UNITED STATES
 SECURITIES AND EXCHANGE
COMMISSION
 WASHINGTON,
D.C. 20549
   FORM
10-KSB/A
 (Amendment No.
1)
   [x]           ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the Fiscal Year Ended December
31, 2006
  [  ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the Transition Period From
_____ to _____
  Commission
File Number 000-33321
   FELLOWS
ENERGY LTD.
 (Exact
name of small business issuer as specified in its charter)
  Nevada
              33-0967648(State
      or other jurisdiction of incorporation
                or
      organization)
              (IRS
      Employer Identification No.)1369 Forest Park Circle, Suite
      202
                Lafayette,
      Colorado
              80026                                 (303)
      926-4415(Address
      of principal executive office)
              (Postal
      Code)                   (Issuer's
      telephone number)
  370 Interlocken Boulevard,
Suite 400,Broomfield,Colorado80021
 (former
name, former address and former fiscal year, if changed since last
report)
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 Securities
registered under Section 12(g) of the Exchange Act:  Common Stock,
$0.001 par value
 
 Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes  
[ x ]   No  [   ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes [   ]   No  [
x ]
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
Form 10-KSB.
 Yes [   ]   No  [
x ]   Delinquent filers are disclosed herein.
 
 Fellows
had $424,000 in revenue in 2006.
  The
aggregate market value of the Common Stock held by non-affiliates (as affiliates
are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed by
reference to the average of the high and low sale price on April 14, 2007, was
$17,262,556.
 
 As of
April 14, 2007 there were 100,000,000 shares of issuer’s common stock
outstanding.
  1
 Table of Contents
   FELLOWS
ENERGY LTD.
  FORM 10-KSB
 
 For the Fiscal Year Ended December
31, 2006
  Part
      I
              
              PageItem
      1
              Description of
      Business
              3Part
      II
              
              PageItem
      7
              Financial Statements and Accompanying
      Notes
              13Item
      13
              Exhibits
              30Item
      15
              Signatures
              33
  Explanatory Note
  This
amended annual report on Form 10-KSB/A is filed to make certain additions and
corrections to present more details within certain disclosures in
accordance with SFAS 144, SFAS 47 paragraph 10(b), SFAS 69 paragraphs 11 and
30(b), and Rule 4-10(a) of Regulation S-X.  These include revising an
inconsistency within our disclosure statement of project impairment
testing, providing a tabular reconciliation of our notes payable, removing
references to probable, possible, and potential reserve amounts, and
adding comparison information for proven reserves. As
permitted by General Instruction E to this form, the original filing of our
annual report on Form 10-KSB is incorporated by reference the complete
information required by Parts I, II, and III.
 The
information contained in this Form 10-KSB/A has not been updated to reflect
events and circumstances occurring since its original filing. Such matters have
been or will be addressed, as necessary, in reports filed with the Commission
(other than this amended report) subsequent to the date of the original filing
of our annual report on Form 10-KSB. Pursuant to Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, we have set forth the complete text
of each item of our originally filed annual report affected by this
amendment.
 2
 Table of
Contents
  PART I
 
 FORWARD-LOOKING
INFORMATION
 
 This
Annual Report of Fellows Energy Ltd. on Form 10-KSB contains forward-looking
statements, particularly those identified with the words, "anticipates,"
"believes," "expects," "plans," “intends”, “objectives” and similar expressions.
These statements reflect management's best judgment based on factors known at
the time of such statements. The reader may find discussions containing such
forward-looking statements in the material set forth under "Legal Proceedings"
and "Management's Discussion and Analysis and Plan of Operations," generally,
and specifically therein under the captions "Liquidity and Capital Resources" as
well as elsewhere in this Annual Report on Form 10-KSB. Actual events or results
may differ materially from those discussed herein.
 
 ITEM 1.  DESCRIPTION OF
BUSINESS.
 
 Company History
  Fellows
Energy Ltd. was incorporated in Nevada on April 9, 2001 as Fuel Centers,
Inc.  In November 2001, the Commission declared effective our
registration statement to register 31,185,150, as adjusted, shares of common
stock held by our stockholders. We were originally formed to offer business
consulting services in the retail automobile fueling industry. During the fourth
quarter of 2003, we decided to change management, enter the oil and gas business
and cease all activity in the automobile refueling industry. On November 12,
2003, we changed our name to Fellows Energy Ltd. and shifted our focus to
exploration for oil and gas in the Rocky Mountain Region. On January 5, 2004, we
acquired certain interests in certain oil and gas leases and other interests
owned by Diamond Oil & Gas Corporation, a Nevada corporation. Diamond is
wholly owned by George S. Young, our CEO, President and a Director. Our common
stock is publicly traded over-the-counter and quoted on the OTC Bulletin Board
under the symbol “FLWE.OB.”
 
 We are an
early stage oil and gas company led by an experienced management team and
focused on exploration and production of natural gas, especially from
“unconventional plays” such as tight sands and coal beds, and oil in the Rocky
Mountain Region. In many unconventional plays accumulations of hydrocarbons are
found over a large area expanse and/or a thick vertical section, which when
compared to conventional plays, typically have a higher geological and/or
commercial development risk and lower average decline rate. Whereas a
“conventional play” is an accumulation of hydrocarbons in a structural or
stratigraphic setting within high-quality reservoirs. Our strategy is to pursue
selected opportunities that are characterized by reasonable entry costs,
favorable economic terms, high reserve potential relative to capital
expenditures and the availability of existing technical data that may be further
developed using current technology.   In 2006, we also turned our
emphasis away from early stage exploration projects to focus on advanced-stage
and producing properties.
 
 Business Strategy
 
 We seek
to: (1) achieve attractive returns on capital for the benefit of our
stockholders through investment in exploration and development of unconventional
plays; (2) maintain a strong balance sheet to preserve maximum financial and
operational flexibility; and (3) create strong employee incentives through
equity ownership.
  Disciplined Acquisition
Strategy
  We intend
to acquire producing oil and gas properties where we believe significant
additional value can be created. Management is primarily interested in
unconventional play properties with a combination of these factors:
(1) opportunities for long life production with stable production levels;
(2) geological formations with multiple producing horizons;
(3) substantial exploitation potential; and (4) relatively low capital
investment production costs.
  Exploitation of
Properties
  We intend
to maximize the value of our properties through a combination of successful
exploration, drilling, increasing production, increasing recoverable reserves
and reducing operating costs. Where we deem appropriate, we will employ
technology to improve recoveries such as directional and horizontal drilling.
Directional and horizontal drilling and completion methods have historically
produced oil and gas at faster rates and with lower operating costs basis than
traditional vertical drilling.
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  Experienced and Dedicated
Personnel
  We intend
to maintain a highly competitive team of experienced and technically proficient
employees and consultants and motivate them through a positive work environment
and stock ownership. We believe that employee ownership, which is encouraged
through our stock option plan, is essential for attracting, retaining and
motivating qualified personnel.
 
 Company and Industry
Highlights
 
 Solid Rocky Mountain
Fundamentals
  According
to the report Balancing
Natural Gas Policy - Fueling Demands of a Growing Economy (September 25,
2003), released in the fall of 2003 by the National Petroleum
Council:
  Current
higher gas prices are the result of a fundamental shift in the supply and demand
balance. North America is moving to a period in its history in which it will no
longer be self-reliant in meeting its growing natural gas needs as production
from traditional U.S. and Canadian basins has plateaued. Government policy
encourages the use of natural gas but does not address the corresponding need
for additional natural gas supplies.
  Furthermore,
within the State of Wyoming, as indicated by data compiled by the Wyoming Oil
& Gas Conservation Commission and available on its website at
wogcc.state.wy.us, gas production has increased 80% since the mid-1990s and is
expected to surpass 6 Bcf per day this year, largely from coal bed methane
production in the Powder River Basin and tight sands gas production from the
Green River Basin. In the Powder River Basin, 16,000 wells have been
drilled to date (mostly in the last five years) and approximately 50,000
additional drill locations have been identified. Although this area has been
historically challenged by pipeline capacity restraints and tough environmental
regulations, substantial progress has been made with the doubling of capacity of
the Kern River Pipeline and the completion of the Grasslands and Cheyenne Plains
Pipelines, which Management believes bodes well for future development, growth
and economics in the Rocky Mountain Region.
  Focus on Unconventional
Plays
  In
building our inventory of oil and gas projects, we have concentrated on
unconventional plays as well as conventional oil and gas projects.
  Compared
to conventional plays, unconventional plays present different advantages and
risks. Typically, unconventional plays involve less geologic risk than
conventional plays with respect to locating gas because hydrocarbons are known
to exist and because unconventional plays are typically larger in size.
Similarly, due to the greater size of typical unconventional plays, they
inherently have greater reserve potential than conventional plays. In general,
unconventional plays have not been developed to the extent of conventional plays
and therefore greater opportunities exist for acquiring additional
unconventional plays and increasing reserves.
  However,
development of typical unconventional plays may involve greater extraction and
retrieval costs than are involved in development of typical conventional plays.
In the typical unconventional play, the existence of gas is known but the
quantity of such gas, and commercial viability, is unknown. The process of
developing an unconventional play requires significant costs before the
commercial viability can be ascertained. Therefore, there is a greater risk of
cost overrun and the risk of inadequate gas recoveries is not
avoided.
  It is
important to recognize that unconventional plays offer attractive potential for
large reserve additions. This is because the large conventional traps have
largely been found and developed, and because unconventional plays inherently
have much greater size and therefore greater reserve potential. All of the top
five onshore “gas giant” fields discovered and developed in the 1990s (including
Powder River Basin coal bed methane, Jonah, Pinedale, Madden Deep and
Ferron coal bed methane) were in the Rocky Mountain Region.
 4
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  Large Strategic Land
Position
 
 Through
our direct ownership of mineral rights in the Powder River Basin and
Uinta Basin, we have a strategic land position in the oil and gas producing
basins of the Rocky Mountains. Known hydrocarbon resources in reservoirs in
unconventional plays such as coal seams, thick oil-bearing shales, and extensive
bodies of tight gas-bearing sands throughout the properties create the potential
for a large inventory of drilling locations should initial exploration efforts
prove successful. Although there are no assurances, this inventory could support
future net reserve additions and production growth over the next several
years.
  Strong Underlying Industry
Fundamentals
  According
to the National Petroleum Council Gas Report, the domestic natural gas
fundamentals will continue to be attractive, for the foreseeable future. The
U.S. faces a significant natural gas supply problem due to the maturing of its
traditional producing basins, the increase in exploration and development costs,
and demand increases coupled with production decline rates. The U.S. has several
ways to combat this supply problem through measures including increased
development and importation of Canadian and Alaskan gas and delivery of
liquefied natural gas. However, the impact of these efforts is expected to only
mitigate the supply decline or at best increase supply marginally.
  Proven Management
Expertise
  Our CEO
and President George S. Young and our Vice President Steve Prince have
experience in operating and growing an oil and gas public company. Mr. Young
brings strong leadership and business qualifications, an understanding from
having been trained as both an attorney and engineer and 25 years of natural
resource industry experience. Mr. Prince brings 22 years of oil and gas
industry experience as a Petroleum Engineer and as a significant
contributor to the development of major producing fields in areas of interest to
us.
 
