Quarter				Third Quarter			Fourth Quarter
2011 – High		$0.0348				$0.020				$0.028			$0.017
2011 – Low		$0.011				$0.011				$0.012			$0.003
2010 – High		$0.085				$0.085				$0.041			$0.040
2010 – Low		$0.029				$0.0195				$0.030			$0.021

Record Holders

As of March 26, 2012, an aggregate of 130,170,158 shares of our common stock were issued and outstanding and were owned by approximately 589 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.

10

---

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, 2011	December 31,  2010
Current Assets	$85,346	$8,729
Current Liabilities	$1,184,003	$1,663,113
Working Capital (Deficit)	$(1,098,657)	$(1,654,384)

Cash Flows

	December 31, 2011	December 31, 2010
Cash Flows from (used in) Operating Activities	$(541,365)	$(609,469)
Cash Flows from (used in) Investing Activities	$(22,101)	$(139,297)
Cash Flows from (used in) Financing Activities	$578,376	$731,887
Net Increase (decrease) in Cash During Period	$14,910	$(16,879)

Operating Revenues

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

Operating revenues for the period ended December 31, 2010 was $52,440 and is comprised of oil and gas revenues.

Operating Expenses and Net Loss

Operating expenses for the period ended December 31, 2011 was $693,275 and is comprised mostly of oil well operations costs and deferred salaries.

Operating expenses for the period ended December 31, 2010 was $879,328 and is comprised mostly of oil well operations costs and deferred salaries.

Net loss for the period ended December 31, 2011 was $798,237 and is comprised of operating expenses and interest expenses less oil and gas revenues.

Net loss for the period ended December 31, 2010 was $972,514 and is comprised of operating expenses and interest expenses less oil and gas revenues.

Liquidity and Capital Resources

As at December 31, 2011, the Company’s cash and total asset balance was $284,691 compared to $205,036 as at December 31, 2010.  The increase in total assets is attributed mainly to an increase in accounts receivable due for working interest-operating expenses.

11

---

As at December 31, 2011, the Company had total liabilities of $3,248,835 compared with total liabilities of $2,944,363 as at December 31, 2010.  The increase in total liabilities was attributed to primarily to an increase of interest payable and of deferred salaries.  

As at December 31, 2011, the Company had a working capital deficit of $2,964,145 compared with a working capital deficit of $2,739,327 as at December 31, 2010.  There was very little change in working capital deficit.

Cashflow from Operating Activities

During the period ended December 31, 2011, the Company used $541,365 of cash for operating activities compared to the use of $609,469 of cash for operating activities during the period ended December 31, 2010.  The change in net cash used in operating activities is attributed to an increase in accounts receivable and judgment payable.

Cashflow from Investing Activities

During the period ended December 31, 2011, the Company used $22,101 of cash for investing activities compared to the use of $139,297 of cash for investing activities during the period ended December 31, 2010.  The change in net cash used in investing activities is attributed to a reduction oil and gas properties investment.

Cashflow from Financing Activities

During the period ended December 31, 2011, the Company received $578,376 of cash for financing activities compared to receipt of $731,887 of cash for financing activities during the period ended December 31, 2010.  The change in net cash used in financing activities is attributed mainly to a reduction in related party borrowings.

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 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 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 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.

12

---

Recently Issued Accounting Pronouncements

In March 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-11 (“ASU No. 2010-11”), “Derivatives and Hedging (ASC Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company’s adoption of provisions of ASU No. 2010-11 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB issued ASU 2010-10 (“ASU No. 2010-10”), “Consolidation (Topic 810): Amendments for Certain Investment Funds.” The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted. The Company’s adoption of provisions of ASU No. 2010-10 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB issued ASU 2010-09 (“ASU No. 2010-09”), “Subsequent Events (ASC Topic 855): Amendments to Certain Recognition and Disclosure Requirements.”  ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The Company’s adoption of provisions of ASU No. 2010-09 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB issued ASU 2010-06 (“ASU No. 2010-06”), “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The Company’s adoption of provisions of ASU No. 2010-06 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB issued an amendment to ASC Topic 505, “Equity”, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The Company’s adoption of the amendment to ASC Topic 505 did not have a material effect on the financial position, results of operations or cash flows of the Company.

In January 2010, the FASB issued an amendment to ASC Topic 820, “Fair Value Measurements and Disclosure”, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The Company’s adoption of the amendment to ASC Topic 820 did not have a material effect on the financial position, results of operations or cash flows of the Company.

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the 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.

