UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549






FORM
10-K




[x]      
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
Fiscal Year Ended December 31, 2008




[  ]
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.)206
      Pheasant Run
              Louisville,
      Colorado
            80027(Address
      of principal executive office)
            (Postal
      Code)(303) 926-4415
              (Issuer's
      telephone number)




1369 Forest Park Circle,
Suite 202, Louisville, Colorado 80026


(former
name, former address and former fiscal year, if changed since last
report)





Securities
registered under Section 12(b) of the Exchange Act:  None


Securities
registered under Section 12(g) of the Exchange Act:  Common Stock, $0.001 par
value





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





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. o





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. þ





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):





Large
      accelerated filer o
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o (Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company þ





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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of April 30,
2009, was $1,447,500.





The
number of shares outstanding of the registrant’s common stock as of April 30,
2009 is 100,000,000.





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g.,Part I, Part II, etc.) into which the document is incorporated:
(1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes.


Table of Contents




FELLOWS ENERGYLTD.




FORM
10-K





For
the Fiscal Year Ended December 31, 2008




Part
      I
            
            PageItem
      1
            Description of Business
            3Item
      2
            Description of Property
            15Item
      3
            Legal Proceedings
            18Item
      4
            Submission of Matters to a Vote of Security
      Holders
            19Part
      II
            
            PageItem
      5
            Market for Common Equity and Related Stockholder
      Matters
            20Item
      6
            Management's Discussion and Analysis or Plan of
      Operation
            21Item
      7
            Financial Statements
            27Item
      8
            Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
            42Item
      8A
            Controls and Procedures
            42Item
      8B
            Other Information
            43Part
      III
            
            PageItem
      9
            Directors, Executive Officers, Promoters and Control Persons
      and Corporate Governance; Compliance with Section 16(a) of the Exchange
      Act
            44Item
      10
            Executive Compensation
            45Item
      11
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            47Item
      12
            Certain Relationships and Related Transactions, and
      Director Independence
            48Item
      13
            Exhibits
            48Item
      14
            Principal Accountant Fees and Services
            51Signatures
            52




2
 Table of Contents





PART I





FORWARD-LOOKING
INFORMATION





This
Annual Report of Fellows Energy Ltd. on Form 10-K 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-K. Actual events or results
when compared to these forward-looking statements 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 changed management, and entered the oil and gas business and
ceased 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 Director. Our common stock is
publicly traded and quoted on the Pink Sheets under the symbol
“FLWE.PK.”





We are an
early stage oil and gas company led by an experienced management team and
focused on exploration and production of oil and natural gas.  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; (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 producing
and 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.


3
 Table of Contents





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.




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





According
to the report Facing the Hard
Truths about Energy (July 17, 2007), released in the summer of 2007 by
the National Petroleum Council:





The
Council found that total global demand for energy is projected to grow by 50-60
percent by 2030, driven by increasing population and the pursuit of improving
living standards. At the same time, there are accumulating risks to the supply
of reliable, affordable energy to meet this growth, including political hurdles,
infrastructure requirements, and availability of a trained work force. We will
need all economic, environmentally responsible energy sources to assure
adequate, reliable supply.





A few
highlights of their report to the Secretary of Energy include:





·
            “Coal,
      oil, and natural gas will remain indispensable to meeting total projected
      energy demand growth.”





·
            “The
      world is not running out of energy resources, but there are accumulating
      risks to continuing expansion of oil and natural gas production from the
      conventional sources relied upon historically. These risks create
      significant challenges to meeting projected total energy
      demand.”





·
            “To
      mitigate these risks, expansion of all economic energy sources will be
      required, including coal, nuclear, biomass, other renewables, and
      unconventional oil and natural gas. Each of these sources faces
      significant challenges including safety, environmental, political, or
      economic hurdles, and imposes infrastructure requirements for development
      and delivery.”





The
United States must:


·
            “Expand
      and diversify production from clean coal, nuclear, biomass, other
      renewables, and unconventional oil and gas; moderate the decline of
      conventional domestic oil and gas production; and increase access for
      development of new resources.”·
            “Enhance
      science and engineering capabilities and create long-term opportunities
      for research and development in all phases of the energy supply and demand
      system.”




4
 Table of Contents


Focus
on Producing and 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.




