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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
FRIENDLY ENERGY CORPORATION
(Name of Small Business Issuer in Its Charter)
NEVADA 91-1832462
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4275 EXECUTIVE SQUARE, SUITE 250, SAN DIEGO, CALIFORNIA 92037
(Address of Principal Executive Offices) (Zip Code)
(858) 622-1200
(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
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N/A N/A
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES, PAR VALUE $0.001
(Title of Class)
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FRIENDLY ENERGY CORPORATION
FORM 10-SB
TABLE OF CONTENTS
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NO. TITLE PAGE NO.
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PART I
Item 1. Description of Business......................................................................3
Item 2. Management's Discussion and Analysis or Plan of
Operations................................................................................8
Item 3. Description of Property.....................................................................11
Item 4. Security Ownership of Certain Beneficial Owners and
Management...............................................................................11
Item 5. Directors and Executive Officers, Promoters and Control
Persons..................................................................................12
Item 6. Executive Compensation......................................................................14
Item 7. Certain Relationships and Related Transactions..............................................14
Item 8. Description of Securities...................................................................14
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Related Shareholder Matters............................................16
Item 2. Legal Proceedings...........................................................................17
Item 3. Changes In and Disagreements with Accountants...............................................17
Item 4. Recent Sales of Unregistered Securities.....................................................17
Item 5. Indemnification of Directors and Officers...................................................19
PART F/S
Financial Statements........................................................................19
PART III
Item 1. Index to Exhibits...........................................................................20
Item 2. Description of Exhibits.....................................................................20
Signatures..................................................................................21
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Registrant, Friendly Energy Corporation, is a Nevada corporation
which was incorporated on January 7, 1993 under the name Eco-Systems Marketing
Corporation. It was originally formed for the purpose of marketing
ecologically sound products.
On January 2, 1996, BioTherapeutics Corporation, a public Company,
purchased all of the shares of the Registrant. On July 17, 1996, Douglas Trust
purchased 95% of the shares of the Registrant from BioTherapeutics.
On April 21, 1997, the Registrant changed its name to Rama Financial
Corporation and changed its purpose to the development of certain mineral
deposits. Subsequently, on June 24, 1997, BioTherapeutics distributed all of
its remaining shares to its shareholders in a spin out distribution.
On April 12, 1999, the Registrant changed its name to Friendly Energy
Corporation. It changed its primary purpose to selling electric power and
related services to businesses and industry in the newly deregulated
electrical energy markets, starting with California. The California electric
power industry is estimated to be a $22 billion dollar per year business, and
Friendly Energy intends to capture a share of the market.
The Registrant qualified as an electric service provider with San
Diego Gas & Electric on January 10, 2000, Southern California Edison on May
15, 2000 and Pacific Gas & Electric on May 18, 2000. The Registrant has also
prepared an application to become a registered alternative service provider in
Nevada.
In marketing power to business and industry owners, the Registrant
plans to offer a comprehensive package of services to earn additional revenue,
including meter services, demand management services and audit services.
The primary sources of the Registrant's revenues are anticipated to
be from the resale of energy purchased on a wholesale basis and from the sale
of other services.
On December 27, 1999, the Registrant filed an Information and
Disclosure Statement with the National Association of Securities Dealers, Inc.
("NASD") pursuant to Rule 15c2-11 to become a publicly traded nonreporting
Company on the OTC Bulletin Board. On June 26, 2000, the Registrant was
notified by the NASD
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that its shares were qualified for trading on a nonquoted basis on the
"electronic pink sheets," where the Registrant's common stock is currently
trading under the symbol "FDEG". Since the Registrant's securities have not
been previously quoted on the OTC Bulletin Board, the Registrant's securities
will not be eligible for trading on the OTC Bulletin Board until its Form 10SB
Registration Statement clears comments with the Securities and Exchange
Commission, and the Registrant remains current in its reporting requirements.
PRINCIPAL PRODUCTS AND SERVICES
To date the Registrant has devoted substantially all of its efforts
and resources to its development as an energy service provider. The Registrant
plans to sell electric power and ancillary services to targeted segments of
the economy, e.g., businesses that can efficiently manage their energy demands
and businesses that use significant off-peak power. The Registrant plans to
attract customers by reducing electricity consumption costs. Under current
regulation, most customer rates are based on average embedded costs. Customers
generally receive a single, high level of service reliability and are charged
the same rate for service throughout each billing period regardless of the
actual cost to the utility. As a result, consumers cannot control their
electricity costs by varying the times during which they use electricity and
the reliability of service they desire. The Registrant plans to offer
customers an alternative pricing structure that will save them money on their
electric bills. The Registrant also plans to save customers money by offering
ancillary services, including meter services, demand management services and
audit services. The Registrant also plans to sell "green power" to
environmentally concerned consumers.
For certain customers, the Registrant plans to act as an energy
aggregator to provide businesses with the opportunity to pool together into a
common buying group to make larger, more economical purchases of energy. The
Registrant intends to market to various types of organizations, including
apartment complexes, business associations, and trade groups. The Registrant
also intends to market to commercial customers in close proximity to each
other, including shopping centers, recreational areas, water and school
districts, industrial parks, strip malls, and other business centers.
A market-based pricing model has been adopted in California and it is
anticipated that it will be adopted in other states. This places a premium on
the ability to control or displace energy consumption during certain peak
periods and, therefore, significantly improves the economics of various
devices and energy management systems. Significant savings are possible by
controlling usage during times when the cost of power is several times more
expensive than the annual average price. The Registrant plans to offer demand
management systems to lower costs for its customers on a shared savings basis.
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The Registrant also plans to offer communication and information
management systems to provide customers with continuously updated details of
monthly energy use by certain major appliances or by certain pricing
categories. This information will enable energy customers to estimate energy
cost impacts and potential efficiency improvements.
DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES
The Registrant has begun its direct marketing of energy services to
businesses. The Registrant is building up its sales force of independent
contractors working under the guidance of the Director of Marketing and
regional managers. The regional managers will be responsible for goals
established in regard to the performance of their "team" as well as meeting
individual sales goals. Most of the compensation will be performance based,
with a small salary, commissions on individual sales and overrides on the
performance of representatives under their control.
