**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549** 

 **FORM 10-Q**

 

**x****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended September 30, 2010**

**☐****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**

For the transition period from ______ to _______

**Commission File Number 000-31423**

**FRIENDLY ENERGY EXPLORATION**

(Name of small business issuer in its charter)

 
| **Nevada**

 

**91-1832462**

(State of incorporation)

  

(I.R.S. Employer Identification No.)

 

**4601 N. Highway 279**

**Brownwood, Texas 76801**

(Address of principal executive offices)

**(325) 752-6222**

(Registrant’s telephone number)

**502 North Division Street**

**Carson City, NV 89703**

**(702) 953-0411**

 (Former name or former address, if changed since last report)

with a copy to:

**Carrillo Huettel, LLP**

3033 Fifth Ave. Suite 201

San Diego, CA 92103

Telephone (619) 399-3090

Facsimile (619) 399-0120

 

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.

**x**Yes     **☐** 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 (Not required)

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

**Large Accelerated Filer  ☐                                                    Accelerated Filer  ☐  **

**Non-Accelerated Filer  ☐                                                    Smaller Reporting Company  x**

 

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

As of November 15, 2010, there were 68,238,790 shares of the registrant’s $.001 par value common stock issued and outstanding, and 3,502,302 shares of the registrant’s $.001 par value preferred stock issued and outstanding.

 

**FRIENDLY ENERGY EXPLORATION***

**TABLE OF CONTENTS **

 

 

 

**  **

**Page**

 

 

**PART I.                 FINANCIAL INFORMATION**

 

**  **

** **

ITEM 1.

FINANCIAL STATEMENTS

 

ITEM 2.

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

 

ITEM 3.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

 

ITEM 4.

CONTROLS AND PROCEDURES

 

**  **

** **

**PART II.               OTHER INFORMATION**

 

**  **

** **

ITEM 1.

LEGAL PROCEEDINGS

 

ITEM 1A.

RISK FACTORS

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

ITEM 4.

[REMOVED AND RESERVED]

 

ITEM 5.

OTHER INFORMATION

 

ITEM 6.

EXHIBITS

 

  

 

**Special Note Regarding Forward-Looking Statements**

*Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Friendly Energy Exploration (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.*

**Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "FEGR" refers to Friendly Energy Exploration*

**PART I: FINANCIAL INFORMATION**

**ITEM 1.**

**FINANCIAL STATEMENTS**

Friendly Energy Exploration

September 30, 2010

Index

Consolidated Balance Sheets

5

Consolidated Statements of Operations

6

Consolidated Statements of Cash Flows

7

Notes to the Consolidated Financial Statements

8

Friendly Energy Exploration

(An Exploration Stage Company)

Consolidated Balance Sheets

(unaudited)

 

September 30,

2010

$

December 31, 

2009

$

 

 

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash 

31,360 

15,038 

Amounts receivable 

23,850 

–

 

 

 

Total Current Assets

55,210 

15,038 

 

 

 

Notes Receivable

7,500 

7,500 

Oil and Gas Properties – unproved

128,550 

61,050 

Property and Equipment, net 

4,569 

1,418 

Other Assets

1,000 

1,000 

 

 

 

Total Assets

196,829 

86,006 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts Payable

183,067 

127,319 

Accrued Liabilities

452,217 

428,652 

Salaries Payable

1,008,000 

828,000 

Loans Payable

993,024 

180,433 

Loans Payable - related

162,823 

23,877 

 

 

 

Total Liabilities

2,799,131 

1,588,281 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

Preferred Stock 

Authorized: 10,000,000 preferred shares, with par value $0.001 per share

Issued and outstanding: 3,502,302 and 8,842,302 shares, respectively

3,502 

8,842 

 

 

 

Common Stock

Authorized: 100,000,000 common shares, with par value $0.001 per share

Issued and outstanding: 68,238,790 and 52,568,790 shares, respectively

68,239 

52,569 

 

 

 

Additional Paid-In Capital 

3,741,188 

4,097,805 

 

 

 

Accumulated Deficit during the Development Stage

(2,201,560)

(2,201,560)

 

 

 

Accumulated Deficit during the Exploration Stage

(4,213,671)

(3,459,931)

 

 

 

Total Stockholders’ Deficit

(2,602,302)

(1,502,275)

 

 

 