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 26 years of natural
resource industry experience. Mr. Prince brings 23 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.





5
 Table of Contents


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
our 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 oil and gas
projects covering approximately 27,000 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. Please see Item 2: Description of
Property for more discussion related to the properties.




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 will
also compete with other junior oil and gas exploration companies for financing
from a limited number of investors that are prepared to make investments in
junior oil and gas exploration companies. The presence of competing junior oil
and gas exploration companies may have an adverse impact on our ability to raise
additional capital in order to fund our exploration programs if investors are of
the view that investments in competitors are more attractive based on the merit
of the oil and gas properties under investigation and the price of the
investment offered to investors.  We do not hold a significant
competitive position in the oil and gas industry.




Patents
and Trademarks





We do not
own, either legally or beneficially, any patent or trademark.


6
 Table of Contents





Governmental
Regulations





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.


7
 Table of Contents




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.




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.


8
 Table of Contents




Employees





As of
April 30, 2009, we have one full-time employee. 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 employee are
good.





Reports
to Security Holders





We file
our quarterly and audited annual reports with the Securities and Exchange
Commission (SEC), which the public may read and copy at the Public Reference
Room at 100 F Street N.E., Room 1580, Washington D.C. 20549.  SEC
filings, including supplemental schedules and exhibits, can also be accessed
free of charge through the SEC website at www.sec.gov.  Our website is
located at www.fellowsenergy.com, and can be used to access recent news releases
and Securities and Exchange Commission (SEC) filings, including our quarterly
and audited annual reports, and other items of interest. Our website, and the
information on our website, including other links contained on our website, are
not incorporated into this Report.





Risks
Related to Our 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.





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 $1,144,000 and $9,316,000 for the years ended December
31, 2008 and 2007, respectively. We cannot assure 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 and perhaps in excess of approximately $1,000,000 to fund our
continued operations for the next twelve months. 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.




9
 Table of Contents


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 14, 2008 on our financial statements as of and for the year
ended December 31, 2007, 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, 2007, 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. 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
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.





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. 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.


10
 Table of Contents





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





Even if
we are able to discover coalbed methane gas or drill a gas well to capture any
gas, 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. While we may
seek additional oil and gas acreage, it may not become available, or if it is
available for leasing, 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.


11
 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.


12
 Table of Contents




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 30, 2009, 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 8,743,942
shares of common stock and outstanding warrants issued in June and September
2005, and February 2007 to purchase 1,766,667 shares of common stock. To the
extent registered pursuant to our registration statements, all of these shares
are issuable upon conversion of the June and September 2005, and February 2007
debentures and upon exercise of our June and September 2005 and February 2007
warrants, may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.




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 $983,139 remains outstanding, and for which we are negotiating to pay
$160,000 in a final settlement. The secured convertible debentures were due and
payable, with interest, as of December 31, 2007, and have not been 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, 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 have required 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. If we are required to repay the convertible debentures,
as opposed to converting the amount into shares of our common stock, 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.


13
 Table of Contents




Risks Relating to Our Common
Stock:





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.


14
 Table of Contents






ITEM 2.  DESCRIPTION OF PROPERTY.





Our
principal executive offices are located at 206 Pheasant Run, Louisville, CO
80027, and our telephone number is (303) 926-4415. In exchange for
administrative services, we pay no rent for the 300 square foot suite we occupy.
We believe that our current office space and facilities are sufficient to meet
our present needs and do not anticipate any difficulty securing alternative or
additional space, as needed, on terms acceptable to us. In addition, we have the
following oil and gas properties in connection with our principal business
activities:





Carbon
County Project, Utah





On
September 12, 2005, we entered into an option agreement to purchase a gas field
in Carbon County, Utah that was producing approximately 30 million cubic feet of
natural gas per month.  The field comprised of 5,953 gross acres
(2,440 net acres), with four producing gas wells, and an additional four shut-in
wells. The production was derived from the Ferron Sandstone formation, and the
gas marketed into the adjacent gas pipeline operated by Questar Gas
Resources.  The acquisition included an associated gas gathering
system and a 6 mile pipeline and compression facility servicing the project and
adjacent production. The field yielded potential for 20 additional well sites on
160 acre spacing on the undeveloped acreage.  The property is adjacent
to our Gordon Creek project and to the very successful Drunkards Wash field
originally developed by River Gas Corp.