The sales force is expected to market the Registrant's products and
services through key contacts with "decision makers" in businesses and
organizations. The Registrant plans to advertise its services in various
media. The Registrant also plans to advertise through direct mail,
telemarketing, web marketing, and teleconferencing symposiums. The Registrant
intends to maintain a strong Internet presence; the Registrant's current web
site will be enhanced not only to feature information on Friendly Energy, but
also to provide industry articles of interest and other items that may be of
interest to a web site visitor. An interactive web site is planned for the
future, which will allow potential customers to enroll with the Company
on-line and will allow existing customers to access data on their individual
accounts. The Company will also develop links to other sites of interest to
electricity consumers.
The Registrant plans to replicate its operating model in other states
as they deregulate. After California, the marketing focus will be Nevada,
Arizona and Colorado. There are more than 40 states at various stages of
electricity deregulation. The Registrant's management believes that there is a
vast market potential for the Registrant's electricity services.
COMPETITION
Approximately thirty (30) Electric Service Providers (ESPs) in
addition to the Registrant are currently qualified to sell electricity in
California. The market can be divided into three major segments: (1) large
industrial customers, (2) small to medium-sized commercial customers, and (3)
residential customers. The Registrant does not intend to market to residential
customers. The most competitive market is the large industrial segment. Many
of the large ESPs have targeted industrials as their sole marketing focus.
While the Registrant also intends to penetrate this
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market, its emphasis is on the small to medium-sized commercial customers. In
this market segment approximately five firms offer direct competition to the
Registrant. Most of the Registrant's competitors have longer operating
histories, greater name recognition, larger installed customer bases, and
greater financial, technical, and marketing resources than the Registrant.
There is no assurance that the Registrant will be able to compete successfully
in the energy business.
PRINCIPAL SUPPLIERS
The principal supplier of electricity in California is the California
Power Exchange. In addition the Registrant's suppliers are wholesalers
including electrical power suppliers in the Western United States. This region
currently has varying amounts of competitively priced power, which the
Registrant believes will continue for approximately the next three to four
years. Beyond the four year period new lower-cost power suppliers are expected
to become available through new construction primarily in the southwestern
United States. The Registrant is currently in negotiations to secure bulk
supplies both through power marketing firms specializing in this area and
direct solicitation of power sources. Additionally, other power generation
sources are being negotiated with to establish more exclusive business
relationships between the generation and wholesale markets to service the
Registrant's retail operations. Power supply contracts are obtained from these
low-cost sources as customer loads grow to the levels that permit economic
purchases.
DEPENDENCE ON ONE OR A FEW CUSTOMERS
The Registrant will not depend on one or a few customers. The
Registrant's products and services require a large customer base.
PATENTS, TRADEMARKS, AND LICENSES
The Registrant has not applied for any patents and does not intend to
do so in the foreseeable future. The Registrant has not been issued any
registered trademarks for its "Friendly Energy" trade name. The Registrant
recently filed a trademark application with the United States Office of
Patents and Trademarks for its trade name. No assurance can be given that the
Registrant will be successful in obtaining any trademarks, or that the
trademarks, if obtained, will afford the Registrant any protection or
competitive advantages.
The Registrant qualified as an electric service provider with San
Diego Gas & Electric on January 10, 2000, Southern California Edison on May
15, 2000 and Pacific Gas & Electric on May 18, 2000.
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GOVERNMENT APPROVALS
The Registrant does not require specific governmental approvals at
the federal level to transact business as an Electric Service Provider. The
Registrant does not require governmental approvals from the State of
California to transact business as an Electric Service Provider since it does
not intend to sell to residential customers. An application has been prepared
by the Registrant to become a registered alternative service provider in
Nevada. The Registrant will apply for any necessary governmental approvals in
other states as requirements are established.
GOVERNMENT REGULATIONS
There is extensive government regulation of the electric power
industry. At the federal level, the Federal Energy Regulatory Commission
("FERC") regulates the purchase and sale of energy and power. The individual
state's Public Utilities Commissions regulate utilities and other purchasers
and sellers of power at the state level.
The trend over the last ten years has been to deregulate more and
more of the industry. The 1992 National Energy Policy Act allowed more types
of unregulated companies to generate and sell electricity. In September 1996,
the California legislature passed landmark legislation, which fundamentally
changed California's electric services industry by introducing competition and
consumer choice. Other states are following suit. The effect of changing
government regulations is expected to be very positive for electric service
providers.
RESEARCH AND DEVELOPMENT
The Registrant has spent approximately $1,500,000 over the past one
and one-half years in developing relationships and opportunities and obtaining
approvals as an electric service provider.
COMPLIANCE WITH ENVIRONMENTAL LAWS
As an Electric Service Provider, the Registrant does not assume any
of the responsibilities associated with environmental compliance laws or
regulations. The Registrant may, indirectly, be impacted by the cost of
environmental compliance by some of the power plants from which it purchases
power, but the Registrant will seek other power sources if any are found to
have substantial environmental problems.
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EMPLOYEES
The Registrant currently has nine full time employees. Consultants
and specialized professional support in the legal, financial, and computer
operations are retained on a part-time, as needed, basis.
LITIGATION
The Registrant is not currently a party to or the subject of any
pending legal proceeding.
REPORTS TO SECURITY HOLDERS
The Registrant has voluntarily filed the Form 10-SB in order to
become a fully reporting company. This filing was undertaken in order to be
eligible for an initial listing on the NASD OTC Bulletin and a listing when
qualified on the NASDAQ Small Cap Market. By virtue of being so listed as a
publicly traded company, the Registrant will have access to the public markets
for fund raising to assist it with its in Research and Development efforts and
for the marketing of its products and services.
This Registration Statement will become automatically effective as of
60 days from the date of filing and consequently, the Registrant will be
required to file annual reports in accordance with the Securities Exchange Act
of 1934.
The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549.
The Public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains other information
regarding issuers that file electronically with the SEC. The address of that
site is (www.sec.gov). The Registrant's Internet address is
www.friendlyenergy.com.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The primary activities of the Registrant to date have been to form
the Company, assemble a management and consultant team, identify markets,
develop products, and obtain initial capitalization. In addition, the
Registrant has commenced marketing energy and related services to small and
large businesses in California, Nevada and Arizona. The Registrant has also
begun development of its Electronic Data Interface (EDI) system to interface
with suppliers and utilities. The Registrant has not had revenues from
operations to date. Accordingly, the financial information furnished with this
registration statement is limited in scope.