Total Liabilities and Stockholders’ Deficit

196,829 

86,006 

 

 

 

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

6

Friendly Energy Exploration 

(An Exploration Stage Company)

Consolidated Statements of Operations

(unaudited)

 

For the Three Months Ended September 30, 

2010

For the Three Months Ended September 30, 

2009

For the Nine Months Ended September 30, 

2010

For the Nine Months Ended September 30, 

2009

Accumulated from January 7, 1993 (Date of Inception) to September 30, 

2010

 

$

$

$

$

$

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

15,109 

–

45,682 

–

75,106 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Bad Debt Expense 

–

–

–

–

319,000 

Depreciation

292 

206 

820 

617 

45,958 

General and Administrative

52,177 

324 

63,054 

988 

1,179,102 

Oil and Gas Exploration Costs

78,447 

63,243 

396,300 

63,243 

945,647 

Professional Fees

14,640 

3,355 

46,539 

7,415 

883,295 

Salaries Expense

62,730 

62,730 

191,910 

191,910 

1,705,301 

Travel and Entertainment

7,667 

3,591 

24,984 

3,794 

190,089 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

215,953 

133,449 

723,607 

267,967 

5,268,392 

 

 

 

 

 

 

Loss from Operations

(200,844)

(133,449)

(677,925)

(267,967)

(5,193,286)

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

Other Income

–

–

–

–

196,723 

Interest Expense

(14,539)

(14,144)

(75,815)

(42,012)

(414,133)

Loss on settlement of debt

–

–

–

–

(122,765)

Loss on impairment of assets

–

–

–

–

(771,770)

Loss on contingent liability

–

–

–

–

(110,000)

 

 

 

 

 

 

Total Other Income (Expenses)

(14,539)

(14,144)

(75,815)

(42,012)

(1,221,945)

 

 

 

 

 

 

Net loss and comprehensive loss

(215,383)

(147,593)

(753,740)

(309,979)

(6,415,231)

 

 

 

 

 

 

Net Loss Per Share – Basic and Diluted

–

–

(0.01)

(0.01)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

68,142,595 

39,975,384 

57,800,622 

27,704,321 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

7

Friendly Energy Exploration

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(unaudited)

 

For the Nine Months Ended September 30, 2010

 

For the Nine Months Ended September 30, 2009

 

Accumulated from January 7, 1993 (Date of Inception) to September 30, 2010

 

$

 

$

 

$

 

 

 

 

 

 

Operating Activities

 

 

 

Net Loss for the year

(753,741)

 

(309,979)

 

(6,415,231)

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

Bad Debt Expense

–

 

–

 

319,000 

Depreciation

921 

 

617 

 

45,958 

Impairment loss

–

 

–

 

771,770 

Stock-based compensation

4,212 

 

–

 

520,165 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Amounts receivable

(23,850)

 

–

 

(23,850)

Accounts payable and accrued liabilities

79,314 

 

71,086 

 

635,983 

Salaries payable

180,000 

 

180,000 

 

1,008,000 

 

 

 

 

 

 

Net Cash Used In Operating Activities

(513,144)

 

(58,276)

 

(3,138,205)

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

(4,072)

 

–

 

(50,527)

Investment in oil and gas properties

(67,500)

 

(20,000)

 

(457,519)

 

 

 

 

 

 

Net Cash Used In Investing Activities

(71,572)

 

(20,000)

 

(508,046)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable, net

812,592 

 

(54,922)

 

966,827 

Proceeds from issuance of common stock

71,500 

 

–

 

549,990 

Proceeds from issuance of preferred stock

(422,000)

 

155,000 

 

1,906,972 

Proceeds from related parties, net

138,946 

 

8,052 

 

253,822 

 

–

 

 

 

 

Net Cash Provided By Financing Activities

601,038 

 

108,130 

 

3,677,611 

 

 

 

 

 

 

Increase (Decrease) in Cash 

16,322 

 

29,854 

 

31,360 

 

 

 

 

 

 

Cash – Beginning of Year

15,038 

 

115 

 

 –

 

 

 

 

 

 

Cash – End of Year

31,360 

 

29,969 

 

31,360 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

 

 

 

Interest paid

–

 

 –

 

 –

Income tax paid

–

 

 –

 

 –

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

7

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

1.