The
purchase option called for an acquisition price of $3 million, and we closed the
purchase of the acquisition on March 13, 2006 with an industry partner,
Thunderbird Energy Corporation (“Thunderbird”) formerly MBA Resource Corp. of
Canada.  Thunderbird paid $1.5 million and arranged third party
financing of $750,000 for part of our share of the $3 million purchase price, in
exchange for a 50% interest in the project.  We previously paid a
deposit toward the purchase price.  We acquired a 50% interest in the
project with only an additional payment of $241,000.  Together with
Thunderbird we formed Gordon Creek, LLC a joint operating company, which was
incorporated in the state of Utah to carry out gas production and drilling
operations as well as gas gathering activities for both the project gas and
adjacent third party production.




After
several months of production and workover efforts, as of June 2007, we
decided it was in the best interest of the Company to sell our ownership in
the Carbon County project.  The decision was made to sell this project
after considering our required outstanding debenture obligations, the prospect
of paying off a significant portion of our debt, as well as record a
gain on the sale.  Subsequently, on August 6, 2007, we entered into a
purchase and sale agreement pursuant to which we sold our
interests in the Carbon County project for total consideration of $3.0 million
The purchase was consummated via the assumption of and payment on various debts
owed by the Company amounting to $2,763,000, with the remainder held as a note
receivable in the amount of $202,220 as of December 31, 2007.  During
the period ended December 31, 2008, this amount was in dispute by Thunderbird,
and we therefore set an allowance against this amount, and wrote it off as of
December 31, 2008.





Weston County
Project, Wyoming





The
Weston County play focus is initially on the development of a conventional
oil field followed by exploration for conventional oil reservoirs in the Dakota
and Minnelusa on 19,290 gross and 9,645 net acres. The South Coyote Creek Field
thus far has no identifiable reserves but we hope that it will provide
short-term cash flow to cover our overhead.


15
 Table of Contents




We
acquired an option to purchase a 100% working interest consisting of 19,290
acres of oil and gas rights in Weston County, Wyoming for a total purchase price
of $750,000. We closed the purchase on June 15, 2004 and concluded a
reevaluation of drilling production data and seismic surveys. This resulted in
the delineation of 18 conventional oil and gas well locations on the property
which are ready to drill that are potential extensions of an existing producing
field called South Coyote Creek Field. South Coyote Creek Field was discovered
and developed back in the 1960s and has produced approximately 3 million barrels
of oil to date. We signed a joint venture agreement with JMG Exploration to
drill our Weston County and Gordon Creek projects. Under the agreement, JMG
Exploration was to receive a 50% interest in exchange for incurring $2,000,000
in exploration and drilling expenditures on the two projects by November 7,
2005.  In addition, JMG Exploration loaned $1,500,000 to us with a
short-term note. In connection with repayment of the JMG Exploration loan, we
assigned the remaining 50% interest in the Weston County project to JMG
Exploration, subject to our right to reacquire those interests for approximately
$391,000 by June 30, 2005, which right was exercised. As part of the full
settlement of the $1,500,000 note, JMG Exploration’s commitment to spend
$2,000,000 in exploration and drilling activity by November 7, 2005 was
terminated.





The
Weston County play has two deeper horizons at drilling depths of 5,000 to
7,500 feet that add enormous oil and gas reserve potential to the acreage
position we own. The Cretaceous Dakota and Permo-Penn Minnelusa are both highly
productive sandstone reservoirs when found in trapping positions and have
accounted for hundreds of millions of barrels of production in the
Powder River Basin. Some of the largest Dakota and Minnelusa fields are
located within 10 miles of the Company’s acreage, including the 75 million
barrel Raven Creek and 25 million barrel Donkey Creek.




The
Dakota and Minnelusa are also both amenable to seismic exploration and can be
resolved clearly with 3-D seismic. We have access to 200 miles of a regional 2-D
seismic data base that covers the Weston County play area. On the basis of
this seismic, a series of prospects in the Dakota and Minnelusa have been
identified with the potential for up to 50 million barrels of oil reserves. One
of these prospects is a Minnelusa field with only one producer drilled to date
that appears to be on the edge of a much larger accumulation.