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Since the inception of January 7, 1993 through December 31, 1999, the
Registrant has had no income and has had costs and expenses of $653,794,
including $332,587 in consulting fees. For the six-month period ended June 30,
2000, the Registrant has had no income and has had costs and expenses of
$587,989 including consulting fees of $188,219.
At December 31, 1999, the Registrant had working capital of $12,841,
which included $8,687 in cash. At June 30, 2000, the Registrant's working
capital was $131,429, which included $3,728 in cash. The increase in working
capital is primarily attributable to the sale of a note. Management is seeking
additional equity financing to fund planned operations.
PLAN OF OPERATION
Over the next twelve months, the Registrant plans to continue
marketing energy and related services to small and large businesses in
California, Nevada and Arizona. In addition, the Registrant will expand its
marketing efforts to Colorado and Utah. By being active in the marketplace
prior to the commencement of deregulation in these states, it is believed that
a significant amount of business and select types of accounts can be made
aware of Friendly Energy. These businesses will then be delivered proposals at
the onset of their state's energy deregulation.
Also during the next twelve months, the Registrant plans to begin
servicing customers, first in California and then in Nevada and Arizona, as
soon a deregulation goes into effect in those states. The Registrant expects
to enter into its first electric service contracts in California and Nevada in
the fourth quarter of 2000. The Registrant expects to enter into its first
electric service contracts in Arizona in the second quarter of 2001. Services
will include auditing services, metering services, monitoring services and
billing services. The Registrant will assist customers in reducing demand,
especially peak period demand through consulting services and "demand side
management". The Registrant will also enhance its web site to handle routine
customer inquiries. In addition, the Registrant will complete its Electronic
Data Interface (EDI) system.
The implementation and expansion of the Registrant's business will
require a commitment of substantial funds. Additional funding will be required
in the future to satisfy capital requirements for the Registrant. Issuing
additional equity will result in dilution to the existing shareholders. If
adequate funds are not available, the Registrant's business could be adversely
affected since internally generated funds are not expected to be sufficient to
fund the Registrant's expansion needs in the in the next twelve months. At
present, there are no funds committed to the Registrant, and no offer for
equity or debt financing is imminent.
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The Registrant plans to raise approximately $10,000,000 over the next
twelve months to expand its marketing activities, implement an Electronic Data
Interface (EDI) system, and fund operational activities. The Registrant plans
to raise these funds through the sale of preferred shares and through a
registered public offering beginning in the fourth quarter of 2000.
The market for electric energy and related services is characterized
by rapidly changing relationships among the generators, the utilities which
provide transmission and distribution, and the electric service provider
resellers (such as the Registrant) due to ongoing deregulation of the electric
energy markets. In addition, the market for electric energy is characterized
by seasonality. Therefore, the Registrant's success is dependent upon its
ability to develop favorable relationships with generators and utilities and
to identify, anticipate and adapt to changes in the industry.
There can be no assurance that competitors will not market electric
energy services and related products that have certain competitive advantages
over those of the Registrant. Furthermore, the markets for the Registrant's
products may be particularly volatile due to the changing industry brought
about by deregulation. The Registrant will rely on the experience of its
management team to make strategic decisions with respect to its operations. In
addition, the Registrant will rely on experienced consultants, which it has
engaged in the areas of electric deregulation and EDI systems.
There are no known trends, events, or uncertainties, other than those
discussed above, that have had or are reasonable expected to have a material
impact on the net sales or other revenues from continuing operations of the
Registrant.
Other than those discussed above, the Registrant is unaware of any
material events and uncertainties that would cause its reported financial
information not to be indicative of future operating results or of its future
financial condition.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report regarding matters that
are not historical facts are forward-looking statements. Because such
forward-looking statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, competition, the demand for the Registrant's
products, and other factors identified from time to time in the Registrant's
filings with the Securities and Exchange Commission. The Registrant urges
readers to review the risk factors in this report.
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The Registrant undertakes no obligation to release publicly any
revisions to forward-looking statements to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.
R&D
The Registrant plans to continue developing relationships and
opportunities and obtaining approvals as an Electric Service Provider. In
addition, it will continue development of its EDI systems.
PLANT AND EQUIPMENT
The Registrant does not plan to purchase or sell a plant or significant
equipment during the next twelve months. The Registrant plans to develop and
install computer based customer relationship management software as well as an
Electronic Data Interface (EDI) system that will allow communication directly to
the utilities for information interchange. In California, an EDI system is a
requirement placed on individual electric service providers by the utilities as
soon as the number of customers served is greater than twenty-five.
EMPLOYEES
The Registrant plans to expand the number of employees from nine (9) to
twenty (20) over the next twelve months.
ITEM 3. DESCRIPTION OF PROPERTY
The Registrant's principal office is located at 4275 Executive Square,
Suite 250, La Jolla, CA 92037. This office occupies approximately 3,100 square
feet of office space at a monthly rent of $7,468, plus a pro rata share of
building operating expenses. The Registrant's sublease terminates in February
2002.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth sets forth information as to the shares
of common stock owned as of August 15, 2000 for:
I. Each person who beneficially owns so far as the Registrant has
been able to ascertain, more than 5% of the outstanding
12,684,973 shares of the Registrant,
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II. Each Director,
III. Each of the Officers named in the summary compensation table,
and
IV. All the Directors and Officers as a group unless otherwise
indicated in the footnotes below on the table is subject to
community property laws where applicable, the persons as to
whom the information is given have sole investment power over
the shares of common stock.
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NAME PRINCIPAL NUMBER PERCENT
BENEFICIAL OWNER
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1. L. Craig Morton L. Craig Morton 1,645 0.0%
2. Tri-M Trust L. Craig Morton 100,000 0.8%
3. Urania Trust L. Craig Morton 300,000 2.4%
4. Donald L. Trapp Donald L. Trapp 38,217 0.3%
5. Sterling Trust IRA Donald L. Trapp 8,750 0.1%
6. Wedbush Morgan IRA Donald L. Trapp 1,316 0.0%
7. Savoy Trust Donald L. Trapp 400,000 3.2%
8. Heather Jantz Heather Jantz 20,000 0.2%
9. Douglas Financial Corporation Douglas Tallant 1,131,380 8.9%
10. Douglas Trust Michael Tallant 881,472 6.9%
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table lists the officers and directors of the Registrant
as of August 15, 2000.