13

---

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FRIENDLY ENERGY EXPLORATION

(An Exploration Stage Company)

For the Years Ended December 31, 2011 and 2010

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Stockholders’ Deficiency	F-5
Consolidated Statements of Cash Flows	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

---

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

F-2

---

Friendly Energy Exploration

(An Exploration Stage Company)

Consolidated Balance Sheet

		Dec. 31, 2011		Dec. 31, 2010
ASSETS
Current assets
Cash and cash equivalents	$	13,070	$	-
Accounts Receivable		72,276		8,729
Total current assets		85,346		8,729
Oil and Gas Properties - unproved		132,695		121,017
Property and equipment		57,900		66,790
Notes receivable		7,500		7,500
Other Assets		1,250		1,000
Total Assets	$	284,691	$	205,036
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Accounts Payable	$	74,908	$	59,545
Bank Indebtedness		-		1,841
Payroll Tax Liabilities		138,074		124,252
Interest Payable		376,119		272,528
Loan Payable		342,252		994,546
Loans Payable-Related Parties		252,650		210,401
Total current liabilities		1,184,003		1,663,113
Long-term Liabilities
Loan Payable		615,000		-
Judgment payable		141,832		213,250
Deferred Salaries		1,308,000		1,068,000
Total long-term liabilities		2,064,832		1,281,250
Total Liabilities		3,248,835		2,944,363
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 290,000,000 shares authorized, 107,180,790 and 70,238,790 shares, respectively, issued and outstanding		107,181		70,239
Preferred Stock, $0.001 par value, 20,000,000 shares authorized, 3,777,302 and 3,577,302 shares, respectively, issued and outstanding		3,777		3,577
Additional paid-in capital		4,357,141		3,820,863
Accumulated deficit during the development stage		(2,201,562)		(2,201,562)
Accumulated deficit during the exploration stage		(5,230,681)		(4,432,444)
Total stockholders' deficit		(2,964,144)		(2,739,327)
Total liabilities and stockholders' deficit	$	284,691	$	205,036

F-3

---

Friendly Energy Exploration

(An Exploration Stage Company)

Consolidated Statements of Operations

						From Inception		From Inception
						Development Stage		Exploration Stage
		For the		For the		(Jan. 7,		(Feb. 11,
		Year Ended		Year Ended		1993) through		2005) through
		Dec. 31, 2011		Dec. 31, 2010		Feb. 10, 2005		Dec. 31, 2011
Revenue	$	63,211	$	52,440	$	13,372	$	131,704
Operating expenses
Bad Debt Expense		-		-		-		319,000
Depletion		9,482		7,866		-		17,348
Depreciation		9,831		6,091		35,287		25,673
Dry Hole Cost		-		-		-		88,156
General and administrative		8,197		10,147		218,930		96,675
Intangible Drilling Costs		-		-		-		333,205
Officer Wages		240,000		240,000		-		1,707,000
Oil Well Operations Cost		357,261		388,906		-		874,251
Oil & Gas Royalties		2,666		1,568		-		4,234
Payroll Expenses		13,822		13,821		213,228		100,806
Professional Fees		30,624		172,626		711,228		349,205
Rent		7,631		7,631		282,410		15,262
Stock Based Compensation		-		4,212		156,825		363,342
Travel & Entertainment		13,761		26,460		128,687		76,638
Total operating expenses		693,275		879,328		1,746,595		4,370,795
Loss from operations		(630,064)		(826,888)		(1,733,223)		(4,239,091)
Other income (expenses):
Other income		-		-		120,605		76,118
Forgiveness of Debt		-		-		(122,765)		-
Impairment Loss on Asset		-		-		(442,800)		(328,970)
Interest Expense		(168,173)		(145,626)		(23,379)		(628,738)
Lawsuit Judgment		-		-		-		(110,000)
Total other income (expenses)		(168,173)		(145,626)		(468,339)		(991,590)
Loss before provision for income taxes		(798,237)		(972,514)		(2,201,562)		(5,230,681)
Provision for income taxes		-		-		-		-
Net loss	$	(798,237)	$	(972,514)	$	(2,201,562)	$	(5,230,681)
Basic and diluted loss per common share	$	(0.009)	$	(0.016)	$	(0.28)	$	(0.18)
Basic and diluted weighted average  common shares outstanding		93,540,456		60,908,325		7,762,659		29,678,506

F-4

---

Friendly Energy Exploration

(An Exploration Stage Company)