 Financing
Strategy
 
 We intend
to access debt and equity markets for private and public financings from time to
time based on our needs on terms in the market then available to us. Initially,
we expect that the bulk of capital formation will be in the form of convertible
debt to equity capital to support the initial phases of exploration and
exploitation work required on our projects. To the extent the plays mature into
“Proven” status as determined by independent third-party engineers, we plan to
utilize debt sources for a large percentage of our capital requirements so as to
maximize the return on equity that these projects generate. This debt may be in
the form of senior bank debt, junior or subordinated bank debt, and/or mezzanine
debt. We cannot provide any assurance that we will be able to raise additional
debt or equity to fund future operational and exploration needs or terms
acceptable to us.  Additionally, we may generate funds through (1) a joint
venture, sale or farm out on an interest in one or more of its properties and/or
(2) divesting one or more of our properties that are determined not to fit with
its strategic core holdings.
  Property Summary
 
 In our
short operating history in the oil and gas industry, we have positioned our
company to control and exploit potential reserves from a number of large
unconventional oil and gas resource type projects covering approximately 57,000
acres. These projects focus on coal bed methane, tight sands gas and oil from
fractured shales. Such projects are characterized by their widespread
occurrence, large reserve potential, low finding and development costs, high
drilling success rates, and low geologic and operating risks. Such projects are
also subject to certain risks and development of such projects requires
substantial capital.  Our Carbon County project is in
exploration, development and production stages. This project has proven
producing reserves in excess of 1.36 Bcf, proven developed non-producing in
excess of 2.23 Bcf, and proven undeveloped reserves in excess of 6.93
Bcf. Please see Item 2 Description of Property under Note 10 to the
financials for more discussion related to the property and
reserves.
  Competition
 
 Oil and
gas exploration and acquisition of undeveloped properties is a highly
competitive and speculative business. We compete with a number of other
companies, including major oil companies and other independent operators which
are more experienced and which have greater financial resources. Such companies
may be able to pay more for prospective oil and gas properties. Additionally,
such companies may be able to evaluate, bid for and purchase a greater number of
properties and prospects than our financial and human resources permit. We do
not hold a significant competitive position in the oil and gas
industry.
 5
 Table of Contents
  Regulation
 
 Our
operations are or will be subject to various types of regulation at the federal,
state and local levels. Such regulation includes requiring permits for the
drilling of wells; maintaining bonding requirements in order to drill or operate
wells; implementing spill prevention plans; submitting notification and
receiving permits relating to the presence, use and release of certain materials
incidental to oil and gas operations; and regulating the location of wells, the
method of drilling and casing wells, the use, transportation, storage and
disposal of fluids and materials used in connection with drilling and production
activities, surface usage and the restoration of properties upon which wells
have been drilled, the plugging and abandoning of wells and the transporting of
production. Our operations are or will be also subject to various conservation
matters, including the regulation of the size of drilling and spacing units or
proration units, the number of wells which may be drilled in a unit, and the
unitization or pooling of oil and gas properties. In this
regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely on voluntary pooling of lands and
leases, which may make it more difficult to develop oil and gas properties. In
addition, state conservation laws establish maximum rates of production from oil
and gas wells, generally limit the venting or flaring of gas, and impose certain
requirements regarding the ratable purchase of production. The effect of these
regulations is to limit the amounts of oil and gas we may be able to produce
from our wells and to limit the number of wells or the locations at which we may
be able to drill.
  Our
business is affected by numerous laws and regulations, including energy,
environmental, conservation, tax and other laws and regulations relating to the
oil and gas industry. We plan to develop internal procedures and policies to
ensure that our operations are conducted in full and substantial environmental
regulatory compliance.
  Failure
to comply with any laws and regulations may result in the assessment of
administrative, civil and criminal penalties, the imposition of injunctive
relief or both. Moreover, changes in any of these laws and regulations could
have a material adverse effect on business. In view of the many uncertainties
with respect to current and future laws and regulations, including their
applicability to us, we cannot predict the overall effect of such laws and
regulations on our future operations.
  We
believe that our operations comply in all material respects with applicable laws
and regulations and that the existence and enforcement of such laws and
regulations have no more restrictive an effect on our operations than on other
similar companies in the energy industry. We do not anticipate any material
capital expenditures to comply with federal and state environmental
requirements.
  Environmental
Matters
 
 Operations
on properties in which we have an interest are subject to extensive federal,
state and local environmental laws that regulate the discharge or disposal of
materials or substances into the environment and otherwise are intended to
protect the environment. Numerous governmental agencies issue rules and
regulations to implement and enforce such laws, which are often difficult and
costly to comply with and which carry substantial administrative, civil and
criminal penalties and in some cases injunctive relief for failure to
comply.
  Some
laws, rules and regulations relating to the protection of the environment may,
in certain circumstances, impose “strict liability” for environmental
contamination. These laws render a person or company liable for environmental
and natural resource damages, cleanup costs and, in the case of oil spills in
certain states, consequential damages without regard to negligence or fault.
Other laws, rules and regulations may require the rate of oil and gas production
to be below the economically optimal rate or may even prohibit exploration or
production activities in environmentally sensitive areas. In addition, state
laws often require some form of remedial action, such as closure of inactive
pits and plugging of abandoned wells, to prevent pollution from former or
suspended operations.
  Legislation
has been proposed in the past and continues to be evaluated in Congress from
time to time that would reclassify certain oil and gas exploration and
production wastes as “hazardous wastes.” This reclassification would make these
wastes subject to much more stringent storage, treatment, disposal and clean-up
requirements, which could have a significant adverse impact on operating costs.
Initiatives to further regulate the disposal of oil and gas wastes are also
proposed in certain states from time to time and may include initiatives at the
county, municipal and local government levels. These various initiatives could
have a similar adverse impact on operating costs.
 6
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  The
regulatory burden of environmental laws and regulations increases our cost and
risk of doing business and consequently affects our profitability. The federal
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
also known as the “Superfund” law, imposes liability, without regard to fault,
on certain classes of persons with respect to the release of a “hazardous
substance” into the environment. These persons include the current or prior
owner or operator of the disposal site or sites where the release occurred and
companies that transported, disposed or arranged for the transport or disposal
of the hazardous substances found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for the federal or state government to
pursue such claims.
  It is
also not uncommon for neighboring landowners and other third parties to file
claims for personal injury or property or natural resource damages allegedly
caused by the hazardous substances released into the environment. Under CERCLA,
certain oil and gas materials and products are, by definition, excluded from the
term “hazardous substances.” At least two federal courts have held that certain
wastes associated with the production of crude oil may be classified as
hazardous substances under CERCLA. Similarly, under the federal Resource,
Conservation and Recovery Act, or RCRA, which governs the generation, treatment,
storage and disposal of “solid wastes” and “hazardous wastes,” certain oil and
gas materials and wastes are exempt from the definition of “hazardous wastes.” This
exemption continues to be subject to judicial interpretation and increasingly
stringent state interpretation. During the normal course of operations on
properties in which we have an interest, exempt and non-exempt wastes, including
hazardous wastes, that are subject to RCRA and comparable state statutes and
implementing regulations are generated or have been generated in the past. The
federal Environmental Protection Agency and various state agencies continue to
promulgate regulations that limit the disposal and permitting options for
certain hazardous and non-hazardous wastes.
  We
believe that the operator of the properties in which we have an interest is in
substantial compliance with applicable laws, rules and regulations relating to
the control of air emissions at all facilities on those properties. Although we
maintain insurance against some, but not all, of the risks described above,
including insuring the costs of clean-up operations, public liability and
physical damage, there is no assurance that our insurance will be adequate to
cover all such costs, that the insurance will continue to be available in the
future or that the insurance will be available at premium levels that justify
our purchase. The occurrence of a significant event not fully insured or
indemnified against could have a material adverse effect on our financial
condition and operations. Compliance with environmental requirements, including
financial assurance requirements and the costs associated with the cleanup of
any spill, could have a material adverse effect on our capital expenditures,
earnings or competitive position. We do believe, however, that our operators are
in substantial compliance with current applicable environmental laws and
regulations. Nevertheless, changes in environmental laws have the potential to
adversely affect operations. At this time, we have no plans to make any material
capital expenditures for environmental control facilities.
  EMPLOYEES
 As of
April 11, 2007, we have eight full-time employees. The majority of development
services have been provided to us by the officers and outside, third-party
vendors. Currently, there exist no organized labor agreements or union
agreements between us and our employees. We do not have employment agreements
with any of our employees. We believe that our relations with our employees are
good.
 
 RISKS RELATED TO
BUSINESS
 
 You
should carefully consider the following risk factors and all other information
contained herein as well as the information included in this Annual Report in
evaluating our business and prospects. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties, other
than those we describe below, that are not presently known to us or that we
currently believe are immaterial may also impair our business operations. If any
of the following risks occur, our business and financial results could be
harmed. You should refer to the other information contained in this Annual
Report, including our consolidated financial statements and the related
notes.
 7
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  We Have a History Of Losses Which May
Continue, and May Negatively Impact Our Ability to Achieve Our Business
Objectives.
  We
incurred net losses of $8,590,847 and $2,498,816 for the years ended December
31, 2006 and 2005, respectively. We cannot assure you that we can achieve or
sustain profitability on a quarterly or annual basis in the future. Our
operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.
  If We Are Unable to Obtain Additional
Funding, Our Business Operations Will be Harmed and If We Do Obtain Additional
Financing, Our Then Existing Shareholders May Suffer Substantial
Dilution.
  We will require additional funds to
sustain and expand our acquisition, exploration and production of natural gas
from coal bed methane. We anticipate that we will require up to approximately
$500,000 to fund our continued operations for the next twelve months from
the date of this prospectus, depending on revenues from operations. Additional
capital will be required to effectively support the operations and to otherwise
implement our overall business strategy. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all.
The inability to obtain additional capital will restrict our ability to grow and
may reduce our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
  Our
Independent Registered Public Accounting Firm Has Stated There is Substantial
Doubt About Our Ability to Continue As a Going Concern, Which May Hinder Our
Ability to Obtain Future Financing
  In their
report dated April 17, 2007 on our financial statements as of and for the year
ended December 31, 2006, our independent registered public accounting firm
stated that our significant losses from operations and our limited financial
resources raised substantial doubt about our ability to continue as a going
concern. Since December 31, 2006, we have continued to experience losses from
operations. Our
ability to continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary debt or equity funding from outside sources,
including  the sale of our securities, and/or loans and grants from
various financial institutions where possible.
  We Have a Limited Operating History
and if We are not Successful in Continuing to Grow Our Business, Then We may
have to Scale Back or Even Cease Our Ongoing Business
Operations.
 
 We have a
limited history of revenues from operations and have no individually significant
tangible assets.  We have yet to generate positive earnings and there
can be no assurance that we will ever operate profitably.  Our success is
significantly dependent on a successful acquisition, drilling, completion and
production program. Our operations will be subject to all the risks inherent in
the establishment of a developing enterprise and the uncertainties arising from
the absence of a significant operating history. Except for our
Carbon County prospect, we are in the development stage and potential
investors should be aware of the difficulties normally encountered by
enterprises in the development stage. We may be unable to locate recoverable
reserves or operate on a profitable basis. If our business plan is not
successful, and we are not able to operate profitably, investors may lose some
or all of their investment in our company.
 
 If We Are Unable to Retain the
Services of Mr. Young or If We Are Unable to Successfully Recruit Qualified
Managerial and Field Personnel Having Experience in Oil and Gas Exploration, We
May Not Be Able to Continue Our Operations.
 
 Our
success depends to a significant extent upon the continued service of Mr. George
S. Young, our President, Chief Executive Officer and a director. Loss of the
services of Mr. Young could have a material adverse effect on our growth,
revenues, and prospective business. We do not maintain key-man insurance on the
life of Mr. Young. In addition, in order to successfully implement and manage
our business plan, we will be dependent upon, among other things, successfully
recruiting qualified managerial and field personnel having experience in the oil
and gas exploration business. Competition for qualified individuals is intense.
There can be no assurance that we will be able to find, attract and retain
existing employees or that we will be able to find, attract and retain qualified
personnel on acceptable terms.
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  As Most of Our Properties are in the
Exploration and Development Stage, There Can be no Assurance That We Will
Establish Commercial Discoveries on Our Properties.
 
 Exploration
for economic reserves of oil and gas is subject to a number of risk factors. Few
properties that are explored are ultimately developed into producing oil and/or
gas wells. Most of our properties are in the exploration and development stage
only and are without proven reserves of oil and gas. We may not establish
commercial discoveries on any of our properties beyond that already discovered
and developed at our Carbon County project.
 
 The Potential Profitability of Oil
and Gas Ventures Depends Upon Factors Beyond the Control of Our
Company.
 
 The
potential profitability of oil and gas properties is dependent upon many factors
beyond our control. For instance, world prices and markets for oil and gas are
unpredictable, highly volatile, potentially subject to governmental fixing,
pegging, controls, or any combination of these and other factors, and respond to
changes in domestic, international, political, social, and economic
environments. Additionally, due to worldwide economic uncertainty, the
availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project. In addition, adverse
weather conditions can also hinder drilling operations. These changes and events
may materially affect our financial performance.
  Even if We are Able to Discover and
Generate a Gas Well, There Can be no Assurance the Well Will Become
Profitable
 
 We have
not yet made a discovery of coalbed methane gas or drilled a gas well to capture
any gas other than at our Carbon County project. Even if we are able to, a
productive well may become uneconomic in the event water or other deleterious
substances are encountered which impair or prevent the production of oil and/or
gas from the well. In addition, production from any well may be unmarketable if
it is impregnated with water or other deleterious substances. In addition, the
marketability of oil and gas which may be acquired or discovered will be
affected by numerous factors, including the proximity and capacity of oil and
gas pipelines and processing equipment, market fluctuations of prices,
taxes, royalties, land tenure, allowable production and environmental
protection, all of which could result in greater expenses than revenue generated
by the well.
  Competition In The Oil And Gas
Industry Is Highly Competitive And There Is No Assurance That We Will Be
Successful In Acquiring The Leases.
 