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NAME AGE POSITION TERM SERVED
SINCE
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1. L. Craig Morton 56 President, CEO & Director 2 years May-99
2. Thomas Bowers 56 Chief Operating Officer Nov-99
3. Donald L. Trapp 60 CFO, Secretary & Director 2 years Apr-99
4. Heather Jantz 26 Treasurer & Director 2 years Apr-99
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L. CRAIG MORTON
Prior to joining Friendly Energy Corporation, Craig solidified his reputation as
an astute businessman and team leader. As a legendary National Football League
quarterback for the Denver Broncos, the Dallas Cowboys and the New York Giants,
Craig had an exceptional 18-year professional football career. As one of the
NFL's most valuable quarterbacks, Craig is a veteran of three Super Bowls and
was named
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NFL/AFC Player of the Year in 1977. Educated at the University of California
Berkley, Craig is also a member of the College Football Hall of Fame. His
successes in the highly competitive world of professional team sports set the
stage for Craig's career after football as a touring motivational speaker and
continued to flourish as the Founder and President of Rebound Physical Therapy
Clinics. Rebound operated seven clinics throughout out Colorado, Oklahoma and
Arkansas prior to selling to NovaCare. With a history of professional success,
Craig has found a new challenge in the deregulated California electricity
market. Craig has used his notable ability to bring successful people together
to assemble FEC's team of energetic and resourceful industry professionals.
THOMAS BOWERS
Thomas Bowers brings his experience of implementing business strategy and
acquisitions. Tom's key role is implementing FEC's business plan in acquiring
strategic alliances. As a businessman with over 16 years as an officer and
director of public companies, Tom has held CEO positions with Pacific Energy
Resources, Inc., Ely Scientific Group, and Gulfpac Companies. Additional
valuable background includes 14 years with IBM and two years with Memorex.
DONALD L. TRAPP
Donald Trapp is FEC's Chief Financial Officer as well as serving as the
corporation's Secretary. With a background in engineering and systems analysis,
including a Masters of Science in Nuclear Engineering from the Massachusetts
Institute of Technology, Don brings valuable professional skills as an engineer
and systems analyst. As a businessman, his experience includes CFO of
Infohighway International, Inc., an Internet service provider. He is a former
Division manager of the Economic Analysis Division at Science Applications
International Corporation. He was Special Assistant to the Science Director,
Agency for International Development at the State Department.
HEATHER JANTZ
Heather Jantz is not only FEC's Administrative Director; she is the Corporate
Treasurer. Her level of integrity and experience is a critical and valuable
asset. The exemplary skills Heather brings to FEC include overseeing the
financial and accounting data for the corporation while organizing stockholder
agendas. Heather will maintain the ongoing financial security and growth of FEC
and its investors. Heather received her Bachelor of Arts from the University of
Oklahoma.
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ITEM 6. EXECUTIVE COMPENSATION
No executive officer of the Registrant has received any compensation
from the Registrant in excess of $100,000 during any fiscal year. Upon the
availability of funds, the Registrant expects to commence paying the following
salaries to the Registrant's executive officers:
<TABLE>
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OFFICER SALARY OTHER ANNUAL COMPENSATION
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1. L. Craig Morton $120,000 $0
2. Thomas Bowers $116,400 $0
3. Donald L. Trapp $ 84,000 $0
4. Heather Jantz $ 40,000 $0
</TABLE>
Directors receive no cash compensation for their services to the
Registrant as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors, and may receive a
cash fee for attending meetings. The Registrant has established a stock
incentive program for the directors, executive officers, employees and key
consultants of the Registrant. The Registrant has set aside 10% of the issued
and outstanding Common Stock of the Registrant for the stock incentive program.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Friendly Energy has not entered into any business transactions during
the past two years with (1) any director or executive officer, (2) any nominee
for election as a director, (3) any existing shareholder owning more than 5% of
the outstanding Common Stock of the Registrant, or (4) any member of the
immediate family of any officer or director of the Registrant.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Registrant consists of 100,000,000
shares of Common Stock, par value $.001 per share, of which 12,684,973 are
presently issued and outstanding, and 10,000,000 shares of Preferred Stock, par
value $.001 per share, of which 325,934 are presently issued and outstanding.
COMMON STOCK
Holders of Common Shares of the Company are entitled to cast one vote
for each share held at all shareholders meetings for all purposes, including the
election of directors, and to share equally on a per share basis in such
dividends as may be
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declared by the Board of Directors out of funds legally available therefore.
Upon liquidation or dissolution, each outstanding Common Share will be entitled
to share equally in the assets of the Company legally available for distribution
to shareholders after the payment of all debts and other liabilities. Common
Shares are not redeemable, have no conversion rights and carry no preemptive or
other rights to subscribe to or purchase additional Common Shares in the event
of a subsequent offering. All outstanding Common Shares are, and the shares
offered hereby will be when issued, fully paid and non-assessable. The Common
Shares have no cumulative voting rights.
PREFERRED STOCK
The Preferred Stock authorized may be issued from time to time in
series. The Board of Directors of the Company is authorized to establish such
series, to fix and determine the variations and the relative rights and
preferences as between series, and to thereafter issue such stock from time to
time. The Board of Directors is also authorized to allow for conversion of the
Preferred Stock to Common Stock under terms and conditions as determined by the
Board of Directors.
POSSIBLE CLASSIFICATION OF REGISTRANT'S SECURITIES AS A "PENNY STOCK"
By virtue of Rule 3a51-1 of the Securities Act of 1934 (the "Act"), if
the Registrant's common stock has a price of less then $5.00 per share it will
be considered a "penny stock". The prerequisites required of broker-dealers
engaging in transactions involving "penny stocks" have discouraged, or even
barred, many brokerage firms from soliciting orders for certain low price
stocks.
Still further, with respect to the trading of penny stocks,
broker-dealers have an obligation to satisfy certain special sales practice
requirements pursuant to Rule 15g-9 of the Act, including a requirement that
they make an individualized written suitability determination for the purchase
and receive the purchaser's written consent prior to the transaction.
Still even further, such broker-dealers have additional disclosure
requirements as set forth in the Securities Enforcement Act Remedies and Penny
Stock Reform Act of 1990. These disclosure requirements include the requirement
for a broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document that provides information abut penny
stocks and the risks of the penny stock market.
Still even further, a broker-dealer must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and
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<PAGE>
its salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account.