Statement of Stockholders Deficit

								Accumulated
								Deficit	Accumulated
	Common Stock			Preferred Stock			Additional Paid-in	Development Stage Prior to	Deficit Exploration Stage From	Total Stockholders'
	Shares	Amount		Shares	Amount		Capital	2-11-05	2-11-05	Deficit
Balance, December 31, 2008	21,568,790	$    21,569		7,667,302	$   7,667		$3,667,693	$  (2,201,561)	$(2,365,599)	$   (870,232)
Common shares issued for cash, $0.002	1,000,000	1,000		-	-		1,000	-	-	2,000
Preferred shares issued for cash, $0.075 per share	-	-		200,000	200		14,800	-	-	15,000
Preferred shares issued for cash, $0.182 per share	-	-		275,000	275		49,725	-	-	50,000
Preferred shares issued for debt settlement, $0.056 per share	-	-		2,500,000	2,500		137,500	-	-	140,000
Preferred shares issued for debt settlement, $0.21 per share	-	-		1,200,000	1,200		250,800	-	-	252,000
Conversion of preferred stock	30,000,000	30,000		(3,000,000)	(3,000)		(27,000)	-	-	-
Stock-based compensation expense on stock options	-	-		-	-		3,288	-	-	3,288
Net Loss	-	-		-	-		-	-	(1,094,332)	(1,094,332)
Balance, December 31, 2009	52,568,790	$    52,569		8,842,302	$   8,842		$4,097,805	$  (2,201,562)	$(3,459,931)	$(1,502,276)
Preferred shares issued for cash, $0.20 per share	-	-		25,000	25		4,975	-	-	5,000
Preferred shares issued for cash, $0.20 per share	-	-		75,000	75		14,925	-	-	15,000
Preferred Shares Repurchased	-	-		(4,200,000)	(4,200)		(437,800)	-	-	(442,000)
Common shares issued for cash, $0.0075	1,000,000	1,000		-	-		6,500	-	-	7,500
Common shares issued for cash, $0.028	500,000	500		-	-		13,500	-	-	14,000
Common shares issued for services $0.028	1,770,000	1,770		-	-		48,230	-	-	50,000
Common shares issued for services $0.033	2,000,000	2,000		-	-		64,000	-	-	66,000
Preferred shares issued for cash, $0.20 per share	-	-		75,000	75		15,675	-	-	15,750
Conversion of preferred stock	12,400,000	12,400		(1,240,000)	(1,240)		(11,160)	-	-	-
Stock-based compensation expense on stock options	-	-		-	-		4,213	-	-	4,213
Net Loss	-	-		-	-		-	-	(972,514)	(972,514)
Balance, December 31, 2010	70,238,790	$    70,239		3,577,302	$   3,577		$3,820,863	$  (2,201,562)	$(4,432,444)	$(2,739,327)
Common shares issued for cash, $0.010	17,900,000	17,900		-	-		161,100	-	-	179,000
Common shares issued for services $0.010	5,042,000	5,042		-	-		45,378	-	-	50,420
Preferred shares issued for cash, $0.21 per share	-	-		1,400,000	1,400		292,600	-	-	294,000
Preferred shares issued for cash, $0.25 per share	-	-		200,000	200		49,800	-	-	50,000
Conversion of preferred stock	14,000,000	14,000		(1,400,000)	(1,400)		(12,600)	-	-	-
Net Loss	-	-		-	-		-	-	(794,237)	(794,237)
Balance, December 31, 2011	107,180,790	$  107,181		3,777,302	$   3,777		$4,357,141	$  (2,201,562)	$(5,230,681)	$(2,964,144)

F-5

---

Friendly Energy Exploration

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

					From Inception	From Inception
					Development Stage	Exploration Stage
		For the		For the	(Jan. 7, 1993)	(Feb. 11, 2005)
		Year Ended		Year Ended	through	through
		Dec. 31, 2011		Dec. 31, 2010	Feb. 10, 2005	Dec. 31, 2011
Cash flows from operating activities:
	Net loss	$	(798,237)	$     (972,514)	$    (2,201,562)	$    (5,230,681)
	Adjustments to reconcile net loss to net cash used by operating activities:
	Depletion	9,481		7,866	-	17,347
	Depreciation	9,831		6,092	35,287	25,671
	Stock Based Compensation	-		4,212	(61,635)	581,802
	Impairment Loss	-		-	442,800	452,090
	Bad Debt Expense	-		-		319,000
	Changes in operating assets and liabilities:					-
	Accounts Receivable	(63,547)		(8,729)	-	(72,276)
	Accounts Payable	15,363		42,656	73,857	750
	Advances	(250)		-	-	(250)
	Judgment payable	(71,418)		(26,036)	-	141,832
	Interest Payable	103,591		83,162	23,079	353,040
	Payroll Liabilities	13,821		13,822	37,268	100,806
	Deferred Salaries	240,000		240,000	-	1,308,000
	Net cash used by operating activities	(541,365)		(609,469)	(1,650,906)	(2,002,869)
Cash flows from investing activities:
	Purchase of property and equipment	(941)		(71,464)	(41,718)	(77,142)
	Issuance of promissory notes	-		-	-	(326,500)
	Investment in oil and gas properties	(21,160)		(67,833)	-	(602,132)
	Net cash used by investing activities	(22,101)		(139,297)	(41,718)	(1,005,774)
Cash flows from financing activities:
	Proceeds from issuance of notes payable	(37,294)		814,114	-	1,257,555
	Proceeds from issuance of common stock	229,420		137,500	112,970	733,440
	Proceeds from issuance of preferred stock	344,000		(406,250)	1,559,654	707,068
	Proceeds on borrowings from related parties	42,250		186,523	20,000	323,649
	Net cash provided by financing activities	578,376		731,887	1,692,624	3,021,712
Net increase in cash		14,910		(16,879)	-	13,069
Cash, beginning of period		(1,841)		15,038	-	-
Cash, end of period		$	13,069	$          (1,841)	$                     -	$            13,069