Nature of Operations and Continuance of Business

Friendly Energy Exploration (the “Company”) was incorporated in the State of Nevada on January 7, 1993 as Eco-Systems Marketing.  The Company was originally in the business of selling electric power and related services to small and medium-sized businesses in the California market.  The Company is currently in the business of oil and gas exploration and operations, and acquired four oil and gas leases in Texas comprising 1,036 acres and 25 wells.  In 2010, the Company acquired another oil and gas lease comprising 1,000 acres and 24 wells.  

As at September 30, 2010, the Company has realized revenues of $75,106 since its inception, has a working capital deficiency of $2,743,921 and has an accumulated deficit of $6,415,231.  The Company's ability to continue as a going concern is dependent upon the Company's ability to obtain additional financing and/or achieving a profitable level of operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Management of the Company has undertaken a plan with the goal of sustaining the Company’s operations for the next twelve months and beyond.   These steps include: (a) becoming cash flow positive via the Company’s oil and gas leases; (b) continue efforts to raise significant additional capital and/or other forms of financing with shareholders and outside investors; and (c) controlling overhead expenses to preserve cash flows.  There can be no assurance that any of these efforts will be successful. 

2.

Summary of Significant Accounting Policies

a)

Basis of Presentation 

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany balances and transactions have been eliminated. The Company’s fiscal year-end is December 31.

b)

Use of Estimates

The preparation of these consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life of long-lived assets, stock-based compensation, deferred income tax asset valuation allowances, and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. 

c)

Interim Financial Statements

These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

8

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

2.

Summary of Significant Accounting Policies (continued)

d)

Cash and Cash Equivalents

Cash consists of bank accounts held at financial institutions in the United States. The Company considers all highly liquid instruments with a maturity of three months or less, at the time of issuance, to be cash equivalents.  

e)

Property and Equipment

Property and equipment are recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the related asset between 3 to 27 years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.  

f)

Long-Lived Assets

In accordance with ASC 360, *Property Plant and Equipment*, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

g)

Comprehensive Loss

ASC 220, *Comprehensive Income*, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at September 30, 2010 and December 31, 2009, the Company had no items representing comprehensive income/loss.

h)

Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, *Compensation – Stock Based Compensation,* 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. 

i)

Revenue Recognition

The Company recognizes revenue from oil and gas leases.  Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is assured.  The Company is not exposed to any credit risks as amounts are prepaid prior to performance of services.

9

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

 (unaudited)

2.

Summary of Significant Accounting Policies (continued)

j)

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

k)

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. 

10

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

2.

Summary of Significant Accounting Policies (continued)

k)

Oil and Gas Properties (continued)

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. 

l)

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. 

m)

Recently Issued Accounting Pronouncements 

In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.

11

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

2.

Summary of Significant Accounting Policies (continued)

m)

Recently Issued Accounting Pronouncements (continued)

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.

In January 2010, the FASB issued an amendment to ASC 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 adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.  

In January 2010, the FASB issued an amendment to ASC 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.  

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). 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 adoption did not have an impact on the Company’s financial position and results of operations. 

In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 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 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (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 does not expect the provisions of ASU 2010-11 to 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 and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements.

12

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

2.

Summary of Significant Accounting Policies (continued)

n)

Reclassifications

Certain reclassifications have been made to the prior period’s consolidated financial statements to conform to the current period’s presentation.

3.

Oil and Gas Properties

 

September 30, 

2010

Net Carrying 

Value

$

December 31,

 2009

Net Carrying Value

$

 

 

 

Panther Creek Lease

15,000 

15,000 

Byler Lease

33,650 

33,650 

Mud Creek Lease

10,000 

10,000 

Hutchins Lease

2,400 

2,400 

South Thrifty Lease

67,500 

–

Red Oak Lease

242,000 

242,000 

Talpa Project

50,000 

50,000 

West Peach Project

36,970 

36,970 

 

 

 

 

457,520 

390,020 

Impairment

(328,970)

(328,970)

 

 

 

 

128,550 

61,050 

*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.  The property has 155 acres with 13 wells and is producing.  The Company remits a 22% royalty payment.  

*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.  The property has 372 acres with 17 wells and is producing.  The Company remits a 22% royalty payment.  

*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.  The property has 355 acres and upon production, the Company will remit a 22% royalty payment.  

*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 has 194 acres and upon production, the Company will remit a 15.125% royalty payment.  