 The oil
and gas industry is intensely competitive. We compete with numerous individuals
and companies, including many major oil and gas companies, which have
substantially greater technical, financial and operational resources and staffs.
Accordingly, there is a high degree of competition for desirable oil and gas
leases, suitable properties for drilling operations and necessary drilling
equipment, as well as for access to funds. We cannot predict if the necessary
funds can be raised or that any projected work will be completed. Our budget
anticipates our acquisition of additional acreage in the Rocky Mountain Region.
This acreage may not become available or if it is available for leasing, that we
may not be successful in acquiring the leases.
 
 The Marketability of Natural
Resources Will be Affected by Numerous Factors Beyond Our Control Which May
Result in Us not Receiving an Adequate Return on Invested Capital to be
Profitable or Viable.
 
 The
marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.
 9
 Table of Contents
  Oil and Gas Operations are Subject to
Comprehensive Regulation Which May Cause Substantial Delays or Require Capital
Outlays in Excess of Those Anticipated Causing an Adverse Effect on Our
Company.
 
 Oil and
gas operations are subject to federal, state, and local laws relating to the
protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages. To date we have not been required to spend any material
amount on compliance with environmental regulations. However, we may be required
to do so in future and this may affect our ability to expand or maintain our
operations.
 
 Exploration and Production Activities
are Subject to Certain Environmental Regulations Which May Prevent or Delay the
Commencement or Continuance of Our Operations.
 
 In
general, our exploration and production activities are subject to certain
federal, state and local laws and regulations relating to environmental quality
and pollution control. Such laws and regulations increase the costs of these
activities and may prevent or delay the commencement or continuance of a given
operation. Compliance with these laws and regulations has not had a material
effect on our operations or financial condition to date. Specifically, we are
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.  Our operating partners maintain insurance
coverage customary to the industry; however, we are not fully insured against
all possible environmental risks.
  Exploratory Drilling Involves Many
Risks and We May Become Liable for Pollution or Other Liabilities Which May Have
an Adverse Effect on Our Financial Position.
 
 Drilling
operations generally involve a high degree of risk. Hazards such as unusual or
unexpected geological formations, power outages, labor disruptions, blow-outs,
sour gas leakage, fire, inability to obtain suitable or adequate machinery,
equipment or labor, and other risks are involved. We may become subject to
liability for pollution or hazards against which it cannot adequately insure or
which it may elect not to insure. Incurring any such liability may have a
material adverse effect on our financial position and operations.
  Risks Relating to Our
Current Financing Arrangements:
 
 There Are a Large Number of Shares
Underlying Our Convertible Debentures and Warrants That May be Available for
Future Sale and the Sale of These Shares May Depress the Market Price of Our
Common Stock.
 
 As of
April 13, 2007, we had 100,000,000 shares of common stock issued and
outstanding, convertible debentures issued in June 2005, September 2005 and
February 2007 outstanding that may be converted into an estimated 24,024,197
shares of common stock and outstanding warrants issued in June and September
2005 to purchase 1,516,668 shares of common stock. To the extent registered
pursuant to our registration statements, all of the shares issuable upon
conversion of the June and September 2005 debentures and upon exercise of our
June and September 2005 warrants, may be sold without restriction. The sale of
these shares may adversely affect the market price of our common
stock.
 10
 Table of Contents
  The Issuance of Shares Upon
Conversion of the Convertible Debentures and Exercise of Outstanding
Warrants May Cause Immediate and Substantial Dilution to Our Existing
Stockholders.
  The
issuance of shares upon conversion of the convertible debentures and exercise of
warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholders may ultimately convert and sell the
full amount issuable on conversion. Although the selling stockholders may not
convert their convertible debentures and/or exercise their warrants if such
conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
  If We Are Required for any Reason to
Repay Our Outstanding Secured Convertible Debentures, We Would Be Required to
Deplete Our Working Capital, If Available, Or Raise Additional
Funds.  Our Failure to Repay the Secured Convertible Debentures, If
Required, Could Result in Legal Action Against Us, Which Could Require the Sale
of Substantial Assets.
 
 Between
2005 and 2007, we entered into Securities Purchase Agreements for the sale of an
aggregate of $9,323,700 principal face amount of secured convertible debentures,
of which approximately $2,993,938 remains outstanding. The secured convertible
debentures are due and payable, with interest, in September 2007 unless sooner
converted into shares of our common stock. In addition, any event of default
such as our failure to repay the principal when due, our failure to issue shares
of common stock upon conversion by the holder, our failure to timely file a
registration statement or have such registration statement declared effective,
breach of any covenant, representation or warranty in the Securities Purchase
Agreement or related convertible debentures, the assignment or appointment of a
receiver to control a substantial part of our property or business, the filing
of a money judgment, writ or similar process against our company in excess of
$50,000, the commencement of a bankruptcy, insolvency, reorganization or
liquidation proceeding against our company and the delisting of our common stock
could require the early repayment of the convertible debentures, including
default interest on the outstanding principal balance of the convertible
debentures if the default is not cured with the specified grace period. We
anticipate that the full amount of the convertible debentures will be converted
into shares of our common stock, in accordance with the terms of the convertible
debentures. If we are required to repay the convertible debentures, we would be
required to use our limited working capital and raise additional funds. If we
were unable to repay the convertible debentures when required, the debenture
holders could commence legal action against us and foreclose on all of our
assets to recover the amounts due. Any such action would require us to curtail
or cease operations.
  Risks Relating to Our Common
Stock:
 
 If We Fail to Remain Current on Our
Reporting Requirements, We Could be Removed From the OTC Bulletin Board Which
Would Limit the Ability of Broker-Dealers to Sell Our Securities and the Ability
of Stockholders to Sell Their Securities in the Secondary
Market.
 
 Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
 11
 Table of Contents
  Our Common Stock is Subject to the
"Penny Stock" Rules of the SEC and the Trading Market in Our Securities is
Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the
Value of an Investment in Our Stock.
  The Securities and Exchange
Commission has adopted Rule 15g-9 which establishes the definition of a "penny
stock," for the purposes relevant to us, as any equity security that has a
market price of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require:
  ▪
              that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and▪
              that
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.
  In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
  ▪
              obtain
      financial information and investment experience objectives of the person;
      and▪
              make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.
  The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
  ▪
              sets
      forth the basis on which the broker or dealer made the suitability
      determination; and▪
              that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.
 
 Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
  Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
 12
 Table of Contents
  
 ITEM
7.  FINANCIAL STATEMENTS.
 
 FELLOWS
ENERGY LTD.
 
 INDEX TO
FINANCIAL STATEMENTS
 
 PageBalance Sheets
              
              
              14Statements of Operations
              
              
              15Statements of Changes in Stockholders'
    Equity
              
              
              16Statements of Cash Flows
              
              
              17Notes to Financial Statements
              
              
              18
  13
 Table of Contents
  
 Fellows EnergyLtd.
 Balance Sheets
  Year
    Ended
              
              
              Year
    EndedDec. 31,
      2006
              
              
              Dec. 31,
      2005AssetsCash
      and Cash Equivalents
              
              $
              179,926
              
              
              $
              347,558Marketable
      securities, available-for-sale
              
              
              —
              
              
              
              405,556Interest
      Receivable
              
              
              2,568
              
              
              
              179Accounts
      Receivable
              
              
              80,258Note
      Receivable
              
              
              233,634
              
              
              
              99,879Total
      current assets
              
              
              496,386
              
              
              
              853,172Proved
      and unproved oil & gas property
              
              
              7,468,809
              
              
              
              9,575,813Equipment,
      net of $118,651 and $18,418 accumulated depreciation
      respectively
              
              
              1,509,932
              
              
              
              287,836Deposits
              
              
              —
              
              
              
              716,000Restricted
      cash
              
              
              160,000
              
              
              
              235,000Deferred
      debt issue costs
              
              
              228,758
              
              
              
              533,769Total
      assets
              
              $
              9,863,885
              
              
              $
              12,201,590Liabilities
      And Stockholders’ EquityAccounts
      payable
              
              $
              359,662
              
              
              $
              188,003Joint
      venture partner interest payable
              
              
              99,167
              
              
              
              —Taxes
      payable
              
              
              9,433
              
              
              
              —Interest
      payable current portion
              
              
              205,700
              
              
              
              125,700Notes
      payable current portion
              
              
              1,583,111
              
              
              
              —Convertible
      debenture current portion
              
              
              1,608,433
              
              
              
              3,879,441Total
      current liabilities
              
              
              3,865,506
              
              
              
              4,193,144Interest
      payable – net of current portion
              
              
              154,819
              
              
              
              —Notes
      payable – related party
              
              
              1,733,000
              
              
              
              12,000Notes
      payable – net of current portion
              
              
              428,000
              
              
              
              —Convertible
      debenture – net of current portion
              
              
              1,385,505
              
              
              
              1,184,407Stockholders’
      equityPreferred
      stock, $.001 par value; 25,000,000 shares authorized; none
      outstanding
              
              
              —
              
              
              
              —Common
      stock, $.001 par value; 100,000,000 shares authorized; 73,447,619 and
      52,545,329 shares issued and outstanding
              
              
              73,447
              
              
              
              52,545Additional
      paid-in capital
              
              
              19,963,497
              
              
              
              15,973,152Stock
      issuance obligation
              
              
              61,055
              
              
              
              —Stock
      pledged as collateral
              
              
              (1,665,000
              )
              
              
              (1,665,000
              )Accumulated
      deficit
              
              
              (16,135,944
              )
              
              
              (7,548,658
              )Total
      stockholders’ equity
              
              
              2,297,055
              
              
              
              6,812,039Total
      liabilities and stockholders’ equity
              
              $
              9,863,885
              
              
              $
              12,201,590
 See
accompanying notes.
  14
 Table of Contents
  Fellows EnergyLtd.
 Statements of
Operations
 
 Years
    EndedDecember
    31,2006
              
              
              2005Revenue
              
              $
              423,761
              
              
              $
              —Operating
      expensesExploration
      and Production
              
              
              1,027,459
              
              
              
              1,141,202Relinquishment
      of property options
              
              
              3,289,387
              
              
              
              1,143,882General
      and administrative
              
              
              2,365,137
              
              
              
              2,273,022Gross
      margin
              
              
              (6,258,221
              )
              
              
              (4,558,106
              )Other
      income (expense)Interest
      expense, net
              
              
              (2,721,506
              )
              
              
              (982,031
              )Gain
      on sale of unproved property
              
              
              —
              
              
              
              1,550,797Gain
      on extinguishment of debt
              
              
              —
              
              
              
              383,531Project
      revenue applied as credit to purchase
              
              
              246,939
              
              
              
              —Note
      receivable default penalty
              
              
              80,000
              
              
              
              —Re-sale
      of pipe
              
              
              34,644
              
              
              
              —Insurance
      rebates and project purchase credit
              
              
              19,993
              
              
              
              —Miscellaneous
              
              
              7,304
              
              
              
              14,132Total other income (expense)
              
              
              (2,332,626
              )
              
              
              966,429Loss
      before income tax
              
              
              (8,590,847
              )
              
              
              (3,591,677
              )Income
      tax expense
              
              
              —
              
              
              
              —Deferred
      tax benefit
              
              
              —
              
              
              
              —Net
      loss
              
              $
              (8,590,847
              )
              
              $
              (3,591,677
              )Other
      comprehensive income (loss)Unrealized
      holding gains on marketable securities
              
              
              3,561
              
              
              
              516Comprehensive
      loss
              
              $
              (8,587,286
              )
              
              $
              (3,591,161
              )Basic
      and diluted loss per share
              
              $
              (0.14
              )
              
              $
              (0.08
              )Basic
      and diluted weighted average shares outstanding
              
              
              61,726,047
              
              
              
              47,599,638
 See
accompanying notes.
  15
 Table of Contents
  Fellows EnergyLtd.
 Statements of Changes in
Stockholders’ Equity
 December 31, 2006
  Additional
              
              
              StockCommon
    Stock
              
              
              Paid-In
              
              
              Obligation/
              
              
              AccumulatedShares
              
              
              Amount
              
              
              Capital
              
              
              Pledged
              
              
              Deficit
              
              
              TotalBalance,
      December 31, 2004
              
              
              41,743,150
              
              
              $
              41,743
              
              
              $
              9,556,702
              
              
              $
              362,500
              
              
              $
              (3,957,497
              )
              
              $
              6,003,448Issue
      200,000 shares for drilling purchase agreement
              
              
              200,000
              
              
              
              200
              
              
              
              193,800
              
              
              
              (194,000
              )
              
              
              —
              
              
              
              —Issue
      550,000 shares to business advisors
              
              
              550,000
              
              
              
              550
              
              
              
              432,450
              
              
              
              (168,500
              )
              
              
              —
              
              
              
              264,500Issue
      1,000,000 shares for oil and gas interests
              
              
              1,000,000
              
              
              