F-6

---

FRIENDLY ENERGY EXPLORATION

 (AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011

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.  In 2009, the Company acquired four oil and gas leases in central Texas totaling 1,036 acres with twenty-five wells.  In the first quarter of 2010, the Company acquired a fifth oil and gas lease in Central Texas totaling 1,000 acres with twenty-four 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 $5,230,682 from the period of February 11, 2005 (date of entering the oil and gas exploration business) through December 31, 2011 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 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Year end – The Company’s year end is December 31.

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 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.

F-7

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

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.

Asset Retirement Obligations – The Company follows the provisions of ASC 410, Asset Retirement and Environmental Obligations, which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets.

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 fixed assets 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 – 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.

Concentration of risk – A significant amount of the Company’s assets and resources are currently dependent on the financial support of Douglas Tallant and Donald Trapp.  Should they determine to no longer finance the operations of the Company before new capital is raised, it may be unlikely for the Company to continue.

Revenue recognition – The Company has had revenues of $131,704 to date from its operations.  Revenue is recognized as it is received.

F-8

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

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

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

Level 2

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

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.   Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Recent accounting pronouncements – In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The amendments in this update generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments in this update are to be applied prospectively. The amendments are effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company does not expect this guidance to have a significant impact on its consolidated financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." This update was amended in December 2011 by ASU No. 2011-12, "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." This update defers only those changes in update 2011-05 that relate to the presentation of reclassification adjustments. All other requirements in update 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. ASU No. 2011-05 and 2011-12 are effective for fiscal years (including interim periods) beginning after December 15, 2011. The Company does not expect this guidance to have a significant impact on its consolidated financial position, results of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities." The amendments in this update require enhanced disclosures around financial instruments and derivative instruments that are either (1) offset in accordance with either ASC 210-20-45 or ASC 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either ASC 210-20-45 or ASC 815-10-45. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The amendments are effective during interim and annual periods beginning on or after January 1, 2013. The Company does not expect this guidance to have any impact on its consolidated financial position, results of operations or cash flows.

F-9

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated 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, 2011 $		December 31, 2010 $
Oil & Gas Properties - Unproved
	Panther Lease	8,596		12,519
	Byler Lease	45,143		33,983
	Mud Creek Lease	20,000		10,000
	Hutchins Lease	2,400		2,400
	South Thrifty Lease	56,556		62,115
	Red Oak Project	242,000		242,000
	Talpa Project	50,000		50,000
	West Peach Project	36,970		36,970
		461,665		449,987
	Impairment	(328,970)		(328,970)
	Total oil & gas properties	132,695		121,017

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, 2011, there was production on the property from six wells.  We are planning to rework additional wells.

Hutchins Lease - In 2009, the Company purchased, through its wholly-owned subsidiary, a 100% interest in 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, 2011, there was no production on the property.  

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.  Upon production, the Company will remit a 22% royalty payment.  As at December 31, 2011, there was no production on the property.    

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 remits a 22% royalty payment.  As at December 31, 2011, there was production on the property from three wells.  

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, 2011, there was production on the property from sixteen wells.  

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 through its wholly owned subsidiary, Friendly Energy Services, Inc. (FES).  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.  

F-10

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

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, 2011 and 2010:

		December 31, 2011		December 31, 2010
Furniture and Fixtures	$	21,980	$	21,980
Computers and Equipment	$	29,489	$	28,548
Oil Field Equipment	$	67,392	$	67,392
	$	118,861	$	117,920
Less: accumulated depreciation	$	(60,961)	$	(51,130)
Net Furniture, fixtures, computers & equipment	$	57,900	$	66,790

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, 2011		December 31, 2010
Douglas Tallant, CEO	$	1,003,000	$	823,000
Donald Trapp, CFO	$	305,000	$	245,000
	$	1,308,000	$	1,068,000

 

As of December 31, 2011 and 2010, loans payable from related parties consists of the following:

		December 31, 2011		December 31, 2010
Notes payable  from officers of
the Company bearing interest at 8%
unsecured and due on demand	$	252,650	$	210,400

The officers have loaned the Company monies as shown below:

		December 31, 2011		December 31, 2010
Douglas Tallant, CEO	$	15,320	$	16,206
Donald Trapp, CFO	$	237,329	$	194,194
	$	252,650	$	210,400

6.