*South Thrifty Lease*

In 2010, the Company purchased, through its wholly-owned subsidiary, a 50% interest in oil and gas properties in central Texas for $67,500.  The property has 1,000 acres with 24 wells and is producing.  The Company remits a 22% royalty payment.  

13

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

4.

Property and Equipment

 

 

 

Net Book Value

 

Cost

$

Accumulated

Amortization

$

September 30,

2010

$

December 31, 2009

$

 

 

 

(unaudited)

 

Computers and equipment

28,548

28,548

–

–

Furniture and fixtures

21,980

17,412

4,568

1,028

 

 

 

 

 

 

**50,528**

**45,960**

**4,568**

**1,028**

5.

Related Party Transactions

As at September 30, 2010, the Company owes $162,823 (2009 - $36,333) to directors and officers of the Company.  The amounts are unsecured, due interest at 8% per annum, and due on demand.  

6.

Common Stock

During the period ended September 30, 2010, the Company issued the following common shares:

·

Conversion of 1,240,000 preferred shares to 12,400,000 common shares;

·

Issuance of 1,770,000 common shares with a fair value of $50,000 for services;

·

Issuance of 500,000 common shares at $0.028 per share for proceeds of $14,000; and

·

Issuance of 1,000,000 common shares at $0.0075 per share for proceeds of $7,500.

During the period ended September 30, 2010, the Company issued the following preferred shares:

·

Conversion of 1,240,000 preferred shares to 12,400,000 common shares;

·

Repurchase of 4,200,000 preferred shares for $442,000;

·

Issuance of 75,000 preferred shares for proceeds of $15,000; and

·

Issuance of 25,000 preferred shares for proceeds of $5,000.

7.

Stock Options

On July 24, 2009, the Company granted 1,500,000 options under the Company’s Stock Option Plan to management and directors of the Company, with an exercise price of $0.005 per option. Under the terms of the issuance of options, 750,000 options vest on January 24, 2010 (six months from the date of issuance) and 750,000 options vest on July 24, 2010 (one year from the date of issuance).  The fair value of the options were estimated at the date of grant using the Black-Scholes Option Pricing Model using the following weighted average assumptions: risk-free rate of 3.50%, expected volatility of 353%, expected life of 10 years, and no expected dividends.  The weighted average fair value of options granted was $0.005 per option.  

14

Friendly Energy Exploration

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(unaudited)

7.

Stock Options (continued)

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, 2008

400,000

0.55

 

 

Granted

1,500,000

0.005

 

 

 

 

 

 

 

Balance – September 30, 2010 and December 31, 2009

1,900,000

0.12

8.38

–

Additional information regarding stock options as of September 30, 2010, 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

 

 

8.

Commitments and Contingencies

a)

On February 1, 2005, the Company entered into an employment agreement with the Chief Financial Officer of the Company.  Under the terms of the agreement, the Company will pay an annual salary of $60,000 from the date of the agreement until the agreement has been cancelled or amended.  

b)

On January 1, 2007, the Company entered into an employment agreement with the President and Chief Executive Officer of the Company.  Under the terms of the agreement, the Company will pay an annual salary of $180,000 from the date of the agreement until the agreement has been cancelled or amended.  

c)

In 2005, a former employee of the Company received a default judgment against the Company in the principle sum of $434,211.50.  This judgment was decreased to $110,000 plus accrued interest commencing October 13, 2000.  During the period ended September 30, 2010, the Company paid $20,000. As at September 30, 2010, the balance owing on the judgment totaled $237,636 and has been recorded as an accounts payable.  

15

**ITEM 2.**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**FORWARD-LOOKING STATEMENTS**

*This Management's Discussion and Analysis or Plan of Operation (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risk factors outlined below.  These factors may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.*

***Cash Requirements***

Our cash on hand as of September 30, 2010 is 31,360. We do not have sufficient cash on hand to pay the costs of our operations as projected to twelve (12) months or less or to fund our operations for that same period of time. We will require additional financing in order to proceed with some or all of our goals as projected over the next twelve (12) months. We presently do not have any arrangements for additional financing, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with any of our goals projected over the next twelve (12) months and beyond.

 

Any additional growth of the Company will require additional cash infusions. We may face expenses or other circumstances such that we will have additional financing requirements. In such event, the amount of additional capital we may need to raise will depend on a number of factors. These factors primarily include the extent to which we can achieve revenue growth, the profitability of such revenues, operating expenses, research and development expenses, and capital expenditures. Given the number of programs that we have ongoing and not complete, it is not possible to predict the extent or cost of these additional financing requirements.