Although
we previously contemplated drilling on the project, and we believe much of the
project acreage is drill-ready, we have not yet commenced any drilling
activities during 2007. As of December 31, 2007, we took an impairment on this
property in the amount of $1,929,752.  This amount was determined on the
basis of an evaluation of the dates of relinquishment that are attendant with
the leases comprising the acreage within the project (many of which are in
2008), as well as the difficulty which the Company has had in financing in
general for its exploration projects.  In order to extend the dates of
the leases or enter into new leases, considerable capital could have
been required.  This amount was also a function of the new
information gathered from the recent sale by JMG of its interest in this project
to Thunderbird Energy Corporation, and an evaluation of the rising costs of
drilling that have been incurred by the industry since the date of the
acquisition of the property, which in turn have impacted on the economic value
of the acreage.  In addition, the Company has also anticipated (and
has determined) that it will have to sell all or a portion of its interest in
this project in order to effectuate payment and settlement of its convertible
debentures, thus also impacting the potential to realize higher values over a
much longer period of time.




Carter Creek
Project, Wyoming





The
Carter Creek Project targets an unconventional play for oil on 14,196 gross and
9,959 net acres from fractured shales in the Niobrara and Mowry.




In
January 2004, we acquired a 100% working interest of 10,678 acres known as the
Carter Creek Project in the southern Powder River Basin of Wyoming for $223,000.
This project was discovered by an industry partner.


16
 Table of Contents





The
Carter Creek Project offers large-scale reserve potential from a section of
over-pressured Lower Cretaceous zones including the Niobrara, Turner (Frontier),
Mowry, Muddy, and the normally pressured Dakota formations. All these zones are
currently productive in the region of the Carter Creek Project. Drilling depths
to the Dakota range from 10,000 feet to 11,500 feet. The primary
objectives in the Carter Creek Project are the Niobrara and Mowry formations
which are both thick hydrocarbon-rich shale units. These shale units are
referred to as “source beds” because under sufficient heat and pressure they are
the source of petroleum that feeds the conventional oil and gas traps in a given
basin. In this case, the source beds also act as oil reservoirs due to
fracturing that has been induced along shear zones created by regional tectonic
forces. Within these shear zones are fractures which provide both storage of oil
and gas, as well as the permeability necessary for them to flow to a well bore.
The shear zones also provide a pathway for thermal energy from deeper in the
basin to flow into a local area and promote oil generation and maturation, thus
improving the hydrocarbon recovery potential within the shear zone. Over
pressuring is caused by hydrocarbon generation within the source beds which also
contributes to the fracture system.





Although
we previously contemplated drilling on the project, and we believe much of the
project acreage is drill-ready, we have not yet commenced any drilling
activities, and as of April 23, 2007, we dropped the project due to capital
constraints and inability to move the project forward with
drilling.  We therefore relinquished our interest in this project and
recorded a loss in the amount of $2,075,368.




Gordon
Creek Project, Utah




In
January 2004, we acquired an option to purchase 5,242 acres (3,184 net) known as
the Gordon Creek Project. We closed the purchase for $288,000 in July 2004. The
Gordon Creek Project is located in Carbon County, eastern
Utah.




The
Gordon Creek Project targets natural gas reserves in two large unconventional
plays: (1) the Cretaceous Ferron sandstone play and (2) the Cretaceous Emery
coal bed natural gas play. The Cretaceous Ferron sandstone play is established
by the Clear Creek Field which has had cumulative production of 137 Bcf from 16
wells or an average of 8.6 Bcf per well to date. The Clear Creek Field is
located 7 miles to the west of the Fellows acreage.





In
addition to the Ferron sandstone, the Gordon Creek project has potential in the
Emery coal. While the Emery coal play is in an early stage it may have similar
potential to the Drunkard’s Wash field which produces from the Ferron coal. The
Drunkard’s Wash Field is located 6 miles to the southeast of our Gordon Creek
land holdings. Our project personnel were previously involved in drilling for
River Gas Corporation in the Drunkard’s Wash field.





As
previously mentioned, we have signed a joint venture agreement with JMG
Exploration to drill our Weston County and Gordon Creek projects. This
agreement was amended in June 2005 and we assigned the remaining 50% interest in
the Gordon Creek project to JMG Exploration, subject to our rights to reacquire
such interest for $390,000 which has been exercised.  As of December
2006 Thunderbird, our partner in the Carbon County project, negotiated the
purchase of JMG's half of the Weston and Gordon Creek projects.