OTHER CURRENT LIABILITIES

The Company has accrued unpaid federal payroll taxes in the amounts of $136,162 and $122,341 for the years ended December 31, 2011 and 2010, 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.  $100,806 is owed for accrued payroll taxes on deferred salaries; the Company has yet to file the payroll tax forms with the Internal Revenue Service or related state taxing authorities.

The Company has accrued deferred salaries owed to two officers in the amount of $1,308,000 and 1,068,000 for year ended December 31, 2011 and 2010, respectively.  

F-11

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

The Company has accrued interest in the amount of $376,119 and $272,528 for year ended December 31, 2011 and 2010, respectively.  The accrued interest includes interest on unpaid payroll taxes and related party loans.

Two companies have loaned the Company monies in the amount of $342,252 at year ended December 31, 2011.  $341,553 has been loaned by Merus Corporation and $699 by Douglas Financial Corporation.

7.

INCOME TAXES

The Company generated a deferred tax credit through net operating loss carry forward.  A reconciliation of income tax expense to the amount computed at the statutory rates is as follows:

		December 31, 2011		December 31, 2010
Loss for the Year	$	(798,237)	$	(972,514)
Average Statutory Tax--Federal Rate		35%		35%
Expected Income Tax Provision	$	0	$	0

No provision was made for federal income tax, since the Company had an operating loss and has accumulated net operating loss carry forwards.

Significant components of deferred income tax assets are as follows:

		December 31, 2011		December 31, 2010
Net Operating Losses Carried Forward	$	7,432,000	$	6,634,000
Federal Rate		35%		35%
Deferred Income Tax Assets	$	2,601,200	$	2,321,900
Valuation Allowance	$	(2,601,200)	$	(2,321,900)
Net Deferred Income Tax Assets	$	0	$	0

An increase in valuation allowance for the year ended December 31, 2011 was recorded, $279,300, because in the opinion of management it is more likely than not that some or all of the deferred tax asset will not be realized.

The Company has net operating losses carried forward of approximately $7,432,000 for tax purposes which will expire beginning in 2013 through 2031 if not utilized.

The fiscal years ended December 31, 2008 through 2011 are open for audit.

8.

STOCKHOLDERS’ DEFICIT

Common Shares:  As of December 31, 2011 and 2010, there were 107,180,790 and 70,238,790 shares of common stock outstanding (restated for 25-for-1 reverse split in March 2008).

a)

In 1993, the Company issued 63,750 shares of common stock for cash at $0.016 per share to officers and directors.

b)

On June 2, 1996, in connection with the acquisition of the Company by Granite Development Corporation ("Granite"), the Company cancelled all outstanding shares of common  stock and issued a total of 2,500,000 shares to Granite for consideration of $10.

c)

In 1996, 500,000 common shares were converted to 50,000 shares of preferred stock.  

d)

In 1997, the Company issued 15,223 shares of common stock relating to the spin out from Granite Development Corporation.

e)

On April 21, 1997, the Company issued 21,875 shares of common stock for cash at $0.685 per share to officers and directors.

f)

On July 31, 1997, the Company issued 37,500 shares of common stock for cash at $0.80 per share.

F-12

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

g)

On August 14, 1997, the Company issued 21,875 shares of common stock for cash at $0.685 per share to officers and directors.

h)

From February 18, 1998, through March 16, 1998, a total of 9,750 shares of common stock were sold for cash pursuant to Regulation D, Rule 504 offering at $1.74 per share.  

i)

On October 29, 1998, 625,000 shares of common stock were issued for cash at $0.004.

j)

On October 30, 1998, 8,000,000 shares of common stock were issued as a result of the conversion of 800,000 preferred shares.

k)

On November 11, 1998, the Company issued 2,000,000 shares of common stock for cash at $0.004 per share.

l)

During 1999, the Company cancelled 46,250 shares of common stock.

m)

On March 29, 2005, 1,200,000 shares of the Company’s preferred stock were converted to 1,200,000 shares of common stock.

n)

On May 28, 2005, 528,000 shares of the Company’s preferred stock were converted to 5,280,000 shares of common stock.

o)

On June 22, 2005, 122,000 shares of the Company’s preferred stock were converted to 1,220,000 shares of common stock.

p)

On July 1, 2005, the Company issued 250,000 shares of common stock at $0.05 per share for services.  

q)

On July 7, 2005, 5000 shares of the Company’s preferred stock were converted to 50,000 shares of common stock.

r)

On August 8, 2005, 300,000 shares of the Company’s preferred stock were converted to 3,000,000 shares of common stock.

s)

On August 23, 2005, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

t)

On August 30, 2005, the Company issued 500,000 shares of common stock as a sign-up bonus to an officer of the Company valued at $0.04 per share.

u)

On September 19, 2005, 146,200 shares of the Company’s preferred stock were converted to 1,462,000 shares of common stock.

v)

On September 29, 2005, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

w)

On October 14, 2005, 3,000 shares of the Company’s preferred stock were converted to 30,000 shares of common stock.

x)

 On October 31, 2005, the Company issued 400,000 shares of common stock for cash at $0.025 per share.   

y)

On November 3, 2005, 300,000 shares of the Company’s preferred stock were converted to 3,000,000 shares of common stock.

z)

On December 5, 2005, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

aa)

On January 9, 2006, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

bb)

On February 10, 2006, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

cc)

On March 1, 2006, 150,000 shares of the Company’s preferred stock were converted to 1,500,000 shares of common stock.

dd)

On March 6, 2006, 496,692 shares of the Company’s preferred stock were converted to 4,966,920 shares of common stock.