              1,000
              
              
              
              599,000
              
              
              
              —
              
              
              
              —
              
              
              
              600,000Issue
      2,449,265 shares for conversion of note
              
              
              2,449,265
              
              
              
              2,449
              
              
              
              392,262
              
              
              
              —
              
              
              
              —
              
              
              
              394,711Issue
      1,936,391 shares under private placement
              
              
              1,936,391
              
              
              
              1,936
              
              
              
              1,061,714
              
              
              
              —
              
              
              
              —
              
              
              
              1,063,650Warrant
      valuation under convertible debentures
              
              
              —
              
              
              
              —
              
              
              
              1,099,673
              
              
              
              —
              
              
              
              —
              
              
              
              1,099,673Issue
      200,000 shares to financial advisors
              
              
              200,000
              
              
              
              200
              
              
              
              117,800
              
              
              
              —
              
              
              
              —
              
              
              
              118,000Issue
      1,000,000 shares converted under convertible debentures
              
              
              1,000,000
              
              
              
              1,000
              
              
              
              599,000
              
              
              
              —
              
              
              
              —
              
              
              
              600,000Issue
      50,000 shares as fee under convertible debenture
              
              
              50,000
              
              
              
              50
              
              
              
              29,950
              
              
              
              —
              
              
              
              —
              
              
              
              30,000Issue
      2,652,632 shares held as collateral in escrow
              
              
              2,652,632
              
              
              
              2,653
              
              
              
              1,662,348
              
              
              
              (1,665,000
              )
              
              
              —
              
              
              
              —Issue
      763,891 shares as redemption under convertible
    debenture
              
              
              763,891
              
              
              
              764
              
              
              
              228,453
              
              
              
              —
              
              
              
              —
              
              
              
              229,218Comprehensive
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (3,591,161
              )
              
              
              (3,591,161
              )Balance,
      December 31, 2005
              
              
              52,545,329
              
              
              
              52,545
              
              
              
              15,973,152
              
              
              
              (1,665,000
              )
              
              
              (7,548,658
              )
              
              
              6,812,039Issue
      617,433 shares for debenture redemption
              
              
              617,433
              
              
              
              617
              
              
              
              228,599
              
              
              
              —
              
              
              
              —
              
              
              
              229,216Issue
      1,341,500 shares for debenture redemption
              
              
              1,341,500
              
              
              
              1,342
              
              
              
              357,375
              
              
              
              —
              
              
              
              —
              
              
              
              358,717Issue
      554,697 shares for debenture redemption
              
              
              554,697
              
              
              
              555
              
              
              
              151,743
              
              
              
              —
              
              
              
              —
              
              
              
              152,298Issue
      751,818 shares for debenture redemption
              
              
              751,818
              
              
              
              752
              
              
              
              205,667
              
              
              
              —
              
              
              
              —
              
              
              
              206,419Issue
      1,425,192 shares for debenture redemption
              
              
              1,425,192
              
              
              
              1,425
              
              
              
              357,292
              
              
              
              —
              
              
              
              —
              
              
              
              358,717Issue
      700,000 shares under drilling agreement
              
              
              700,000
              
              
              
              700
              
              
              
              195,300
              
              
              
              —
              
              
              
              —
              
              
              
              196,000Issue
      861,921 shares pursuant to ratchet down rights
              
              
              861,921
              
              
              
              862
              
              
              
              216,084
              
              
              
              —
              
              
              
              —
              
              
              
              216,946Issue
      790,000 pursuant to financing agreement
              
              
              790,000
              
              
              
              790
              
              
              
              252,010
              
              
              
              —
              
              
              
              —
              
              
              
              252,800Issue
      1,737,976 shares for debenture redemption
              
              
              1,737,976
              
              
              
              1,738
              
              
              
              356,979
              
              
              
              —
              
              
              
              —
              
              
              
              358,717Issue
      48,980 shares pursuant to financing agreement
              
              
              48,980
              
              
              
              49
              
              
              
              11,973
              
              
              
              —
              
              
              
              —
              
              
              
              12,022Issue
      118,057 shares for debenture redemption
              
              
              118,057
              
              
              
              118
              
              
              
              32,223
              
              
              
              —
              
              
              
              —
              
              
              
              32,341Obligation
      to issue 50,000 shares pursuant to financing
    agreement
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              22,500
              
              
              
              —
              
              
              
              22,500Obligation
      to issue 250,000 shares to business advisors
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              61,055
              
              
              
              —
              
              
              
              61,055Issue
      137,257 for debenture redemption
              
              
              137,257
              
              
              
              137
              
              
              
              39,063
              
              
              
              —
              
              
              
              —
              
              
              
              39,200Issue
      50,000 shares pursuant to financing agreement
              
              
              50,000
              
              
              
              50
              
              
              
              22,450
              
              
              
              (22,500
              )
              
              
              —
              
              
              
              —Issue
      1,898,013 shares for debenture redemption
              
              
              1,898,013
              
              
              
              1,898
              
              
              
              356,819
              
              
              
              —
              
              
              
              —
              
              
              
              358,717Issue
      250,000 shares pursuant to financing agreement
              
              
              250,000
              
              
              
              250
              
              
              
              62,250
              
              
              
              —
              
              
              
              —
              
              
              
              62,500Issue
      2,586,369 shares for debenture redemption
              
              
              2,586,369
              
              
              
              2,586
              
              
              
              356,130
              
              
              
              —
              
              
              
              —
              
              
              
              358,716Issue
      118,057 shares for debenture redemption
              
              
              118,057
              
              
              
              118
              
              
              
              14,108
              
              
              
              —
              
              
              
              —
              
              
              
              14,226Issue
      487,070 shares for debenture redemption
              
              
              487,070
              
              
              
              487
              
              
              
              58,204
              
              
              
              —
              
              
              
              —
              
              
              
              58,691Issue
      800,000 shares to business advisors
              
              
              800,000
              
              
              
              800
              
              
              
              107,200
              
              
              
              —
              
              
              
              —
              
              
              
              108,000Issue
      3,130,267 shares for debenture redemption
              
              
              3,130,267
              
              
              
              3,130
              
              
              
              355,587
              
              
              
              —
              
              
              
              —
              
              
              
              358,717Issue
      1,083,607 shares pursuant to ratchet down rights
              
              
              1,083,607
              
              
              
              1,084
              
              
              
              149,213
              
              
              
              —
              
              
              
              —
              
              
              
              150,297Issue
      1,414,076 shares for debenture redemption
              
              
              1,414,076
              
              
              
              1,414
              
              
              
              104,076
              
              
              
              —
              
              
              
              —
              
              
              
              105,490Comprehensive
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (8,587,286
              )
              
              
              (8,587,286
              )Balance,
      December 31, 2006
              
              
              73,447,619
              
              
              
              73,447
              
              
              
              19,963,497
              
              
              
              (1,603,945
              )
              
              
              (16,135,944
              )
              
              
              2,297,055
 See
accompanying notes.
  16
 Table of Contents
  Fellows EnergyLtd.
 Statements of Cash
Flows
 
 Years
    EndedDecember
    31,2006
              
              
              2005Cash
      flow from operating activities:Net
      loss
              
              $
              (8,590,847
              )
              
              $
              (3,591,677
              )Adjustments
      to reconcile net income to net cash used in operating
      activities:Gain
      on sale of marketable securities
              
              
              50,530
              
              
              
              7,989Gain
      on sale of unproved property
              
              
              —
              
              
              
              (1,550,797
              )Gain
      from extinguishment of debt
              
              
              —
              
              
              
              (383,531
              )Relinquishment
      of property option
              
              
              3,289,387
              
              
              
              1,143,882Debt
      issue costs and discount amortization
              
              
              1,740,462
              
              
              
              819,622Depreciation
              
              
              100,233
              
              
              
              13,391Expenses
      paid with stock issuance
              
              
              653,821
              
              
              
              294,500Expenses
      paid with stock issuance obligation
              
              
              61,055
              
              
              
              —Interest
      paid with stock issuance
              
              
              —
              
              
              
              44,711Changes
      in operating assets and liabilities:Receivables
              
              
              (216,402
              )
              
              
              (100,058
              )Prepaid
      expense
              
              
              —
              
              
              
              (15,000
              )Deferred
      debt issue costs
              
              
              (305,011
              )
              
              
              (533,769
              )Joint
      venture partner interest payable
              
              
              99,167
              
              
              
              —Interest
      payable
              
              
              234,819
              
              
              
              —Accounts
      payable
              
              
              181,092
              
              
              
              (120,708
              )Net
      cash provided by (used in) operating activities
              
              $
              (2,701,694
              )
              
              $
              (3,971,445
              )Cash
      flow from investing activities:Purchase
      and sale of marketable securities
              
              
              355,026
              
              
              
              (413,545
              )Deposits
      on unproved oil and gas property
              
              
              716,000
              
              
              
              (716,000
              )Proceeds
      on sale of oil and gas property
              
              
              —
              
              
              
              2,038,206Unproved
      oil and gas property additions
              
              
              (405,364
              )
              
              
              (2,163,456
              )Restricted
      Cash
              
              
              75,000
              
              
              
              (100,000
              )Purchase
      of equipment
              
              
              (1,340,747
              )
              
              
              (284,664
              )Net
      cash provided by (used in) investing activities
              
              $
              (600,085
              )
              
              $
              (1,639,459
              )Cash
      flow from financing activities:Proceeds
      from issuance of convertible debenture
              
              
              —
              
              
              
              6,024,633Payments
      on convertible debenture
              
              
              (857,400
              )
              
              
              —Proceeds
      from issuance of common stock
              
              
              —
              
              
              
              945,650Proceeds
      from notes payable
              
              
              4,449,962
              
              
              
              171,000Payments
      on notes payable
              
              
              (458,416
              )
              
              
              (1,331,848
              )Net
      cash provided by financing activities:
              
              
              3,134,146
              
              
              
              5,809,435Net
      increase in cash and equivalents
              
              
              (167,632
              )
              
              
              198,531Cash
      and equivalents at beginning of period
              
              
              347,558
              
              
              
              149,027Cash
      and equivalents at end of period
              
              $
              179,926
              
              
              $
              347,558Supplemental
      Disclosure of Cash Flow and Non-cash Investing and Financing
      Activity:Income
      tax paid
              
              $
              —
              
              
              $
              —Interest
      paid
              
              $
              —
              
              
              $
              81,750Non
      cash:Conversion
      of $350,000 convertible note into common stock
              
              $
              —
              
              
              $
              394,711Acquisition
      of oil & gas interest in exchange for common stock (as
      restated)
              
              $
              —
              
              
              $
              600,000Contribution
      of oil & gas interest in exchange for stock issuance
              
              $
              196,000
              
              
              $
              —Convertible
      debenture paid with stock
              
              $
              2,950,982
              
              
              $
              829,218Legal
      and advisory services in exchange for stock issuance
      obligation
              
              $
              61,055
              
              
              $
              —Fees
      paid with stock
              
              $
              85,000
              
              
              $
              309,211
 See
accompanying notes.


17
 Table of Contents
 Fellows EnergyLtd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  Note 1 - Basis of Presentation and Nature of
Operations
 Nature of Operations - Fellows Energy Ltd. is
engaged in the exploration, extraction, processing and reclamation of coalbed
methane, natural gas, and oil projects within the Western United States. We
incorporated in the state of Nevada on April 9, 2001 as Fuel Centers, Inc. On
November 12, 2003, we changed our name to Fellows Energy Ltd. Our principal
offices are in Boulder, Colorado.
  Cash Equivalents- We consider all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents. At December 31, 2006 and 2005, we had approximately $180,000
and $348,000 in cash equivalents respectively.
  Fair Value of Financial Instruments - The
carrying amount of our financial instruments, which includes cash and accounts
payable, approximate their fair value due to the short period to maturity of
these instruments.
  Restricted Cash - Restricted cash is cash
balances held in the form of bank certificates of deposit, and with the state of
Utah as a reclamation bond. At December 31, 2006 and 2005, $160,000 and $235,000
respectively, of restricted cash was on deposit with custodians to secure
reclamation of oil and gas property.
  Revenue Recognition - we record revenue when
title passes, delivery occurs to our customers and the customer assumes the
risks and rewards of ownership, when the price is fixed and determinable, and
when collectibility is reasonably assured.
  Income Tax - We recognize deferred tax assets
and liabilities based on differences between the financial reporting and tax
bases of assets and liabilities using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to be recovered. We
provide a valuation allowance for deferred tax assets when we consider
realization of such assets to be less likely than not.
  Net Loss per Common Share - We have adopted
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Statement 128 requires the reporting of basic and diluted earnings/loss per
share. We calculate basic loss per share by dividing net loss by the weighted
average number of outstanding common shares during the period.  We
calculate diluted loss per share by dividing net loss by the weighted average
number of outstanding common shares including all potentially dilutive
securities during the period.
 