Accordingly, the above penny stock regulations and the associated
broker-dealer requirements will have an adverse effect on the market liquidity
of the Registrant's common stock and the ability of any present and
prospective shareholder investors to sell their securities in the secondary
market.
However, regardless of the price of the Registrant's stock, in the
event the Registrant has net tangible assets in excess of $2,000,000 and if
the Registrant has been in continuous operation for at least three (3) years,
or $5,000,000 and if the Registrant has been in continuous operation for less
than three (3) years, Rule 3a51-1(g) of the Act will preclude the Registrant's
common stock from being classified as a "penny stock".
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION AND PRICE RANGE
The Registrant's Common Stock was recently approved by the NASD for
trading on the "electronic pink sheets" on an unquoted basis. The approval was
granted on June 26, 2000. There is only a limited history of public trading of
the Registrant's common stock; the sponsoring broker-dealer began trading on
July 10, 2000.
The high and low bid for July 2000 is $2.25 and $0.25.
HOLDERS
The Registrant has approximately 665 common stock shareholders.
DIVIDENDS
The Registrant has never paid a cash dividend. It is the present
policy of the Registrant to retain any extra profits to finance growth and
development of the business. Therefore, the Registrant does not anticipate
paying cash dividends on its common stock in the foreseeable future.
-16-
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
The Registrant is not a party to any pending legal proceeding. None
of the directors, officers, affiliates or any owner of more than 5% of any
class of voting securities of the Registrant, is a party adverse to the
Registrant or has a material interest adverse to the Registrant.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The accountant has not resigned, declined to stand for re-election,
nor were they dismissed. The accountant's report on the financial statements
for the last two years contains no adverse opinion or disclaimer of opinion,
nor were they modified as to uncertainty, audit scope or accounting
principles. There have been no disagreements with any former accountants or
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) RECENT SALES: The Registrant sold the following stock within the
past three years as described below. Except for the Registration D, 504
Private Placement Offering, all such shares were sold by the officers and
directors of the Registrant and no underwriters were utilized. The
Registration D, Rule 504 Offering shares were sold by James Vogel of JV and
Associates who solicited investors who he knew from previous business
relationships and no underwriters were utilized.
1. 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 for a total offering of $17,000.
2. On October 29, 1998, 625,000 shares of common stock were issued
for cash for a total offering of $2,500.
3. On October 30, 1998, 7,500,000 shares of common stock were issued
as a result of the conversion of preferred shares earlier
purchased on October 27, 1997 for cash for a total offering of
$30,000.
4. On November 11, 1998, 1,963,036 shares of common stock were issued
for cash for a total offering of $8,000.
(b) EXEMPTIONS FROM REGISTRATION: With respect to the issuance of
the 9,750 common shares listed at Item 4(a)1, such issuance was made in
reliance on the private placement exemptions provided by Section 4(2) of the
Securities Act of 1933
-17-
<PAGE>
as amended, (the "Act"), SEC Regulation D, Rule 504 of the Act and Nevada
Revised Statues 78.211, 78,215, 78.3784, 78.3785 and 78.3791 (collectively the
"Nevada Statutes").
With respect to the issuance of the 625,000 common shares listed at
Item 4(a)2, the 7,500,000 common shares listed at Item 4(a)3 and the 1,963,036
common shares listed at Item 4(a)4, such issuances were made in reliance upon
the private placement exemptions provided by Section 4(2) of the Act and the
Nevada Statutes.
(c) BASIS FOR RELIANCE UPON EXEMPTION FROM REGISTRATION: The
Registrant has relied upon the private placement exemptions from registration
provided by Section 4(2) of the Securities Act of 1933 as amended, (the
"Act"), SEC Regulation D, Rule 504 of the Act. With respect to the Rule 504
exemption, this type of offering is available to issuers who are not reporting
companies, investment companies or "blank check" companies. Accordingly, this
offering was available to the Registrant. A further requirement is that the
offering may not exceed $1,000,000 in any twelve (12) month period. There is
no limitation on the number of purchasers nor is there a requirement that such
purchasers be accredited investors. All of the shares issued pursuant to Rule
504 offering satisfied these requirements.
Those shares not issued pursuant to Rule 504 were issued pursuant to
Section 4(2) of the Act which exempts from registration transactions by an
issuer not involving a public offering. This offering exemption is available
to any issuer but prohibits general solicitation or advertising. Prospective
purchasers must have access to information about the issuer. The Registrant
utilized this Section 4(2) exemption by providing prospective purchasers with
such sufficient information and required that all such purchasers by
financially sophisticated; have a certain net worth and have the ability to
bear the risk of loss of their respective investments.
In each instance, each of the share purchasers had access to
sufficient information regarding the Registrant so as to make an informed
investment decision. More specifically, each purchaser signed either a written
Subscription Agreement or a Share Purchase Agreement, with respect to their
financial status and investment sophistication wherein they warranted and
represented, among other things, the following:
1. That they had the ability to bear the economic risks of investing
in the shares of the Registrant.
2. That they had sufficient knowledge in financial, business, or
investment matters to evaluate the merits and risks of the
investment.
-18-
<PAGE>
3. That they had a certain net worth sufficient to meet the
suitability standards of the Registrant.
4. That the Registrant has made available to them, his counsel and
his advisors, the opportunity to ask questions and that they have
been given access to any information, documents, financial
statements, books and records relative to the Registrant and an
investment in the shares of the Registrant.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws limit the
liability of its directors to the fullest extent permitted by Nevada corporate
securities law. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of fiduciary duty as directors, except
liability for (i) any breach of the duty of loyalty to the Company or its
shareholders, (ii) acts or omissions not in good fait or that involve
intentional misconduct or a knowing violation of law, (iii) dividends or other
distributions of corporate assets that are in contravention of certain
statutory or contractual restrictions, (iv) violations of certain securities
laws, or (v) any transaction from which the director derives an improper
personal benefit. Liability under federal securities law is not limited by the
Articles.
PART F/S
The following financial statements are submitted pursuant to the
information required by Item 310 of Regulation S-B:
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<S> <C>
FS-1 Friendly Energy Corporation Audited
Financial Statements December 31, 1999 and
1998.
FS-2 Friendly Energy Corporation Unaudited
Financial Statements June 30, 2000.
</TABLE>
-19-
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The Exhibits listed and described below in Item 2 are filed herein as
the part of this Registration Statement.