F-13

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

ee)

On July 18, 2006, the Company issued 500,000 shares of common stock for cash at $0.050 per share.

ff)

On August 11, 2006, 5,000 shares of the Company’s preferred stock were converted to 50,000 shares of common stock.

gg)

On February 22, 2007, the Company issued 500,000 shares of common stock for cash at $0.050 per share.

hh)

On May 8, 2007, 350,000 shares of the Company’s preferred stock were converted to 3,500,000 shares of common stock.

ii)

On June 1, 2007, the Company issued 8,900,000 shares of common stock for notes at $0.02 per share.

jj)

On July 17, 2007, 100,000 shares of the Company’s preferred stock were converted to 1,000,000 shares of common stock.

kk)

On August 16, 2007, the Company issued 4,700,000 shares of common stock for notes at $0.02 per share.

ll)

On August 30, 2007, 226,289 shares of the Company’s preferred stock were converted to 2,262,890 shares of common stock.

mm)

On October 1, 2007, the Company issued 4,700,000 shares of common stock for notes at $0.002 per share.

nn)

On October 4, 2007, the Company issued 400,000 shares of common stock for cash at $0.025 per share.

oo)

On September 25, 2009, the Company issued 1,000,000 shares of common stock for cash at $0.02 per share.

pp)

During 2009, 3,000,000 shares of the Company’s preferred stock were converted to 30,000,000 shares of common stock.

qq)

On June 25, 2010, the Company issued 1,000,000 shares of common stock for cash at $0.0075 per share.

rr)

On June 25 2010, the Company issued 500,000 shares of common stock for cash at $0.028 per share.

ss)

On July 6, 2010, the Company issued 1,770,000 shares of common stock for services at $0.028 per share.

tt)

On November 9, 2010, the Company issued 2,000,000 shares of common stock for services at $0.033 per share.

uu)

During 2010, 1,240,000 shares of the Company’s preferred stock were converted to 12,400,000 shares of common stock.

vv)

During 2011, the Company issued 17,900,000 shares of common stock for cash at $0.01 per share.

ww)

During 2011, the Company issued 5,042,000 shares of common stock for services at $0.01 per share.

Preferred Shares:   Each share of preferred stock is convertible into ten shares of common stock and has voting rights equal to ten shares of common stock.  Holders of preferred stock are entitled to twenty votes for each share of record on all matters to be voted on by shareholders.

As of December 31, 2011 and 2010 there were 3,777,302 and 3,577,302 shares of preferred stock outstanding.

a)

During 1996, 500,000 common shares were converted to 50,000 shares of preferred stock.  

b)

During 1997 the Company issued 750,000 shares of preferred stock to officers and directors for services valued at $0.04 per share.  

c)

On October 30, 1998, 800,000 shares of preferred stock were converted to 8,000,000 shares of common stock.        

d)

On February 26, 1999, the Company issued 24,390 shares of preferred stock in satisfaction of debt valued at $3.69 per share.

e)

On April 30, 1999, the Company issued 16,290 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

F-14

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

f)

On April 30, 1999, the Company issued 21,680 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

g)

 On September 30, 1999, the Company issued 33,062 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

h)

On December 30, 1999, the Company issued 51,491 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

i)

On December 22, 1999, the Company issued 5,000 shares of preferred stock for a year end bonus valued at $3.69 per share.

j)

On January 30, 2000, the Company issued 2,500 shares of preferred stock for a sign up bonus valued at $3.69 per share.

k)

On March 31, 2000, the Company issued 56,911 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

l)

On April 21, 2000, the Company issued 10,000 shares of preferred stock for services of an officer valued at $3.69 per share.

m)

On May 1, 2000, the Company issued 2,500 shares of preferred stock for a sign up bonus valued at $3.69 per share.  

n)

On May 1, 2000, the Company issued 10,000 shares of preferred stock for a sign up bonus valued at $3.69 per share.  

o)

On June 30, 2000, the Company issued 58,266 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

p)

On June 30, 2000, the Company issued 2,500 shares of preferred stock for a sign up bonus valued at $3.69 per share.  

q)

On September 19, 2000, the Company issued 100,000 shares in exchange for 100,000 shares of Friendly Energy Services Inc. valued at $3.69 per share.  