 Comprehensive Loss - We apply Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the reporting and display of
comprehensive income or loss, requiring its components to be reported in a
financial statement. For the years ended December 31, 2006 and 2005, our
comprehensive loss was comprised of our net loss and any unrealized holding gain
on our marketable securities as reported in our statements of
operations.
  Use of Estimates - Accounting principles
generally accepted in the United States require us 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 expense during the reporting
period. Actual results could differ from those estimates.
  Concentration of Credit Risk - Financial
instruments that potentially subject us to concentration of credit risk consist
of cash. At December 31, 2006, we had $79,926 in cash in excess of federally
insured limits.
  Oil and Gas Activity- We follow the
successful-efforts method of accounting for oil and gas property as defined
under Statement of Financial Accounting Standards No. 19, Financial Accounting
and Reporting by Oil and Gas Producing Companies (“FAS 19”). Under this method
of accounting, we capitalize all property acquisition cost and cost of
exploratory and development wells when incurred, pending determination of
whether the well has found proved reserves. If an exploratory well does not find
proved reserves, we charge to expense the cost of drilling the well. We include
exploratory dry hole cost in cash flow from investing activities within the cash
flow statement. We capitalize the cost of development wells whether productive
or nonproductive. We had no exploratory well cost that had been suspended for
one year or more as of December 31, 2006.
  We
expense as incurred geological and geophysical cost and the cost of carrying and
retaining unproved property. We will provide depletion, depreciation and
amortization (DD&A) of capitalized cost of proved oil and gas property on a
field-by-field basis using the units-of-production method based upon proved
reserves. In computing DD&A we will take into consideration restoration,
dismantlement and abandonment cost and the anticipated proceeds from equipment
salvage. When applicable, we will apply the provisions of Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations, which
provides guidance on accounting for dismantlement and abandonment
cost.
 18
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  We review
our long-lived assets for impairment when events or changes in circumstances
indicate that an impairment may have occurred. In the impairment test we compare
the expected undiscounted future net revenue on a field-by-field basis with the
related net capitalized cost at the end of each period. Should the net
capitalized cost exceed the undiscounted future net revenue of a property, we
will write down the cost of the property to fair value, which we will determine
using discounted future net revenue. We will provide an impairment allowance on
a property-by-property basis when we determine that the unproved property will
not be developed.
 
 Impairment
of Unproved (Non-Producing) Properties - Unproved
properties are assessed periodically, and at least annually, to determine
whether or not they have been impaired. We provide an impairment allowance on
unproved property at any time we determine that a property will not be
developed. At December 31, 2006, we still consider our acquired properties to be
economically and operationally viable, in accordance with FAS
19.   In determining that there was no impairment of the unproved
properties, we considered such factors our commitment of project personnel and
cost being incurred to develop as well as the existence of our active agreements
with our venture partners and others. In addition, the Company had no unproved
properties that were surrendered or abandoned during the year ended December 31,
2006 as a result of impairment.
  Sales of
Producing and Nonproducing Property - We account for the sale of a partial
interest in a proved property as normal retirement. We recognize no gain or loss
as long as this treatment does not significantly affect the unit-of-production
depletion rate. We recognize a gain or loss for all other sales of producing
properties and include the gain or loss in the results of
operations.
 
 We
account for the sale of a partial interest in an unproved property as a recovery
of cost when substantial uncertainty exists as to recovery of the cost
applicable to the interest retained. We recognize a gain on the sale to the
extent that the sales price exceeds the carrying amount of the unproved
property. We recognize a gain or loss for all other sales of non-producing
properties and include the gain or loss in the results of
operations.
  Stock Options- On October 9, 2003, we adopted
an incentive stock option plan, pursuant to which shares of our common stock are
reserved for issuance to satisfy the exercise of options. The purpose of the
incentive stock option plan is to attract and retain qualified and competent
officers, employees and directors. The plan authorizes up to 2,000,000 shares of
authorized common stock to be purchased pursuant to the exercise of options. Our
stockholders approved the plan on November 10, 2003. On September 15, 2004, we
granted an option for 200,000 shares to our CEO, 150,000 shares to our vice
president and 125,000 shares to an employee. These options are exercisable at
$0.80 per share, the price of our stock on the grant date. The options vested
50% on the grant date and vest 50% on September 15, 2005. On October 3, 2005, we
granted an option for 100,000 shares to our CEO, 150,000 to our Vice President
and 175,000 and 200,000 shares to two employees respectively. The options vest 6
months from the date of grant.  On November 1, 2006, we granted an
option for 300,000 shares to our Vice President of Business
Development.  The options vest 6 months from the date of
grant.
  We
account for stock options to employees in accordance with Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and
related interpretations. Pursuant to APB No. 25, we record no compensation
expense to employees on the date of grant because in issuing the grants we set
the exercise price of the underlying stock at or above the market value of the
stock on the date of the grant. Stock options granted to consultants are
accounted for under the fair value method, in accordance with Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation.
  Statement
123 and Statement 148, Accounting for Stock-Based Compensation Transition and
Disclosure, require disclosure of pro forma information regarding net income and
earnings per share. The Statements require that the information be determined as
if we had accounted for employee stock options under the fair value method of
the statements. We estimate the fair value of the options we grant at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended December 31, 2006: a risk-free
interest rate of 4.37%; no expected dividend; a volatility factor of 97.5%; and
a maturity date of ten years.
  19
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  
 For
purposes of pro forma disclosures, we amortize to expense the estimated fair
value of the options over the options’ vesting period. Our pro forma information
for 2006 is as follows:
 
 Year Ended
                December 31, 2006Net
      loss
              
              $
              (8,590,847
              )Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards
              
              
              (191,497
              )Pro
      forma net loss
              
              $
              (8,782,344
              )Loss
      per share—as reported
              
              $
              (0.11
              )Loss
      per share—pro forma
              
              $
              (0.11
              )
  The
Black-Scholes option-pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions, are fully
transferable, and are not subject to trading restrictions or blackout periods.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because our employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, it is our opinion that the existing models do
not necessarily provide a reliable single measure of the fair value of our
employee stock options.
  We have
not adopted any of the early transition methods provided for in Statement No.
148. In December 2004 the Financial Accounting Standards Board issued Statement
No. 123 (Revised 2004), Share-Based Payment. This statement requires companies
to recognize the fair value of stock options and other stock-based compensation
as expense for reporting periods beginning in July 2005. For awards issued prior
to the effective date, the standard requires companies to utilize prior
valuation models of fair value and recognize as expense the remaining unvested
portion of the awards over the remaining vesting periods. The adoption of this
statement is not expected to have a material impact on the Company’s operating
results, financial position or cash flow.
  Note 2 - Asset Retirement
Obligation - Significant Accounting Policies, continued
  The
Company follows Statement of Financial Accounting Standards (“SFAS”) No. 143,
“Accounting for Asset
Retirement Obligations”, which requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. 
The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset.  The increase in carrying value of a
property associated with the capitalization of an asset retirement cost is
included in proved oil and gas properties in the consolidated balance
sheets.  The Company depletes the amount added to proved oil and gas
property costs.  The future cash outflows for oil and gas properties
associated with settling the asset retirement obligations that have been accrued
in the accompanying balance sheets are excluded from the ceiling test
calculations.  The Company’s asset retirement obligation consists of costs
related to the plugging of wells and removal of facilities and equipment on its
oil and gas properties.  The asset retirement liability is allocated to
operating expenses using a systematic and rational method. At December 31, 2006,
the asset retirement obligation and accretion expense were not booked because
these amounts were not considered to be material.
  Note 3 - Going
Concern
  As shown
in the accompanying financial statements, we have incurred significant operating
losses since inception and previously incurred a loss on our discontinued
automotive fuel business. As of December 31, 2006, we have limited financial
resources until such time that we are able to generate positive cash flow from
operations. These factors raise substantial doubt about our ability to continue
as a going concern. Our ability to achieve and maintain profitability and
positive cash flow is dependent upon our ability to locate profitable mineral
properties, generate revenue from our planned business operations, and control
exploration cost. Management plans to fund its future operation by joint
venturing, obtaining additional financing, and attaining additional commercial
production. However, there is no assurance that we will be able to obtain
additional financing from investors or private lenders, or that additional
commercial production can be attained.  Although management believes
that production from the Carbon County and Creston projects will generate
revenues sufficient to sustain the Company, no assurance can be given that such
revenues will be generated from the projects.
 20
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
 
 Note 4 - Note
Receivable
 
 In August
and September 2005 as part of our earn-in arrangement, we agreed to advance
Mountain Oil and Gas a total of $66,000 for purposes of working capital in
exchange for oilfield and rig services.  Originally this balance was
classified as a deposit, and has since been reclassified as a note
receivable.  As indicated in the agreement, in the event that
sufficient services were not performed, the amount was to be treated as a loan,
and would take on a 12% interest payable beginning February of
2006.  The amount is secured with field equipment including a pumping
unit, engine, treater, and rods.  We are in the process of negotiating
repayment, and consider the amount fully collectible.
 
 In
October 2005, we entered into an agreement to obtain up to a 75% working
interest in certain well bores owned by Mountain Oil and Gas.  In
connection with this, we agreed to advance Mountain Oil and Gas a total of
$100,000 for the purpose of well bonding and working capital.  This
was due and payable back to the Company on December 30, 2005 either in cash or
labor towards the workover of the well bore. In the event that we were not paid
by December 30, 2005, we are entitled to $160,000 of the net revenues from the
1-16A1E well beginning January 1, 2006.  Repayment is secured by a
pumping unit located on the Dye-Hall well for the value of the working capital
and well bonding.  As of December 31, 2006, we have collected $20,000
on the note, and are negotiating payment or collection of security for the
remaining portion.  We consider the remaining portion as fully
collectible.
 
 Note 5 - Sale of Unproved
Property
 
 In
February 2005 we sold the Circus project for $2.04 million to an unrelated third
party. We acquired the leases in October, 2004, with a total cost of $487,000
and thus realized a gain of $1.5 million on the sale. Additionally, we incurred
$53,000 of closing cost on the sale.
 
 Note 6 - Convertible Note
Payable
  On
September 9, 2003, we received $350,000 for issuance of a convertible note
payable to a third party investor. The principal is due and payable on March 9,
2005 together with interest at the rate of 8% per year. The note also contains a
conversion feature that gives the holder the right to convert all or any portion
of the principal indebtedness into shares of common stock on or before its due
date. On March 3, 2005, the note holder notified us that they were exercising
their right to convert the entire $350,000 note at a conversion rate of $0.1429
per share, or 2,449,265 shares.
  Note 7 - Convertible
Debentures
  In June
2004 we issued a convertible debenture with a conversion price of $1.25 per
share of common stock, subject to anti-dilution adjustments, in a private
placement to two purchasers. The convertible debenture is secured by our assets.
In connection with the issuance, we also issued warrants to purchase up to
400,000 shares of common stock at $1.50 per share. The warrants are exercisable
for two years following conversion of the convertible debenture at an exercise
price of $1.50. The offering resulted in gross proceeds to us, prior to the
deduction of fees and cost, of approximately $1,000,000. We used the proceeds
from the offering for working capital and general corporate
purposes.
  The
conversion price of the convertible debenture and the exercise price of the
warrants are subject to customary anti-dilution rights. In addition, if we issue
common stock at a price less than the conversion price of the convertible
debenture, then the conversion price will be reduced to the lower price. Under
such circumstances, the exercise price of the warrants will be adjusted to the
same price as the conversion price. As part of the placement, we agreed to
provide piggyback registration rights to register for resale all of the shares
of common stock issuable upon conversion of the debenture and upon exercise of
the warrants.  We are currently in negotiations to repay the
convertible debenture.
 
 We issued
the above securities utilizing an exemption from registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated under the Securities Act based on the representations
of the Purchaser that it was an “accredited investor” (as defined under Rule 501
of Regulation D) and that it was purchasing the securities without a present
view toward a distribution of the securities. In addition, we conducted no
general solicitation in connection with the sale of the
securities.
 21
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  On June
17, 2005, we closed a financing pursuant to a securities purchase agreement with
three accredited investors for the issuance of $5,501,200 in face amount of
debentures maturing at the end of the 27th month from the date of issuance, and
three year warrants to purchase common stock of the company. The debentures bear
no interest and the investors paid $3,849,685, after discounts of $1,651,515,
for the debentures. A commission of 9% on the $3.85 million was paid in
connection with the transaction, and we paid $100,000 in legal fees, resulting
in net proceeds to the company of $3,403,267. The debentures are unsecured and
we are obligated to pay 1/24th of the face amount of the debenture on the first
of every month, starting October 1, 2005, which payment can be made in cash or in
common stock. We may pay this amortization payment in cash or in stock at the
lower of $0.60 per share (the Set Price) or 80% of the volume weighted average
price of the stock for the five trading days prior to the repayment date. In the
event that we make the payment in cash, we shall pay 110% of the monthly
redemption amount. At any time after 90 days from the date that a registration
statement registering the shares of common stock underlying the debentures and
warrants is declared effective (the Effective Date), and if certain conditions
are met, we have the right to redeem some or all of the debentures in a cash
amount equal to 110% of the face amount of the debentures being redeemed. At any
time, the debentures are convertible into common stock at the Set
Price.
 