        

Notwithstanding the numerous factors that our cash requirements depend on, and the uncertainties associated with each of the major revenue opportunities that we have, we believe that our plan of operation can build long-term value if we are able to demonstrate clear progress toward our objectives.

Progress in the development of our business plan will likely lend credibility to our plan to achieve profitability. 

The failure to secure any necessary outside funding could have an adverse affect on our development and results there from and a corresponding negative impact on shareholder liquidity.

***Results of Operations***

We realized $15,109 in revenue from operations in the third quarter of 2010.  In the third quarter of 2009, we received no revenue.  For the nine months ended September 30, 2010, the loss from operations is $753,740 (2009 - $309,978).  This increase in loss was due primarily to oil well operations costs for reworking oil wells of the Central Texas leases and for upgrading and repairing infrastructure on the leases.  From February 11, 2005 (inception of oil and gas exploration operations) to September 30, 2010, the Company has incurred cumulative net operating losses of $6,415,321.

***Liquidity and Capital Resources***

16

As at September 30, 2010, we had total assets of $196,829, compared to $86,006 as at December 31, 2009.  The increase in total assets is attributed to acquisition of oil and gas leases of $67,500 as well as accounts receivable of $23,850.

As at September 30, 2010, we had total liabilities of $2,799,131, compared to $1,588,281 as at December 31, 2009.  The increase in total liabilities is attributed to $180,000 in salaries payable to directors and officers of the Company, an increase in accounts payable and accrued liabilities of $79,313, issuances of loans payable of $812,591, and an increase in amounts owing to related parties of $138,946.

***Subsequent Developments***

On October 12, 2010, the Company's common stock was approved by FINRA for trading on the OTC Bulletin Board (“OTCBB”), and began trading on the OTCBB on October 13, 2010 under the symbol FEGR.OB.

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. 

On November 12, 2010, we filed an Amended and Restated Articles of Incorporation with the Nevada Secretary of State to increase the number of shares that the Company is authorized to issue from 110,000,000, of which 100,000,000 shares are common stock and 10,000,000 are preferred stock, to 310,000,000 shares, of which 290,000,000 are common stock and 20,000,000 are preferred stock.  On November 11, 2010, the company received approval to file the Amended and Restated Articles from holders of 55.22% of the issued and outstanding common stock of the Company.

***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.

 

***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.

 

***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.

***Critical Accounting Policies***

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.

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 

17

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 Standards***

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (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 does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). 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 adoption did not have an impact on the Company’s financial position and results of operations. 

In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 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 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

In January 2010, the FASB issued an amendment to ASC 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, 

18

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. 

In January 2010, the FASB issued an amendment to ASC 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 adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.

In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.

In August 2009, FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis. This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard is effective for the Company on October 1, 2009. The adoption of this amendment did not have a material effect on the Company’s financial statements.

In June 2009, the FASB issued guidance now codified as ASC 105, Generally Accepted Accounting Principles as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place.  The adoption of ASC 105 did not have a material impact on the Company’s financial statements, but did eliminate all references to pre-codification standards.

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.

**ITEM 3.**

**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.

19

**ITEM 4.**

**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 September 30, 2010. 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.  Please refer to our Amended Annual Report on Form 10-K/A as filed with the SEC on June  17, 2010, for a complete discussion relating to the foregoing evaluation of Disclosures and Procedures.

**Management's Report on Internal Control over Financial Reporting**

Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2010. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in *Internal Control-Integrated Framework*. Our management has concluded that, as of September 30, 2010, our internal control over financial reporting is not effective based on these criteria, due to material weaknesses resulting from not having an Audit Committee or financial expert on our Board of Directors and our failure to maintain appropriate cash controls.  Please refer to our Amended Annual Report on Form 10-K/A as filed with the SEC on June  17, 2010, for a complete discussion relating to the foregoing evaluation of our Internal Control over Financial Reporting.

**Changes in Internal Control over Financial Reporting**

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.  

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

**PART II - OTHER INFORMATION**

**ITEM 1.**

**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.

**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.

20

**ITEM 2.**

**UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**1.            Quarterly Issuances:**

                

During the quarter, we did not issue any unregistered securities other than as previously disclosed.