r)

On September 19, 2000, the Company issued 20,000 shares to employees of Friendly Energy Services Inc. relating to an assumed obligation from the merger with Friendly Energy Services Inc. valued at $3.69 per share.

s)

October 4, 2000, the Company issued 59,621 shares of preferred stock in stock in satisfaction of debt valued at $3.69 per share.

t)

On October 16, 2000, the Company issued 10,000 shares of preferred stock for a sign up bonus valued at $3.69 per share.  

u)

On January 8, 2002, the Company issued 120,000 shares of preferred stock in stock in satisfaction of debt valued at $0.05 per share.

v)

On March 5, 2002, the Company issued 701,200 shares of preferred stock in stock in satisfaction of debt valued at $0.05 per share.

w)

On March 5, 2002, the Company issued 551,880 shares of preferred stock in stock in satisfaction of debt owed to an officer of the Company valued at $0.05 per share.

x)

On June 6, 2002, the Company issued 1,600,000shares of preferred stock in stock in satisfaction of debt valued at $0.05 per share.

y)

On April 21, 2005, the Company issued 450,000 shares of preferred stock to two officers of the Company for services valued at $0.40.

z)

On September 29, 2006, the Company issued 278,554 shares of preferred stock in stock in satisfaction of debt valued at $0.195 per share.

F-15

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

aa)

On March 10, 2007, the Company issued 5,222,222 shares of preferred stock in stock in satisfaction of debt valued at $0.090 per share.

bb)

On December 28, 2007, the Company issued 3,740,000 shares of preferred stock to two  officers of the Company for services valued at $0.10.

cc)

On January 26, 2009, the Company issued 200,000 shares of preferred stock to an officer for cash at $0.075 per share.

dd)

On July24, 2009, the Company issued 2,500,000 shares of preferred stock in stock in satisfaction of debt valued at $0.056 per share.

ee)

On November 30, 2009, the Company issued 275,000 shares of preferred stock for cash at $0.182 per share.

ff)

On December 30, 2009, the Company issued 1,200,000 shares of preferred stock in stock in satisfaction of debt valued at $0.21 per share.

gg)

On January 29, 2010, the Company issued 25,000 shares of preferred stock for cash at $0.20 per share.

hh)

On February 16, 2010, the Company issued 75,000 shares of preferred stock for cash at $0.20 per share.

ii)

On March 31, 2010, the Company repurchased 4,200,000 shares of preferred stock for cash at $0.1052 per share.

jj)

On December 14, 2010, the Company issued 75,000 shares of preferred stock for cash at $0.21 per share.

kk)

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

ll)

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

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.

During 2000, 11,000 shares of preferred stock were cancelled.  As of December 31, 2009 the issue was not completely resolved and the stock agent had not received the returned share certificates.  Therefore the 11,000 shares are still reflected in the preferred stock balance.

9.

STOCK OPTIONS & WARRANTS

The Company granted no options under the Company’s Share Incentive Plan in 2011 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 $
Balance – December 31, 2007 and 2008	400,000	0.55
Granted in 2009	1,500,000	0.005
Balance – December 31, 2011	1,900,000	0.12	7.80	–

F-16

---

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Additional information regarding stock options as of December 31, 2011, is as follows:

Number of Options	Exercise Price $	Expiry Date
40,000	1.25	April 20, 2015
60,000	1.56	September 28, 2016
300,000	0.25	December 27, 2017
1,500,000	0.005	July 23, 2019
1,900,000

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

Warrants

The Company granted warrants under a non-brokered subscription agreement on July 15, 2011:

a)

3,750,000 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, and;

b)

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, 2014.

Total warrants outstanding:  12,083,333.

10.

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.  

11.

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, 2011 is $141,832, as reported in the liability section of the balance sheet.

12.

SUBSEQUENT EVENTS

In accordance with ASC 855, we have evaluated subsequent events through our audit issuance date, and did not have any material recognizable subsequent events.

F-17

---

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, 2011.  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, 2011 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, 2011, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

1.

We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement.  Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.  

2.

We did not maintain appropriate cash controls – As of December 31, 2011, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts.  Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.

3.

We did not implement appropriate information technology controls – As at December 31, 2011, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.  

14

---

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, 2011 based on criteria established in Internal Control—Integrated Framework issued by COSO. 

  

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, 2011, 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 monthly financial reporting, including preparation of the monthly bank reconciliations.

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:

Name and Age	Position(s) Held	Date of Appointment	Other Public Company Directorships
Douglas Tallant, 67	Director, President, Chief Executive Officer	February 2, 2002	None
Donald Trapp, 72	Director, Chief Financial Officer, Secretary and Treasurer	February 8, 2005	None

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:

15

---

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.  