ITEM 2. DESCRIPTION OF EXHIBITS
The following documents are filed herein as Exhibit Numbers 2, 3, 5,
6 and 7 as required by Part III of Form 1-A:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 CHARTER AND BY-LAWS
2.1 Articles of Incorporation of Eco-Systems
Marketing Corporation
2.2 Certificate of Amendment to Articles of
Incorporation of Eco-Systems Marketing
Corporation (4/21/1997)
2.3 Certificate of Amendment to Articles of
Incorporation of Eco-Systems Marketing
Corporation (4/28/1997)
2.4 Certificate of Amendment to Articles of
Incorporation of Rama Financial Corporation
(9/25/1997)
2.5 Certificate of Amendment to Articles of
Incorporation of Rama Financial Corporation
(4/2/1999)
2.6 By-Laws of Eco-Systems Marketing Corporation
3 NONE INSTRUMENTS REFINING THE RIGHTS OF SECURITY
HOLDERS
5 NONE VOTING TRUST AGREEMENTS
6 MATERIAL CONTRACTS
6.1 ESP Service Agreement with San Diego Gas &
Electric
6.2 ESP Service Agreement with Southern
California Edison
6.3 ESP Service Agreement with Pacific Gas &
Electric
6.4 Friendly Energy Corporation 1999 Incentive
Stock Option Plan
7 NONE MATERIAL FOREIGN PATENTS
27 FINANCIAL DATA SCHEDULE
</TABLE>
-20-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRIENDLY ENERGY CORPORATION
Dated: August 25, 2000 BY: /s/ L. Craig Morton
-------------------------------
L. Craig Morton, President
<PAGE>
EXHIBIT FS-1
FRIENDLY ENERGY CORPORATION AUDITED FINANCIAL
STATEMENTS DECEMBER 31, 1999 AND 1998.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<S> <C>
FS-1 FRIENDLY ENERGY CORPORATION AUDITED
FINANCIAL STATEMENTS DECEMBER 31, 1999 AND
1998.
FS-2 FRIENDLY ENERGY CORPORATION UNAUDITED
FINANCIAL STATEMENTS JUNE 30, 2000.
</TABLE>
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1998 AND 1999
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditor's Report................................................ F-1
Audited Financial Statements:
Balance Sheets.......................................................... F-2
Statements of Operations................................................ F-3
Statements of Changes in Stockholders' Equity........................... F-4
Statements of Cash Flows................................................ F-5
Notes to Financial Statements........................................... F-6
</TABLE>
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Friendly Energy Corporation
(A Development Stage Company)
We have audited the accompanying balance sheets of Friendly Energy Corporation
at December 31, 1998 and 1999 and the related statements of change in
stockholders' equity, operations, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. We believer that our audits provide a reasonable basis
for out opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Friendly Energy Corporation
at December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements referred to above present assuming that
the Company will continue as a going concern. However, the Company has minimal
capital resources presently available to meet obligations that normally can be
expected to be incurred by similar companies, and with which to carry out its
planned activities. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are discussed in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Boros & Farrington P.C.
Boros & Farrington P.C.
San Diego, California
May 16, 2000
F-1
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 31,
1998 1999
<S> <C> <C>
Current assets
Cash $ - $ 8,687
Due from officer - 4,154
-----------------------------------
- 12,841
Furniture and equipment, less
accumulated depreciation of $2,739 - 23,391
Organization costs, net 21,000 15,000
-----------------------------------
$ 21,000 $ 51,232
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ - $ 26,066
-----------------------------------
Contingencies (Note 2)
Stockholders' equity
Preferred stock; $0.001 par value per share;
10,000,000 shares authorized - 152
Common stock, $0.001 par value per share;
100,000,000 shares authorized 12,731 12,685
Additional paid-in capital 105,779 666,123
Deficit accumulated during the development stage (97,510) (653,794)
-----------------------------------
21,000 25,166
-----------------------------------
$ 21,000 $ 51,232
===================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-2
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM JANUARY 7,
YEAR ENDED YEAR ENDED 1993 (INCEPTION)
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
<S> <C> <C> <C>
Expenses
Consulting fees $ 26,077 $ 245,500 $ 332,587
Compensation and benefits - 64,775 64,775
Outside services - 9,101 9,101
Travel and subsistence - 75,873 75,873
Professional services 1,157 31,964 33,387
Depreciation and amortization 6,000 8,739 17,739
Rent - 69,791 69,791
Contributions - 10,000 10,000
Telephone and postage - 14,448 14,448
Advertising and promotion - 10,981 10,981
Office supplies - 3,868 3,868
Other general and administrative - 11,244 11,244
----------------------------------------------------
Net loss $ 33,234 $ 556,284 $ 653,794
====================================================
Weighted average number of shares (thousands)
Basic and diluted 3,848 12,685 12,685
====================================================
Net loss per common share
Basic and diluted $ (0.01) $ (0.04) $ (0.05)
====================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-3
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued as of January 7, 1993 for
cash to officers and directors 63,750 $ 64 - $ - $ 936 $ - $ 1,000
Net loss for the period ended December 31, 1993 - - - - - (1,000) (1,000)
------------------------------------------------------------------------------
Balance at December 31, 1993, 1994, and 1995 63,750 64 - - 936 (1,000) -
Shares cancelled (63,750) (64) - - 64 - -
Shares issued for cash 2,500,000 2,500 - - (2,490) - 10
Conversion to preferred stock (500,000) (500) 50,000 50 450 - -
Net loss for the year - - - - - (10) (10)
------------------------------------------------------------------------------
Balance at December 31, 1996 2,000,000 2,000 50,000 50 (1,040) (1,010) -
Shares issued relating to spin-out 15,223 15 - - (15) - -
Shares issued to others for cash 37,500 37 - - 29,963 - 30,000
Shares issued to officers and directors for cash 43,750 44 - - 29,956 - 30,000
Shares issued to officers and directors for services - - 750,000 750 29,250 - 30,000
Net loss for the year - - - - - (63,266) (63,266)
------------------------------------------------------------------------------
Balance at December 31, 1997 2,096,473 2,096 800,000 800 88,114 (64,276) 26,734
Shares issued to others for cash 9,750 10 - - 16,990 - 17,000
Shares issued to officers and directors for services 2,625,000 2,625 - - 7,875 - 10,500
Conversion of preferred stock 8,000,000 8,000 (800,000) (800) (7,200) - -
Net loss for the year - - - - - (33,234) (33,234)
------------------------------------------------------------------------------
Balance at December 31, 1998 12,731,223 12,731 - - 105,779 (97,510) 21,000
Cancellation of common stock (46,250) (46) - - 46 - -
Shares issued for cash 146,883 147 541,853 - 542,000
Shares issued for services - - 5,000 5 18,445 - 18,450
Net loss for the year - - - - - (556,284) (556,284)
------------------------------------------------------------------------------
Balance at December 31, 1999 12,684,973 $ 12,685 151,883 $ 152 $666,123 $(653,794) $ 25,166
==============================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-4
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM JANUARY 7,
YEAR ENDED YEAR ENDED 1993 (INCEPTION)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1998 1999 1999)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (33,234) $ (556,284) $ (653,794)
Non-cash items included in the net loss
Depreciation and amortization 6,000 8,739 17,739
Stock issued for services 10,500 18,450 58,950
Changes in operating assets and liabilities
Due from officer - (4,154) (4,154)
Accounts payable and accrued liabilities (266) 26,066 26,066
-------------------------------------------------------
Net cash from operating activities (17,000) (507,183) (555,193)
-------------------------------------------------------
Cash flows from investing activities
Capital expenditures - (26,130) (26,130)
-------------------------------------------------------
Cash flows from financing activities
Proceeds from sale of common stock 17,000 - 48,010
Proceeds from sale of preferred stock - 542,000 542,000
-------------------------------------------------------
Net cash from financing activities 17,000 542,000 590,010
-------------------------------------------------------
Increase in cash - 8,687 8,687
Cash, beginning of year - - -
-------------------------------------------------------
Cash, end of year $ - $ 8,687 $ 8,687
=======================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.