 We issued
warrants to the investors, expiring June 17, 2008, to purchase 4,584,334 shares
of restricted common stock, exercisable at a per share of $0.649. In addition,
the exercise price of the warrants will be adjusted in the event we issue common
stock at a price below the exercise price, with the exception of any securities
issued pursuant to a stock or option plan adopted by our board of directors,
issued in connection with the debentures issued pursuant to the securities
purchase agreement, or securities issued in connection with acquisitions or
strategic transactions. Upon an issuance of shares of common stock below the
exercise price, the exercise price of the warrants will be reduced to equal the
share price at which the additional securities were issued and the number of
warrant shares issuable will be increased such that the aggregate exercise price
payable for the warrants, after taking into account the decrease in the exercise
price, shall be equal to the aggregate exercise price prior to such
adjustment.
 
 Warrants
to purchase 250,000 shares, at the same price and for the same term as the
warrants issued to the investors, have been issued to HPC Capital Management as
additional compensation for its services in connection with the transaction with
the investors.
 
 In
addition to the $1,651,515 cash discount, we also recorded a discount of
$626,042 based on a Black-Scholes model valuation of the 4,584,334 warrants
issued to the debenture holders and the 250,000 warrants issued to HPC Capital
Management.
  On
September 21, 2005, we closed a financing pursuant to a securities purchase
agreement with two accredited investors for the issuance of $3,108,000 in face
amount of debentures maturing December 21, 2008, and three year warrants to
purchase common stock of the company. The debentures do not accrue interest and
the investors paid $2,174,947.52 for the debentures. A commission of 8% on
$2,000,000 raised was paid to in connection with the transaction, and we placed
$50,000 in escrow for the payment of future legal fees, resulting in net
proceeds to the company of $1,964,947.52 before $39,000 in associated current
legal fees. Net proceeds will be used for general working capital. The
debentures are unsecured and we are obligated to pay 1/24th of the face amount
of the debenture on the first of every month, starting January 1, 2006, which
payment can be made in cash or in restricted common stock. We may pay this
amortization payment in cash or in stock at the lower of $0.75 per share (the
Set Price) or 80% of the volume weighted average price of the stock for the five
trading days prior to the repayment date, provided that there is an effective
registration statement and the monthly conversion price is greater of than
$0.60. In the event that we make the payment in cash, we shall pay 110% of the
monthly redemption amount. At any time after 90 days from the date that a
registration statement registering the shares of common stock underlying the
debentures and warrants is declared effective (the Effective Date), and if
certain conditions are met, we have the right to redeem some or all of the
debentures in a cash amount equal to 110% of the face amount of the debentures
being redeemed. At any time, the debentures are convertible to restricted common
stock at the Set Price.
  We issued
warrants to the investors, expiring September 21, 2008, to purchase 2,072,000
shares of restricted common stock, at a price per share of $0.80. The number of
shares underlying the warrants equals 50% of the shares issuable on full
conversion of the debentures at the set price (as if the debentures were so
converted on September 21, 2005). In addition, the exercise price of the
warrants will be adjusted in the event we issue common stock at a price below
the exercise price, with the exception of any securities issued pursuant to a
stock or option plan adopted by our board of directors, issued in connection
with the debentures issued pursuant to the securities purchase agreement, or
securities issued in connection with acquisitions or strategic transactions.
Upon an issuance of shares of common stock below the exercise price, the
exercise price of the warrants will be reduced to equal the share price at which
the additional securities were issued and the number of warrant shares issuable
will be increased such that the aggregate exercise price payable for the
warrants, after taking into account the decrease in the exercise price, shall be
equal to the aggregate exercise price prior to such adjustment.
 22
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  Warrants
to purchase 100,000 shares, at the same price and for the same term as the
warrants issued to the investors, have been issued to HPC Capital Management as
additional compensation for its services in connection with the transaction with
the investors.
 
 In
addition to the $933,052 cash discount, we also recorded a discount of $614,905
based on a Black-Scholes model valuation of the 2,072,000 warrants issued to the
debenture holders and the 100,000 warrants issued to HPC Capital
Management.
 Note 8 - Notes
Payable
  Over the
period October 2005 through December 2006 we borrowed a total of $2,034,000 on
an unsecured 8% demand note payable to an entity controlled by our CEO. During
the 2006, we paid back a total of $301,000 in principal on the
note.
 
 Also in
2005, we entered into a 45-well workover program, the Creston Project, in which
we completed and placed the first well into production in the first quarter of
2006.  We obtained $1.25 million in industry partner financing to
carry the project forward. In connection with the transaction, we acquired the
rights to up to a 75% working interest, reduced to 45% interest in 18 months, in
the wells to be completed in the program as well as $1.25 million in project
financing from an industry partner in exchange for 1,642,632 shares of
restricted common stock and warrants to purchase 1.8 million shares at $0.70 per
share.  The repayment of the $1.25 million in financing is secured
with 1.8 million shares of restricted stock held in escrow and is personally
guaranteed by George S. Young, our CEO, and by his private company, Diamond Oil
and Gas Corporation.  At December 31, 2006 there was $900,000 outstanding
on this financing.  According to the agreement we will pay $90,000 per
month until paid off in December 2007.
 
 In March
2006, we borrowed $750,000 on a secured 12% note payable for a period of 36
months in exchange for a 5% overriding royalty interest in Carbon County,
as well as the right to participate in any future exploration activities on the
project on the basis of a 10% working interest.  At December 31, 2006 all
of the principal was outstanding, and according to the agreement we will pay
approximately $33,000 per month over 2007 and 2008, until paid off in
February 2009.
 
 In May
2006, we borrowed $500,000 at 12% interest in exchange for a 2% overriding
royalty interest in Carbon County as well as 50,000 shares of common
stock.  As of December 31, 2006, we have paid $139,000 towards the
principal and interest, and will pay $31,000 per month until paid off in
December 2007.
 Notes
      Payable
                
                December
    31,2006
                
                
                2005Notes
      payable current portionNote
      for project acquisition - March 2006
                
                
                322,000
                
                
                
                —Note
      for project development - May 2006
                
                
                361,111
                
                
                
                —Note
      for project development - Dec 2006
                
                
                900,000
                
                
                
                —1,583,111
                
                
                
                —Notes
      payable long term portionNote
      from related party
                
                
                1,733,000
                
                
                
                12,000Note
      for project acquisition - May 2006
                
                
                428,000
                
                
                
                —2,161,000
                
                
                
                12,000
  23
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
 Note 9 - Common
Stock
  For debt
service of our convertible debentures, we issued 2,513,630 shares , 4,033,043
shares, 4,739,696 shares, and 5,031,413 shares of common stock in the first,
second, third and fourth quarters of 2006, respectively. First quarter
redemption share payments amounted to 617,433 shares, 1,341,500 shares, and
554,697 shares at an average price of $0.37, $0.27, and $0.27 per share
respectively. Second quarter redemption share payments amounted to 751,818
shares, 1,425,192 shares, 1,737,976 shares, and 118,057 shares at an average
price of $0.27, $0.25, $0.21, and $0.27 per share respectively. Third quarter
redemption payments amounted to 137,257 shares, 1,898,013 shares, 2,586,369
shares, and 118,057 shares at an average price of $0.29, $0.19, $0.14, and $0.12
per share respectively. Fourth quarter redemption payments amounted to 487,070
shares, 3,130,267 shares, and 1,414,076 shares, at an average price of $0.12,
$0.12, and $0.08 per share respectively.
 
 In May
2006 we issued 700,000 shares in connection with the joint venture of one of our
projects with a price of $0.28, we also issued 861,921 shares at $0.25 in
accordance with ratchet down rights under the May 18, 2005 private placement. In
addition, we issued 790,000 shares at $0.32 in connection with the joint venture
secured project funding.
 
 In June
2006, we issued 48,980 shares at $0.25 in accordance with the May 2006 note
payable.
 
 In July
2006, we issued 50,000 shares at $0.45 in accordance with the May 2006 note
payable. We also issued 250,000 shares at $0.25 in accordance with the April
2006 financing.
 
 In
October 2006, we issued 800,000 shares of common stock at $0.14 pursuant to a
legal consulting agreement.
 
 In
November 2006, we issued 1,083,607 shares of common stock at $0.14 in accordance
with ratchet down rights under the May 18, 2005 private placement
 
 As of
December 31, 2006, we intend to issue common stock for obligations amounting to
$76,000.
 
 Note 10 - Related Party
Transactions
  Over the
period October 2005 through December 2006 we borrowed a total of $2,034,000 on
an unsecured 8% demand note payable to an entity controlled by our CEO. During
the 2006, we paid back a total of $301,000 in principal on the
note.
 
 Note 11 - Property Reserves
(Unaudited)
 
 The
following reserve quantity and future net cash flow information represents
proved reserves located in the State of Utah in the United States. The reserves
as of December 31, 2006 have been estimated by MHA Petroleum Consultants,
independent petroleum engineers.  We did not have any proved reserves in
the State of Utah at December 31, 2005.  The determination of oil and gas
reserves is based on estimates, which are highly complex and interpretive. The
estimates are subject to continuing change as additional information becomes
available.
  Reserve
Quantities
  Table
      1
                
                December
    31,
                
                
                December 31,Gas reserves (in
      MMcf)
                
                2006
                
                
                2005Proven
      developed producing reserves
                
                
                1,362
                
                
                
                —Proven
      developed non-producing reserves
                
                
                2,231
                
                
                
                —Proven
      undeveloped reserves
                
                
                6,931
                
                
                
                —Total
      proved reserves as of  December 31, 2006
                
                
                10,524
                
                
                
                —
 
 Analysis
of Changes in Proved Reserves
 Estimated
quantities of proved developed reserves, as well as the changes in proved
developed reserves during the periods indicated, are presented in the following
table:
 24
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  
 Table
      2
                
                Gas
      ReservesChanges in Proved Developed
      Reserves
                
                (MMcf)Proved
      developed reserves at December 31, 2005
                
                
                —Revisions
      of previous estimates
                
                
                10,524Extensions and discoveries
                
                
                —Sales of reserves in place
                
                
                —Improved recovery
                
                
                —Purchase
      of reserves
                
                
                —Production
                
                
                (68
                )Proved
      developed reserves at December 31, 2006
                
                
                10,455
 Standardized Measure
of Discounted Future Net Cash Flows
  costs are based on year-end costs and include severance
taxes.
  Table 3 ( In
      thousands)
              
              December
    31,
              
              
              December
    31,2006
              
              
              2005Future
      cash flows
              
              $
              76,363
              
              
              $
              —Future
      production costs
              
              
              (1,680
              )
              
              
              —Future
      development costs
              
              
              (27,750
              )Future
      income taxes
              
              
              (28,022
              )
              
              
              —Future
      net cash flows before discount
              
              $
              18,911
              
              
              $
              —10%
      discount to present value
              
              
              (1,891
              )
              
              
              —Standardized
      measure of discountedFuture
      net cash flows
              
              $
              17,192
              
              
              $
              —
  Volumes, Prices and Operating
Expenses
  The
following table presents information regarding the production volumes, average
sales prices received and average production costs associated with our sales of
natural gas and oil for the periods indicated.
  Table 4
              
              December
    31,
              
              
              December
    31,Production and Sales
      Data
              
              2006
              
              
              2005Natural
      gas production (Mcf)
              
              $
              235,378
              
              
              $
              —Average
      sales price per Mcf
              
              
              5.5Expenses
      per McfLease
      operating
              
              $
              1.91
              
              
              $
              —Gathering
              
              $
              0.94
              
              
              $
              —General
      and administrative
              
              $
              9.73
              
              
              $
              —Depletion
      and accretion
              
              $
              .31
              
              
              $
              —
 25
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
 Development, Exploration and
Acquisition Capital Expenditures
  During
the year ended December 31, 2006, we spent $1,027,000in development and
exploration activities.  During the year ended December 31, 2005, we
spent $1,141,000 on development and exploration activities, and $738,000 on the
acquisition of acreage and option maintenance for John’s Valley, Overthrust, and
the Bacaroo project.  As of December 31, 2006, we held a working
interest of approximately 46% in 5,953 gross acres (2,440 net acres) located in
Carbon County, Utah.  As of December 31, 2006, we held an interest in four
gross (1.84 net) producing and four gross shut-in (1.84 net) gas wells located
on these properties.
  Table 5
presents information regarding our net costs incurred in the purchase of proved
and unproved properties and in exploration and development
activities:
  Table
      5
              
              December
    31,2006
              
              
              2005Property
      acquisition costs:Unproved
              
              $
              —
              
              
              $
              738,241Proved
              
              
              1,200,000
              
              
              
              300,000Exploration
              
              
              564,196
              
              
              
              1,141,202Development
              
              
              463,263
              
              
              
              —$
              2,227,459
              
              
              $
              2,179,443
  Productive Wells and
Acreage
  Table 6
summarizes our productive and shut-in gas wells as of December 31, 2006.
 Productive wells are producing wells and wells capable of production.
 Shut-in wells are wells that are capable of production but are not
producing.  Gross wells are the total number of wells in which we have an
interest.  Net wells are the sum of our fractional interests owned in the
gross wells.
 