**2.            Subsequent Issuances:      **

Subsequent to the quarter, we did not issue any unregistered securities other than as previously disclosed.

**ITEM 3.**

**DEFAULTS UPON SENIOR SECURITIES**

None

**ITEM 4.**

**[REMOVED AND RESERVED]**

**ITEM 5.**

**OTHER INFORMATION**

On October 12, 2010, the Company's common stock was approved by FINRA for trading on the OTC Bulletin Board (“OTCBB”), and began trading on the OTCBB on October 13, 2010 under the symbol FEGR.OB.

On November 11, 2010, the holders of a majority of our voting securities approved the Amended and Restated Articles of Incorporation (“Amended Articles”), a copy of which is attached hereto as Exhibit 3.01b. The Amended Articles serve to (1) effectively consolidate the existing Articles of Incorporation, including all prior amendments thereto, and to (2) increase the number of shares that the Company is authorized to issue from 110,000,000, of which 100,000,000 shares are common stock and 10,000,000 are preferred stock, to 310,000,000 shares, of which 290,000,000 are common stock and 20,000,000 are preferred stock.   

***Reasons for the Amendment and Restatement of the Articles***

The Board of Directors and Majority Shareholders believe it to be in the best interest of the Company and its shareholders to amend and restate the Company’s Articles of Incorporation in order to consolidate and clarify the existing Articles of Incorporation and all prior amendments thereto. 

The Company’s Board and the Majority Shareholders believe that the increase in authorized shares will provide the Company with greater flexibility by increasing the number of shares of the Company available for issuance to investors who agree to provide the Company with the funding it requires to continue its operations, and/or to persons in connection with potential acquisition transactions, warrant or option exercises and other transactions under which the Company’s Board may determine is in the best interest of the Company and its shareholders to issue additional shares.  As of the date of this Quarterly Report, the Company has not identified any potential investors and has not entered into any agreements relating to any potential investment in the Company, or otherwise, pursuant to which the Company will issue additional shares.

**ITEM 6.**

**EXHIBITS**

**Exhibit**

**Number**

**Description of Exhibit**

**Filing**

3.01a 

Articles of Incorporation

Filed with the SEC on August 31, 2000 as part of our Registration Statement on Form 10-SB.

3.01b 

Amended and Restated Articles of Incorporation

Filed herewith.

21

3.02

Bylaws

Filed with the SEC on August 31, 2000 as part of our Registration Statement on Form 10-SB.

4.01

2010 Share Incentive Plan

Filed with the SEC on October 18, 2010 as part of our Form S-8.

4.02

Sample Qualified Stock Option Grant Agreement

Filed with the SEC on October 18, 2010 as part of our Form S-8.

4.03

Sample Non-Qualified Stock Option Grant Agreement

Filed with the SEC on October 18, 2010 as part of our Form S-8.

4.04

Sample Performance-Based Award Agreement

Filed with the SEC on October 18, 2010 as part of our Form S-8.

10.01

Stock Repurchase Agreement dated March 31, 2010 between the Registrant and Douglas B. Tallant

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

10.02

Stock Repurchase Agreement dated March 31, 2010 between the Registrant and Donald Trapp

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

10.03

Stock Repurchase Agreement dated March 31, 2010 between the Registrant and Merus Energy Corp.

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

10.04

Promissory Note dated March 31, 2010 between the Registrant and Douglas B. Tallant

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

10.05

Promissory Note dated March 31, 2010 between the Registrant and Donald L. Trapp

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

10.06

Promissory Note dated March 31, 2010 between the Registrant and Merus Energy Corp.

Filed with the SEC on April 5, 2010 as part of our Current Report on Form 8-K.

31.01

Certification of Principal Executive Officer Pursuant to Rule 13a-14

Filed herewith.

31.02

Certification of Principal Financial Officer Pursuant to Rule 13a-14

Filed herewith.

32.01

CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

Filed herewith.

32.02

CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

Filed herewith.

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

**FRIENDLY ENERGY EXPLORATION**

Dated: November 15, 2010

By:

 */s/ Douglas B. Tallant      *

**Douglas B. Tallant**

President and Chief Executive Officer

Dated: November 15, 2010

By:

 */s/ Donald L. Trapp     *

**Donald L. Trapp**

Chief Financial Officer, Secretary and Treasurer

22 |
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