17
 Table of Contents




Although
we previously contemplated drilling on the project, and we believe much of the
project acreage is drill-ready, we have not yet commenced any drilling
activities, and as of December 31, 2007, we took a write down on the project due
to capital constraints in the amount of $2,085,528.  This amount was
determined on the basis of an evaluation of the dates of relinquishment that are
attendant with the leases comprising the acreage within the project (many of
which are in 2008), as well as the difficulty which the Company has had in
financing in general for its exploration projects.  In order to extend
the dates of the leases or enter into new leases, considerable capital could
have been required.  This amount was also a function of the new
information gathered from the recent sale by JMG of its interest in this project
to Thunderbird Energy Corporation, and an evaluation of the rising costs of
drilling that have been incurred by the industry since the date of the
acquisition of the property, which in turn have impacted on the economic value
of the acreage.  In addition, the Company has also anticipated (and
has determined) that it will have to sell all or a portion of its interest in
this project in order to effectuate payment and settlement of its convertible
debentures, thus also impacting the potential to realize higher values over a
much longer period of time.





Bacaroo
Project, Baca County, Colorado




The
Bacaroo Project targets conventional oil and gas reserves from prolific
reservoirs in the Pennsylvanian Topeka, Lansing-Kansas City and Morrow
formations as well as the Mississippian Keyes formations. The Bacaroo Project
has been developed by Thomasson Partner Associates, Inc. and is located in Baca
County, Colorado on the northwest flank of the greater Anadarko Basin.
Nearby analog fields include the Morrow Stateline and Interstate fields with
production of 25 to 50 MMBO; and the Keyes Dome, which has produced 1 TCF of gas
from the Mississippian Keyes section. Currently, we have six prospects
undergoing lease acquisition. Three of these prospects have multiple objectives
with seismically and subsurface defined structural or stratigraphic traps, and
are adjacent to or on-trend with proven production. All of the selected drill
sites are near to or offsetting excellent shows of oil and gas with drilling
depths of objectives ranging from 1,200 to 5,000 feet. The estimated initial
cost to acquire 34,720 acres and drill eight evaluation wells is $2.3
million.




Summary
of Our Current Projects, Acreage Holdings, and Wells




Project
            Objective
            Play
      Type
            
            Gross
              Acres
            
            
            Net
              AcresBacaroo
      Project, ColoradoConventional
      Oil
            
            
            3,440
            
            
            
            3,440Weston County
      Project, WyomingTurner
            Conventional
      Oil
            
            
            19,290
            
            
            
            9,645Dakota
            Conventional
      OilMinnelusa
            Conventional
      OilGordon
      Creek, UtahFerron
      Sandstone
            Tight
      Sands Gas
            
            
            5,242
            
            
            
            3,184Emery
      Coal
            Coal
      Bed Natural GasTotals
            
            
            27,972
            
            
            
            16,269




ITEM 3.  LEGAL PROCEEDINGS.





From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Except as disclosed below,
we are currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.


18
 Table of Contents





We were
sued in the Sixth Judicial District Court, Garfield County, Utah on November 10,
2004, by Midway Perforating and Drilling, Inc. 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 plan to
vigorously defend this case because we believe that the plaintiff failed to
follow our instructions to use appropriate equipment for controlling deviation
of the wellbore, and that such failure caused the well to be unusable. The suit
is currently in its discovery stages. Although we believe we have a strong
defense and counterclaim, we cannot predict the final outcome of the
suit.





On
October 15, 2007, we entered into a settlement agreement with Creston Resources
Ltd (successor in interest to Mountain Oil and Gas, Inc.) to settle the notes
receivable owed to us, as mentioned in above.  The settlement agreement
releases all claims by either party except; $83,358 as consideration for oil
sales on the 1-34B well payable to us, and a promissory note for the amount of
$300,000 payable to us without interest (except in case of default) in twelve
equal monthly installments of $25,000.  The first payment was due and
payable on October 15, 2007, and payable on the 15th of each month thereafter
until paid in full.  As of December 31, 2008, the full amount has been
paid.