 Table 6
              
              Productive gas
      wellsGross
              
              
              NetProducing
      gas wells
              
              
              4
              
              
              
              1.8Shut-in
      gas wells
              
              
              4
              
              
              
              1.8
  Undeveloped
Acreage
  Table 7
summarizes the undeveloped and developed leasehold acreage, by area, that we
hold as of December 31, 2006.  Undeveloped acres are acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of oil and gas, regardless of whether or not the
acreage contains proved reserves.  Developed acres are acres that are
spaced or assignable to productive wells.  Gross acres are the total number
of acres in which we have a working interest.  Net acres are the sum of our
fractional interests owned in the gross acres.  The table does not include
acreage that we have a contractual right to acquire or to earn through drilling
projects, or any other acreage for which we have not yet received leasehold
assignments.  In certain leases, our ownership is not the same for all
depths.  The net acres in these leases are calculated using the greatest
ownership interest at any depth.  Generally, this greater interest
represents our ownership in the primary objective formation.
  Table 7Summary of
      Acreage
                
                Undeveloped
      acres
                
                
                Developed
      acresGross
                
                
                Net
                
                
                Gross
                
                
                NetUtah
                
                
                14,242
                
                
                
                1,752
                
                
                
                5,953
                
                
                
                2,440Wyoming
                
                
                33,486
                
                
                
                19,604
                
                
                
                —
                
                
                
                —Colorado
                
                
                3,440
                
                
                
                3,440
                
                
                
                —
                
                
                
                —Total
      acres
                
                
                51,168
                
                
                
                24,796
                
                
                
                5,953
                
                
                
                2,440
 26
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  Note 11 - Income
Tax
  At
December 31, 2006, we have available for federal income tax purposes a net
operating loss carryforward of approximately $10,600,000, expiring at various
times through 2024 that may be used to offset future taxable income. Therefore,
we have provided no provision for income tax.
  In
addition, we have deferred tax assets of approximately $3,600,000 at December
31, 2006. We have not recorded a benefit from our net operating loss
carryforward because realization of the benefit is uncertain and, therefore, a
valuation allowance of $(3,600,000) has been provided for the deferred tax
assets. The following table reports our carryforwards and the related deferred
tax assets by year through December 31, 2006:
 
 Year
              
              NOL carryforward
              
              
              Deferred tax asset2001
              
              $
              10,241
              
              
              $
              3,4812002
              
              
              21,560
              
              
              
              7,3302003
              
              
              122,915
              
              
              
              41,7912004
              
              
              3,138,118
              
              
              
              1,066,9602005
              
              
              1,957,800
              
              
              
              665,7002006
              
              
              5,301,500
              
              
              
              1,802,500Less:
      valuation allowance
              
              
              —
              
              
              
              (3,587,762
              )Totals:
              
              $
              10,582,157
              
              
              $
              —
 
 Note 12 - Commitments and
contingencies
  We
were sued in the Sixth Judicial District Court, Garfield County, Utah on
November 10, 2004, by Midway Perforating and Drilling in a complaint alleging
nonpayment of charges connected with drilling the Johns Valley 10-33C2 well
in Garfield County, UT. The complaint seeks damages of $100,000 and costs of
$10,000. We filed our Answer and Counterclaim on January 19, 2005. We believe we
have a strong defense and counterclaim in that the plaintiff failed to follow
our instructions to use appropriate equipment for controlling deviation of the
wellbore, and that such failure caused significant deviation of the wellbore,
causing the well to be unusable and a breach of contract. The well bore failed
to penetrate the target zone within the permitted drilling spacing unit due to
horizontal deviation improperly allowed to occur by the plaintiff contractor.
The suit is in its early stages. Although we believe we have a strong defense
and counterclaim, we cannot predict the final outcome of the suit.
  Note 13 - Subsequent
Events
 
 On
February 15, 2007, we entered into a series of transactions to restructure
securities issued pursuant to securities purchase agreements dated June 17, 2005
and September 21, 2005.
 
 Background
 
 June 2005
Financing
 
 On June
17, 2005, we closed a financing pursuant to a securities purchase agreement with
three accredited investors, Palisades Master Fund, L.P. (“Palisades”), Crescent
International Ltd. (“Crescent”) and JGB Capital L.P. (“JGB”) for the issuance of
$5,501,199.95 in face amount of debentures maturing September 16, 2008 (the
“June Debentures”). The June Debentures were unsecured and we were obligated to
pay 1/24th of the face amount of the debenture on the first of every month,
starting October 1, 2005, which payment could be made in cash or in shares of
our common stock. We could pay this amortization payment in cash or in stock at
the lower of $0.60 per share or 80% of the volume weighted average price of our
stock for the five trading days prior to the repayment date. In the event that
we made the payment in cash, we paid 110% of the monthly redemption
amount.
  In
addition, we issued warrants to the investors, expiring June 17, 2008, to
purchase 4,584,334 shares of restricted common stock, exercisable at a per share
of $0.649 (the “June Warrants”). In addition, the exercise price of the June
Warrants would be adjusted in the event we issued common stock at a price below
the exercise price, with the exception of any securities issued pursuant to a
stock or option plan adopted by our board of directors, issued in connection
with the debentures issued pursuant to the securities purchase agreement, or
securities issued in connection with acquisitions or strategic
transactions.
  27
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
 If in any
period of 20 consecutive trading days our stock price exceeds 250% of the June
Warrants’ exercise price, all of the June Warrants shall expire on the 30th
trading day after we send a call notice to the June Warrant holders. If at any
time after one year from the date of issuance of the June Warrants there is not
an effective registration statement registering, or no current prospectus
available for, the resale of the shares underlying the June Warrants, then the
holder may exercise the June Warrant at such time by means of a cashless
exercise.
  September 2005
Financing
 
 On
September 21, 2005, we closed a financing pursuant to a securities purchase
agreement with two accredited investors, Palisades and Crescent for the issuance
of $3,108,000 in face amount of debentures maturing December 20, 2008 (the
“September Debentures” and together with the June Debentures, the “Old
Debentures”). The September Debentures
were unsecured and we were obligated to pay 1/24th of the face amount of the
debenture on the first of every month, starting January 1, 2006, which payment
could be made in cash or in shares of our common stock. We could pay this
amortization payment in cash or in stock at the lower of $0.75 per share or 80%
of the volume weighted average
price of our stock for the five trading days prior to the repayment date. In the
event that we made the payment in cash, we paid 110% of the monthly redemption
amount.
 
 In
addition, we issued warrants to the investors, expiring September 21, 2008, to
purchase 2,172,000 shares of restricted common stock, exercisable at a per share
of $0.80 (the “September Warrants” and together with the June Warrants, the “Old
Warrants”). In addition, the exercise price of the September Warrants would be
adjusted in the event we issued common stock at a price below the exercise
price, with the exception of any securities issued pursuant to a stock or option
plan adopted by our board of directors, issued in connection with the debentures
issued pursuant to the securities purchase agreement, or securities issued in
connection with acquisitions or strategic transactions.
 
 If in any
period of 20 consecutive trading days our stock price exceeds 250% of the
September Warrants’ exercise price, all of the September Warrants shall expire
on the 30th trading day after we send a call notice to the September Warrant
holders. If at any time after one year from the date of issuance of the
September Warrants there is not an effective registration statement registering,
or no current prospectus available for, the resale of the shares underlying the
September Warrants, then the holder may exercise the September Warrant at such
time by means of a cashless exercise.
  Restructuring
 
 On
February 15, 2007, the following transactions took place with regards to the Old
Debentures and Old Warrants:
 
 1)           JGB
entered into an assignment agreement with Crescent, pursuant to which Crescent
purchased from JGB the June Debentures issued to JGB.  The face value
of the June Debentures issued to JGB at the time of the transaction was
$333,333.33 and Crescent paid $250,000 to JGB for the assignment;
 2)           We
entered into a settlement agreement with JGB for the sum of
$83,333.33.  We amended the terms of the Old Warrants held by JGB to
remove the ratchet and call provisions and JGB agreed to release any shares
reserved for issuance of the Old Warrants and to not exercise such Old Warrants
until we obtain an increase in the authorized shares of common
stock.  Upon obtaining the increase in authorized shares, we agreed to
issue JGB 500,000 shares of restricted common stock;
 3)           We
entered into a first amendment and waiver agreement with Palisades for the
amendment of the Old Debentures issued to Palisades (the “Palisades Amendment
Agreement”); and
 4)           We
entered into a first amendment and waiver agreement with Crescent for the
amendment of the Old Debentures issued to JGB (and purchased by Crescent) and
Crescent (the “Crescent Amendment Agreement” and together with the Palisades
Amendment Agreement, the “Restructuring Amendments”).
 
 Palisades
and Crescent agreed to amend the Old Debentures to remove the mandatory monthly
liquidation provision and to amend the fixed conversion price of the Old
Debentures to $0.1375 (the “Fixed Conversion Price”).  As a result,
the principal amount remaining on the Old Debentures is now due and payable at
maturity, unless sooner converted into shares of common stock by the investors,
at the Fixed Conversion Price.  Palisades and Crescent further agreed
to waive any and all existing defaults under the Old
Debentures.
 28
 Table of Contents
 Fellows
Energy Ltd.
 Notes
to Financial Statements
 December
31, 2006 and 2005
  Pursuant
to the Palisades Amendment Agreement, we agreed to issue 7,025,789 shares of
common stock (the “Monthly Redemption Shares”) to Palisades upon conversion of
$608,433.15 in principal amount of the Old Debentures.  Such Monthly
Redemption Shares were issued as payment for monthly redemptions owed to
Palisades on December 1, 2006 and January 1, 2007 and February 1, 2007 pursuant
to the Old Debentures.  These Monthly Redemption Shares were not
issued while we negotiated the terms of a potential buy-out or restructuring of
the Old Debentures.  The Monthly Redemption Shares were previously
registered for resale pursuant to resale registration statements filed with the
Securities and Exchange Commission and represent the remaining shares of common
stock registered thereunder for Palisades pursuant to the Old
Debentures.  As a result of the Monthly Redemption Shares, the
exercise price of the Old Warrants was reduced to $0.0866, which Palisades
exercised on a cashless basis and received 2,970,758 shares of common stock
which were previously registered for resale pursuant to resale registration
statements filed with the Securities and Exchange Commission.
 
 We agreed
to pay Palisades a forbearance fee of $150,000 a month, for six months, which
fee was paid in shares of common stock at an issuance price of $0.1375, for a
total issuance of 5,454,546 shares of restricted common stock.  In
addition, we agreed to issue Palisades 1,449,825 shares of common stock as a
commitment fee for the restructuring of the Old Debentures.
 
 In
connection with the restructuring, we executed a security agreement (the
“Security Agreement”) in favor of Palisades and JGB granting them a first
priority security interest in all of our goods, inventory, contractual rights
and general intangibles, receivables, documents, instruments, chattel paper, and
intellectual property, except for our Carbon County prospect, which Palisades
and JGB took a second priority interest and for our Carter Creek and Weston
County prospects, which the investors were not granted any security
interest.  The Security Agreements state that if an event of default
occurs under the Old Debentures or Security Agreement, the Investors have the
right to take possession of the collateral, to operate our business using the
collateral, and have the right to assign, sell, lease or otherwise dispose of
and deliver all or any part of the collateral, at public or private sale or
otherwise to satisfy our obligations under these agreements.
 