ORGANIZATION. Friendly Energy Corporation (the "Company") was
incorporated on January 7, 1993 as Eco-Systems Marketing Corporation.
In 1996 the Company was acquired as a subsidiary of Granite Development
Corporation, a public company. In June 1997, the Company was "spun-out"
as a separate public company that changed its name to Rama Financial
Corporation in April 1997 and to Friedly Energy Corporation in April
1999. The Company is in the devlpment stage as more fully defined in
Statement No. 7 of the Financial Acounting Standarards Board. Planned
principal opeartions of the Company have not yet commenced; and
activities to date have been limited to forming the Company, assembling
a management and consultant team, identifying markets, developing
products, and obtaining initial capitalization. The Company intends to
sell electric pwer and related services to small and medium sized
businesses in the newly deregulated California market.
FUNITURE AND EQUIPMENT. Furniture and equipment is stated at cost.
Additions, renovations, and improvements are capitalized. Maintenace
and repairs that do not extended asset lives are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated useful
lives ranging from 5 to 7 years.
ORGANIZATION COSTS. Orangization costs have been capitalized.
Amortization is provided on a straight-line basis over five years.
SHARES ISSUED IN EXCHANGE FOR SERVICES. The fair value of shares issued
exchange for services rendered to the Company was determined by the
Company's officers and directors.
INCOME TAXES. The Company has made no provision for income taxes
because of financial statement and tax losses since its inception. A
valuation allowance has been used to offset the recognition of any
deferred tax assets due to the uncertainty of future realization. The
use of any tax loss carry forward benefits may also be limited as a
result of changes in Company ownership.
NET LOSS PER COMMON SHARE. Basic loss per common share ("Basic EPS")
excludes dilution and is computed by dividing net loss available to
common shareholders (the "numerator") by the weighted avaerage number
of common shares outstanding (the "denominator") during the period.
Diluted lossper common share ("Diluted EPS") is similar to the
computation of Basic EPS except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued.
Ina addition, in computing the dilutive effect of convertible
secrurities, the numerator is adjusted to add back the after-tax amount
of interest recognized in the period associated with any convertible
debt. The computation of Diluated EPS does not assue exercise or
conversion of securities that would have an anti-dilutive effect on net
loss per share.
STOCK-BASED COMPENSATION. In accourdance with the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its
employee stock option plans. Under APB 25, if the exercise price of the
Company's employee stock options equals or exceeds the fair value of
the underlying stock on the date of grant, no compensation is
recognized. Information regarding the Company's pro forma disclosure of
stock-based compensation pursuant to FAS 123 may be found in Note 4.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect
F-6
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
2. GOING CONCERN CONTINGENCY
The Company has minial captial resources presently availabe to meet
obligations that normally can be expected to be incurred by similar
companies, and with which to carry out its planned activities. These
factors raise substantial doubt about the Company's ability to continue
as a going concern.
Management is negotiating equity financing to fund planed operations.
However, there is no assurance that the Company will be able to obtain
such financing. The accompanying financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
3. RELATED PARTY TRANSACTIONS
Douglas Financial Corporation ("DFC") acquired a controlling interest
in the Company in connection with the spin-out from Granite Development
Corporation (see Note 1). In 1997, the Company paid $30,000 to DFC for
costs connected with the reorganization of the Company. The Company
incurred fees of $18,208 in 1998 and $60,000 in 1997 to DFC for
management services, assistance with becoming publicly traded, and
assistance in prepaing business plans. These fees were paid in cash
totaling $15,577 in 1998 and $30,000 in 1997 and stock valued at $2,631
(657,718 common shares) in 1998 and $30,000 (750,000 preferred shares)
in 1997. On March 9, 1999, DFC sold its controlling interest in the
Company and the majority owner of DFC resigned as an officer and
director of the Company.
In 1999, the Company acquired funiture and equipment valued at $11,194
from certain shareholders.
4. STOCKHOLDERS EQUITY
PREFERRED STOCK. Each share of preferred stock is convertible into ten
shares of common stock and has voting rights equal to ten shares of
common stock. The board of directors has not specified any other rights
or privileges with respect to the preferred stock.
REVERSE STOCK SPLITS. On April 28, 1997, the board of directors
authoirzed a 2.5 to 1 reverse stock split of outstanding common and
preferred shares. On August 21, 1997, the board of directors authorized
a 4 to 1 reverse stock split of outstanding common and preferred
shares. The outstanding common and preferred shares included in the
accompanying financial statements have been retroactively restated for
the effect of these reverse stock splits.