On
October 19, 2007, we entered into a settlement agreement with Alpha Capital in
connection with the May 2005 equity financing which provides for the issuance of
the equivalent of $200,000 in common stock should an increase in authorized
shares become effective, or $200,000 in stock in cash in the event we enter
into a merger with a third party.





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





None.


19
 Table of Contents





PART II





ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.





Market
Information





Our
common stock is quoted on the Pink Sheets under the symbol "FLWE". For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.




High
      ($)
            
            
            Low
      ($)Fiscal Year
      2006First
      Quarter
            
            
            0.60
            
            
            
            0.30Second
      Quarter
            
            
            0.44
            
            
            
            0.15Third
      Quarter
            
            
            0.43
            
            
            
            0.14Fourth
      Quarter
            
            
            0.19
            
            
            
            0.07Fiscal Year
      2007First
      Quarter
            
            
            0.10
            
            
            
            0.03Second
      Quarter
            
            
            0.09
            
            
            
            0.02Third
      Quarter
            
            
            0.05
            
            
            
            0.02Fourth
      Quarter
            
            
            0.06
            
            
            
            0.02Fiscal
      Year 2008First
      Quarter
            
            
            0.03
            
            
            
            0.02Second
      Quarter
            
            
            0.02
            
            
            
            0.02Third
      Quarter
            
            
            0.01
            
            
            
            0.01Fourth
      Quarter
            
            
            0.01
            
            
            
            0.01Fiscal Year
      2009First
      Quarter
            
            
            0.01
            
            
            
            0.01Second
      Quarter (1)
            
            
            0.01
            
            
            
            0.01


(1)
As of April 30, 2009





Holders





As of
April 30, 2009, we had approximately 87 holders of our common stock. The number
of record holders was determined from the records of our transfer agent and does
not include beneficial owners of common stock whose shares are held in the names
of various security brokers, dealers, and registered clearing agencies. The
transfer agent of our common stock is Pacific Stock Transfer Company, 500 E.
Warm Springs Road, Suite 240, Las Vegas, Nevada 89119.





Description
of Securities





The
authorized capital stock of the Company consists of 100,000,000 of the common
stock, at $0.001 par value, and 25,000,000 shares of preferred stock, at $0.001
par value.  The shares of preferred stock may be issued in one or more
series.  The designations, powers, rights, preferences,
qualifications, restrictions, and limitations of each series of preferred stock
shall be established from time to time by the Board of Directors in accordance
with Colorado law.


20
 Table of Contents





Dividends





We have
never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant.





Recent
Sale of Unregistered Securities





Unless
otherwise noted, the issuances noted below are all considered exempt from
registration by reason of Section 4(2) of the Securities Act of 1933, as
amended.





In
February 2007, we issued all the remaining authorized common stock of the
Company, in connection with the convertible debenture restructuring, during
which we issued 5,454,546 and 6,458,063 shares of restricted common stock for
forbearance and commitment fees.  Refer to Note 5 – Convertible
Debentures, for more discussion.





ITEM 6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION.





The
following information should be read in conjunction with the consolidated
financial statements and the notes thereto contained elsewhere in this report.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Information in this Item 6, "Management's
Discussion and Analysis or Plan of Operation," and elsewhere in this 10-KSB that
does not consist of historical facts, are "forward-looking statements."
Statements accompanied or qualified by, or containing words such as "may,"
"will," "should," "believes," "expects," "intends," "plans," "projects,"
"estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
"presume," and "assume" constitute forward-looking statements, and as such, are
not a guarantee of future performance. The statements involve factors, risks and
uncertainties including those discussed in the “Risk Factors” section contained
elsewhere in this report, the impact or occurrence of which can cause actual
results to differ materially from the expected results described in such
statements. Risks and uncertainties can include, among others, fluctuations in
general business cycles and changing economic conditions; changing product
demand and industry capacity; increased competition and pricing pressures;
advances in technology that can reduce the demand for the Company's products, as
well as other factors, many or all of which may be beyond the Company's control.
Consequently, investors should not place undue reliance on forward-looking
statements as predictive of future results. The Company disclaims any obligation
to update the forward-looking statements in this report.