 On
February 15, 2007, we closed a financing pursuant to a securities purchase
agreement with Palisades for the issuance of a $714,500 face amount debenture
maturing September 15, 2007 (the “New Debenture”). The New Debenture does not
accrue interest and the investors paid $500,000 for the New Debenture. We paid a
commission of $100,000 to HPC Capital Management (a registered broker-dealer) in
connection with the transaction, resulting in net proceeds to us of $400,000
before our legal fees. We used the net proceeds to pay our settlement agreement
payment to JGB, repayment of a bridge loan to Petro Capital Securities, LLC and
the remainder for general working capital purposes. We also issued HPC Capital
Management 6,458,063 shares of restricted common stock and agreed to issue an
additional 1,041,937 shares of restricted common stock and 350,000 warrants upon
obtaining an increase in our authorized shares of common stock, which shares are
additional compensation for its services in connection with the transaction with
the investors.
  The
convertible debentures are secured and are convertible into our common stock, at
Palisades option, at a fixed conversion price of $0.1375. Based on this
conversion price, the $714,500 secured convertible debenture is convertible into
5,196,364 shares of our common stock.
 
 In the
event of default, the investors may require payment, which shall be the greater
of: (A) 130% of the principal amount of the face amount of the debenture to be
prepaid, or (B) the principal amount of the debenture to be prepaid, divided by
the conversion price on (x) the date the default amount is demanded or otherwise
due or (y) the date the default amount is paid in full, whichever is less,
multiplied by the closing price on (x) the date the default amount is demanded
or otherwise due or (y) the date the default amount is paid in full, whichever
is greater
 
 The
conversion price of the debenture may be adjusted in certain circumstances such
as if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the investor’s position.
 
 The
Company has agreed to file a registration statement with the Securities and
Exchange Commission to cover the future sale by the investors of the shares
issuable upon conversion of the Old and New Debentures. If the registration
statement is not filed by the filing deadline or if the registration statement
is not declared effective by the effective deadline, we are required to pay
liquidated damages to the investors.


29
 Table of Contents
  ITEM
13.  EXHIBITS.
 
 Exhibit
      No.
              Description
 
 3.1
              Articles
      of Incorporation, filed as an exhibit to the registration statement on
      Form SB-2 filed with the Securities and Exchange Commission (the
      "Commission") on August 10, 2001, and incorporated herein by
      reference.
 
 3.2
              Certificate
      of Amendment to Articles of Incorporation, filed as an exhibit to the
      amended annual report on Form 10-KSB/A filed with the Commission on May 2,
      2005, and incorporated herein by
reference.
 
 3.3
              Bylaws,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on August 10, 2001, and incorporated herein by
      reference.
 
 4.1
              Form
      of Convertible Debenture issued by Fellows Energy, Ltd., dated June 4,
      2004, filed as an exhibit to the current report on Form 8-K filed with the
      Commission on June 17, 2004, and incorporated herein by
      reference.
 
 4.2
              Form
      of Warrant to Purchase Common Stock of Fellows Energy, Ltd., dated June 4,
      2004, filed as an exhibit to the current report on Form 8-K filed with the
      Commission on June 17, 2004, and incorporated herein by
      reference.
 
 4.3
              Form
      of Security Agreement of Fellows Energy, Ltd., dated June 4, 2004, filed
      as an exhibit to the current report on Form 8-K filed with the Commission
      on June 17, 2004, and incorporated herein by
  reference.
 
 4.4
              Form
      of Warrant to Purchase Common Stock of Fellows Energy Ltd. dated May 18,
      2005, filed as an exhibit to the quarterly report on Form 10-QSB filed
      with the Commission on May 23, 2005, and incorporated herein by
      reference.
 
 4.5
              Form
      of Registration Rights Agreement dated May 18, 2005, filed as an exhibit
      to the quarterly report on Form 10-QSB filed with the Commission on May
      23, 2005, and incorporated herein by
reference.
 
 4.6
              Form
      of Subscription Agreement dated May 18, 2005, filed as an exhibit to the
      registration statement on Form SB-2 filed with the Commission on August
      10, 2005, and incorporated herein by
reference.
 
 4.7
              Form
      of Securities Purchase Agreement of Fellows Energy Ltd. dated June 17,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on August 10, 2005, and incorporated herein by
      reference.
 
 4.8
              Form
      of Debenture issued by the Company, dated June 17, 2005, filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on August 10, 2005, and incorporated herein by
      reference.
 
 4.9
              Form
      of Warrant to purchase Common Stock of the Company, dated June 17, 2005,
      filed as an exhibit to the registration statement on Form SB-2 filed with
      the Commission on August 10, 2005, and incorporated herein by
      reference.
 
 4.10
              Form
      of Registration Rights Agreement of Fellows Energy Ltd. dated June 17,
      2005, filed as an exhibit to the registration statement on Form SB-2 filed
      with the Commission on August 10, 2005, and incorporated herein by
      reference.
 
 4.11
              Form
      of Securities Purchase Agreement of Fellows Energy Ltd. dated September
      21, 2005, filed as an exhibit to the current report on Form 8-K filed with
      the Commission on September 22, 2005, and incorporated herein by
      reference
 
 4.12
              Form
      of Debenture issued by the Company, dated September 21, 2005, filed as an
      exhibit to the current report on Form 8-K filed with the Commission on
      September 22, 2005, and incorporated herein by
  reference
 
 4.13
              Form
      of Warrant to purchase Common Stock of the Company, dated September 21,
      2005, filed as an exhibit to the current report on Form 8-K filed with the
      Commission on September 22, 2005, and incorporated herein by
      reference
 
 30
 Table of Contents
 4.14
              Form
      of Registration Rights Agreement of Fellows Energy Ltd. dated September
      21, 2005, filed as an exhibit to the current report on Form 8-K filed with
      the Commission on September 22, 2005, and incorporated herein by
      reference
 
 4.15
              First
      Amendment and Waiver Agreement, dated as of February 15, 2007, by and
      between Fellows Energy Ltd. and Palisades Master Fund, L.P., filed as an
      exhibit to the current report on Form 8-K filed with the Commission on
      February 21, 2007, and incorporated herein by
  reference
 
 4.16
              First
      Amendment and Waiver Agreement, dated as of February 15, 2007, by and
      between Fellows Energy Ltd. and Crescent International Ltd., filed as an
      exhibit to the current report on Form 8-K filed with the Commission on
      February 21, 2007, and incorporated herein by
  reference
 
 4.17
              Securities
      Purchase Agreement by and between Fellows Energy Ltd. and Palisades Master
      Fund, L.P., filed as an exhibit to the current report on Form 8-K filed
      with the Commission on February 21, 2007, and incorporated herein by
      reference
 
 4.18
              Debenture
      issued to Palisades Master Fund, L.P., filed as an exhibit to the current
      report on Form 8-K filed with the Commission on February 21, 2007, and
      incorporated herein by reference
 
 4.19
              Registration
      Rights Agreement by and between Fellows Energy Ltd. and Palisades Master
      Fund, L.P., filed as an exhibit to the current report on Form 8-K filed
      with the Commission on February 21, 2007, and incorporated herein by
      reference
 
 4.20
              Security
      Agreement by and among Fellows Energy Ltd., Palisades Master Fund, L.P.
      and Crescent International Ltd., filed as an exhibit to the current report
      on Form 8-K filed with the Commission on February 21, 2007, and
      incorporated herein by reference
 
 10.1
              Purchase
      Agreement of October 22, 2003 with Diamond Oil and Gas Corporation, filed
      as an exhibit to the proxy statement on Schedule 14A filed with the
      Commission on October 22, 2003, and incorporated herein by
      reference.
 
 10.2
              Stock
      Option Plan, filed as an exhibit to the quarterly report on Form 10-QSB
      filed with the Commission on May 23, 2005, and incorporated herein by
      reference.
  10.3
                Exploration
      Services Funding Agreement, dated January 26, 2004, between Fellows Energy
      Ltd. and Thomasson Partner Associates, Inc., filed as an exhibit to the
      registration statement on Form SB-2 filed with the Commission on October
      6, 2005, and incorporated herein by
  reference.
  10.4
              Agreement
      to Extend and Amend Exploration Funding Service Agreement, dated February
      24, 2005, between Fellows Energy Ltd. and Thomasson Partner Associates,
      Inc. filed as an exhibit to the amended annual report on Form 10-KSB/A
      filed with the Commission on May 2, 2005, and incorporated herein by
      reference.
 
 10.5
              Purchase
      and Option Agreement, dated March 16, 2004, between Fellows Energy Ltd.
      and Quaneco, L.L.C., filed as an exhibit to the registration statement on
      Form SB-2 filed with the Commission on October 14, 2005, and incorporated
      herein by reference.
 
 10.6
              Amendment
      to Purchase and Option Agreement, dated September 14, 2004, between
      Fellows Energy Ltd. and Quaneco, L.L.C., filed as an exhibit to the
      registration statement on Form SB-2 filed with the Commission on October
      6, 2005, and incorporated herein by
reference.
 
 10.7
              Agreement
      for Purchase of Interests in the Castle Rock and Kirby CBNG Projects of
      March 4, 2005 with Quaneco, L.L.C., filed as an exhibit to the
      registration statement on Form SB-2 filed with the Commission on October
      6, 2005, and incorporated herein by
reference.
 
 10.8
              Promissory
      Note of November 8, 2004 with JMG Exploration, Inc., filed as an exhibit
      to the quarterly report on Form 10-QSB filed with the Commission on
      November 15, 2004, and incorporated herein by
  reference.
 
 10.9
              General
      Security Agreement of November 8, 2004 with JMG Exploration, Inc., filed
      as an exhibit to the quarterly report on Form 10-QSB filed with the
      Commission on November 15, 2004, and incorporated herein by
      reference.
 
 31
 Table of Contents
 10.10
              Exploration
      and Development and Conveyance Agreement of November 8, 2004 with JMG
      Exploration, Inc., filed as an exhibit to the quarterly report on Form
      10-QSB filed with the Commission on November 15, 2004, and incorporated
      herein by reference.
 
 10.11
              Consultant
      Agreement, dated February 1, 2005, between Fellows Energy, Ltd. and
      CEOCast, Inc., filed as an exhibit to the amended annual report on Form
      10-KSB/A filed with the Commission on May 2, 2005, and incorporated herein
      by reference.
 
 10.12
              Consultant
      Agreement, dated August 1, 2004, between Fellows Energy, Ltd. and CEOCast,
      Inc., filed as an exhibit to the amended annual report on Form 10-KSB/A
      filed with the Commission on May 2, 2005, and incorporated herein by
      reference.
 
 10.13
              Letter
      Agreement, dated December 1, 2004, between Fellows Energy, Ltd. and Axiom
      Capital Management, Inc., filed as an exhibit to the amended annual report
      on Form 10-KSB/A filed with the Commission on May 2, 2005, and
      incorporated herein by reference.
  10.14
              Carter
      Creek Project Purchase Agreement, dated January 9, 2004, between Thomasson
      Partner Associates, Inc. and Fellows Energy Ltd., filed as an exhibit to
      the registration statement on Form SB-2 filed with the Commission on
      October 6, 2005, and incorporated herein by
  reference.
 
 10.15
              Letter
      Agreement regarding Bacaroo Project, dated April 14, 2004, between
      Thomasson Partner Associates, Inc. and Fellows Energy Ltd., filed as an
      exhibit to the registration statement on Form SB-2 filed with the
      Commission on October 6, 2005, and incorporated herein by
      reference.
 
 10.16
              Note
      between Deseado, LLC and Fellows Energy Ltd., dated September 24, 2004,
      filed as an exhibit to the amended annual report on Form 10-KSB/A filed
      with the Commission on May 2, 2005, and incorporated herein by
      reference.
  10.17
              Settlement
      Agreement, dated as of February 15, 2007, by and between Fellows Energy
      Ltd. and JGB Capital, L.P., filed as an exhibit to the current
      report on Form 8-K filed with the Commission on February 21, 2007,
      and incorporated herein by
reference
  13.1
              Annual
      Filing on Form 10-KSB filed as an exhibit to the current
      report with the Commission on April 23, 2007, and incorporated herein
      by reference
 
 31.1
              Certification
      of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended
 
 31.2
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended
 
 32.1
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Executive
  Officer)
 
 32.2
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (Chief Financial
  Officer)
 
  32
 Table of Contents
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 FELLOWS ENERGY LTD.
  Date:  April
      11, 2008
              By:/s/ GEORGE S.
      YOUNGGeorge
      S. YoungChief
      Executive Officer, President and Chairman of the Board
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Name
              Position
              DateBy:
      /s/ GEORGE S. YOUNG
                George
      S. Young
              Chief
      Executive Officer, President and Chairman of the Board
              April
      11, 2008By:
      /s/ BROOKE E.
      HORSPOOL
                Brooke
      E. Horspool
              Chief
      Financial Officer
              April
      11, 2008