CANCELLATION OF COMMON SHARES. On June 2, 1996, in connection with the
acquisistion of the Company by Granite Development Corporation
("Granite"), the Company cacelled all outstanding shares of common
stock and issued a total of 2,500,000 shares to Granite for
consideration of $10.
SPIN-OUT OF WHOLLY OWNED SUBSIDIARY. On June 17, 1996, Granite sold a
95% ownership interest in the Company to Douglas Financial Corporation.
Granite then distributed the remaining 5% ownership interest to its
shareholers as a dvidend distribution.
STOCK OPTIONS. During the year ended December 31, 1999, the Company
granted non-qualified stock options to certain advisors, directors, and
key employees to purchase up to 500,000 shares of the Company's common
stock at an exercise price equal to market
F-7
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
value at date of grant as determined by the Board of Directors. These
options vest 50% after six months from the date of grant and the
remaining 50% after one year.
The following is a summary of the stock option activity:
<TABLE>
<S> <C> <C>
Granted and outstanding $0.37 500,000
=======
Exercisable, December 31, 1999 $0.37 -
=======
</TABLE>
STOCK-BASED COMPENSATION. The Company recognized no stock-based
compensation during the period ened December 31, 1999. There would be
no material difference to compensation cost had the compensation cost
been computed under FAS 123.
****
F-8
<PAGE>
EXHIBIT FS-2
FRIENDLY ENERGY CORPORATION UNAUDITED
FINANCIAL STATEMENTS JUNE 30, 2000.
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
UNAUDITED, PREPARED BY MANAGEMENT
FOR JUNE 30, 2000
<PAGE>
FRIENDLY ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Balance Sheet................................................................................... F-1
Statements of Operation......................................................................... F-2
Statements of Cash Flows........................................................................ F-3
Notes to Financial Statements................................................................... F-4
</TABLE>
<PAGE>
FRIENDLY ENERGY CORPORATION
BALANCE SHEET - JUNE 30, 2000 AND 1999
(UNAUDITED, PREPARED BY MANAGEMENT)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
Current assets
Cash $ 3,728 $ 14,907
Note Receivable 125,000 -
Due from officer 2,701 2,161
-------------------------------------------
$ 131,429 $ 17,068
Furniture and equipment, less
accumulated depreciation 30,111 23,129
Organization costs, net 12,000 18,000
-------------------------------------------
$ 173,540 $ 58,197
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liability
Accounts payable and accrued liabilities $ 94,112 $ 11,716
Stockholders' equity
Preferred stock; $0.001 par value per share;
10,000,000 shares authorized 152 62
Common stock, $0.001 par value per share;
100,000,000 shares authorized 12,685 12,731
Additional paid-in capital 1,308,373 335,717
Deficit accumulated during the development stage (1,241,782) (302,029)
-------------------------------------------
$ 79,428 $ 46,481
-------------------------------------------
$ 173,540 $ 58,197
===========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-1
<PAGE>
FRIENDLY ENERGY CORPORATION
STATEMENTS OF OPERATION - JANUARY 1 TO JUNE 30, 2000
(UNAUDITED, PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
Expenses
Compensation and benefits $ 214,037 $ -
Outside services 367 103,922
Travel and subsistence 32,601 48,140
Professional services 188,219 26,987
Depreciation and amortization 5,114 3,753
Rent 94,494 7,626
Contributions - 5,000
Telephone and postage 13,449 4,245
Advertising and promotion 5,150 -
Office supplies 4,196 1,890
Other general and administrative 30,362 2,956
-------------------------
Net loss $ 587,989 $ 204,519
=========================
Weighted average number of shares (thousands)
Basic and diluted 12,685 12,731
=========================
Net loss per common share
Basic and diluted $ (0.05) $ (0.02)
=========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-2
<PAGE>
FRIENDLY ENERGY CORPORATION
STATEMENTS OF CASH FLOW - JANUARY 1 TO JUNE 30, 2000
(UNAUDITED, PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
Cash flows from operating activities
Net loss $(587,989) $(204,519)
Non-cash items included in the net loss
Depreciation and amortization $ 5,114 $ 3,753
Changes in operating assets and liabilities
Due from officer $ 1,453 $ (2,161)
Accounts payable and accrued liabilities $ 68,047 $ 11,716
Net cash from operating activities $(513,375) $(191,211)
Cash flows from investing activities
Capital expenditures $ (8,833) $ (23,882)
Cash flow from financing activities
Proceeds from sale of preferred stock $ 517,250 $ 230,000
Net cash from financing activities
Increase in cash $ (4,958) $ 14,907
Cash, beginning of year $ 8,687 $ -
Cash, end of period $ 3,729 $ 14,907
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-3
<PAGE>
FRIENDLY ENERGY CORPORATION
NOTES TO THE JUNE 30, 2000 FINANCIAL STATEMENTS
(UNAUDITED, PREPARED BY MANAGEMENT)
1. The condensed financial statements included herein have been prepared
by Friendly Energy Corporation (the "Company"), without audit and
should be read in conjunction with the audited financial statements of
the Company. Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted although
the Company believes the disclosures which are made are adequate to
make the information presented not misleading. Further, the financial
statements reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position and results of
operations as of and for the periods indicated. The results of the
operations for the period ended June 30, 2000 are not necessarily
indicative of the results expected for the full year.
*****
F-4
<PAGE>
EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 ARTICLES OF INCORPORATION OF ECO-SYSTEMS MARKETING
CORPORATION.
2.2 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF ECO-SYSTEMS MARKETING CORPORATION (4/21/1997).
2.3 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF ECO-SYSTEMS MARKETING CORPORATION (4/28/1997).
2.4 CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF RAMA FINANCIAL CORPORATION (9/25/1997).
2.5 CERTIFICATION OF AMENDMENT TO ARTICLES OF
INCORPORATION OF RAMA FINANCIAL CORPORATION
(4/2/1999).
2.6 BY-LAWS OF ECO-SYSTEMS MARKETING CORPORATION.
6.1 ESP SERVICE AGREEMENT WITH SAN DIEGO GAS & ELECTRIC.
6.2 ESP SERVICE AGREEMENT SOUTHERN CALIFORNIA EDISON.
6.3 ESP SERVICE AGREEMENT PACIFIC GAS & ELECTRIC.
6.4 FRIENDLY ENERGY CORPORATION 1999 INCENTIVE STOCK
OPTION PLAN.
27 FINANCIAL DATA SCHEDULE