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;

16

---

(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;

(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, 2011, Forms 5 and any amendments thereto furnished to us with respect to the year ended December 31, 2011, and the representations made by the reporting persons to us, we believe that during the year ended December 31, 2011, 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

---

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, 2011, and 2010:

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	2011	$180,000	$nil	$nil	$nil	$nil	$nil	$nil	$180,000
	2010	$180,000	$nil	$nil	$nil	$nil	$nil	$nil	$180,000
Donald Trapp (3) CFO, Secretary, Treasurer and Director	2011	$60,000	$nil	$nil	$nil	$nil	$nil	$nil	$60,000
	2010	$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.

18

---

Outstanding Equity Awards at Fiscal Year-End  

Long-Term Incentive Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  

Compensation Committee

 

We currently do not have a compensation committee of the Board of Directors.  The Board of Directors as a whole determines executive compensation.

Compensation of Directors

Our directors receive no extra compensation for their service on our board of directors.

Securities Authorized for Issuance Under Equity Compensation Plans

On October 18, 2010, the Company registered on Form S-8, the 2010 Share Incentive Plan, under which the Company is authorized to issue up to fifteen million (15,000,000) shares of the Company’s Common Stock to the Company’s employees, executives and consultants.

19

---

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information concerning the number of shares of our Common Stock owned beneficially as of March 26, 2012 by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of Common Stock.  Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.

 

 

Name and Address of Beneficial Owner	Title of Class	Amount and Nature of  Beneficial Ownership (1) (#)	Percent of Class (2) (%)
Douglas Tallant(3) 6005 N. Highway 279 Brownwood, TX 76801	Common	7,590,455	5.83%
Donald Trapp (4) 6005 N. Highway 279 Brownwood, TX 76801	Common	601,582	0.46%
All Officers and Directors as a Group	Common	8,192,037	6.29%

(1)

The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose.  Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days through the exercise of any stock option or other right.  The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.

(2)

Based on 130,170,158 issued and outstanding shares of common stock as of March 26, 2012.

(3)

Douglas Tallant is a Director and the Company's President and CEO.  His beneficial ownership includes 7,590,455 common shares, as well as options to purchase 1,260,000 common shares that will vest within the next 60 days.

(4)

Donald Trapp is a Director and the Company's CFO, Treasurer and Secretary.  His beneficial ownership includes 601,582 common shares, as well as options to purchase 640,000 common shares that will vest within the next 60 days.

 

Changes in Control

There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

As at December 31, 2011, the Company owes $252,650 (2010 - $210,400) to directors and officers of the Company.  The amounts are unsecured, due interest at 8% per annum, and due on demand.

As of December 31, 2011 and 2010, loans payable from related parties consists of the following:

Notes payable from officer of the Company bearing interest at 8% unsecured and due on demand	December 31, 2011		December 31, 2010
	$ 252,650		$210,400

Other than the foregoing, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.

20

---

With regard to any future related party transactions, we plan to fully disclose any and all related party transactions in the following manner:

·

Disclosing such transactions in reports where required;

·

Disclosing in any and all filings with the SEC, where required;

·

Obtaining disinterested directors consent; and

·

Obtaining shareholder consent where required.

Director Independence

For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2).  The OTCBB on which shares of common stock are quoted does not have any director independence requirements.  The NASDAQ definition of “Independent Officer” means a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 According to the NASDAQ definition, neither Douglas Tallant nor Donald Trapp are independent directors of the Company because they are also executive officers.

Review, Approval or Ratification of Transactions with Related Persons

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 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

	Year Ended December 31, 2011	Year Ended December 31, 2010
Audit fees	$4,000	$4,000
Audit-related fees	$ nil	$ nil
Tax fees	$ nil	$ nil
All other fees	$ nil	$ nil
Total	$4,000	$4,000

Audit Fees

During the fiscal year ended December 31, 2011, we incurred approximately $4,000 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended December 31, 2011.

During the fiscal year ended December 31, 2010, we incurred approximately $4,000 in fees to our principal independent accountants for professional services rendered in connection with the audit and review of our financial statements for fiscal year ended December 31, 2010.

Audit-Related Fees

The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A) was $nil and $nil, respectively.

Tax Fees

The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $nil and $nil, respectively.

21

---

All Other Fees

The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A) was $nil and $nil, respectively.

PART IV

ITEM 15.

EXHIBITS

(a)

Exhibits.

22

---

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

  

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FRIENDLY ENERGY EXPLORATION

Dated:  March 29, 2012

/s/ Douglas Tallant                             

By: Douglas Tallant

Its: President and Principal Executive Officer

Dated:  March 29, 2012

/s/ Donald Trapp                                

By: Donald Trapp

Its:  Chief Financial Officer

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Dated:  March 29, 2012

/s/ Douglas Tallant                             

Douglas Tallant - Director

Dated:  March 29, 2012

/s/ Donald Trapp                                

Donald Trapp - Director

23