Overview




On
January 5, 2004, we began operations as an oil and gas exploration company. We
acquired interests in certain assets owned by Diamond Oil & Gas Corporation,
in exchange for 3,500,000 shares of common stock. The transaction was deemed to
have a value of $6,405,000. The assets included certain oil and gas projects, as
well as the right to enter into the Exploration Services Funding Agreement with
Thomasson Partner Associates, Inc. of Denver, Colorado. Diamond is controlled by
our CEO, George S. Young. Our goal is to discover substantial commercial
quantities of oil and gas, including coalbed methane, on the properties as well
as to acquire and explore additional property.




Projects
acquired from Thomasson Partner Associates, Inc. under the Exploration Services
Funding Agreement (as Amended) include the Weston County project in Wyoming, the
Gordon Creek project in Utah, the Carter Creek project in Wyoming, the Circus
project in Montana, the Bacaroo project in Colorado, the Platte project in
Nebraska, and the Badger project in South Dakota.   During the
year ended December 31, 2006, we abandoned the Platte and Badger projects. 
As of December 31, 2006, we terminated our formal agreement with Thomasson
Partner Associates, and will continue accessing projects informally, without
having any first right to any project.


21
 Table of Contents




Operations
Plan





During
the next twelve months, we expect to pursue oil and gas operations on some or
all of our property, including the acquisition of additional acreage through
leasing, farmout, or option and participation in the drilling of oil and gas
wells. We intend to continue to evaluate additional opportunities in areas where
we feel there is potential for oil and gas reserves and production and may
participate in areas other than those already identified, although we cannot
assure that additional opportunities will be available, or if we participate in
additional opportunities, that those opportunities will be
successful.




Our
current cash position is not sufficient to fund our cash requirements during the
next twelve months, including operations and capital expenditures. We intend to
continue joint venture or obtain equity and/or debt financing efforts to support
our current and proposed oil and gas operations and capital expenditures. We may
sell interests in our properties. We cannot assure that continued funding will
be available.




We have
not entered into commodity swap arrangements or hedging transactions. Although
we have no current plans to do so, we may enter into commodity swap and/or
hedging transactions in the future in conjunction with oil and gas production.
We have no off-balance sheet arrangements.




Our
future financial results continue to depend primarily on (1) our ability to
discover or purchase commercial quantities of oil and gas; (2) the market price
for oil and gas; (3) our ability to continue to source and screen potential
projects; and (4) our ability to fully implement our exploration and development
program with respect to these and other matters. We cannot assure that we will
be successful in any of these activities or that the prices of oil and gas
prevailing at the time of production will be at a level allowing for profitable
production.





Recent Activity





The
operations we plan for the balance of 2009 include exploring leases on our
remaining projects, development drilling on the Bacaroo acreage, seeking to
acquire and explore additional property, and implementing production on one or
more of our projects. Our goal is to discover and produce substantial commercial
quantities of oil and gas, including coalbed methane, although no assurances can
be given that commercial quantities are available, if at all.





In
addition, we commenced in the fourth quarter of 2008 to investigate the
possibility of acquiring interests in renewable energy projects in latin America
to compliment our oil and gas activities.   In furtherance of
this, we have negotiated for the possible acquisition of a holding company in
Argentina, Grupo Minero Aconcagua, SA, and for the possible option of two
geothermal projects.   The contracts and negotiations for such
options are still under final negotiations, but the Company remains optimistic
that it can complete such transactions and that such transactions can add value
to the Company and its operations.





22
 Table of Contents


Liquidity and
Capital Resources




In 2008,
we incurred a loss of approximately $1,144,000. At December 31, 2008, we had
zero cash and cash equivalents, and no other current assets.  Our
current liabilities were $3,098,000, including accounts payable and the current
portions of interest payable, notes payable and convertible debentures
payable.





Based
upon our significant operating losses from inception, there is substantial doubt
as to our ability to continue as a going concern. Our audited financial
statements have been prepared on a basis that contemplates our continuation as a
going concern and the realization of assets and liquidation of liabilities in
the ordinary course of business. Our audited financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue as a going concern.





To fully
carry out our business plans we need to raise a substantial amount of additional
capital, sell project assets, or obtain industry joint venture financing, which
we are currently seeking. We can give no assurance that we will be able to
increase production or raise such capital. We have limited
financial resources until such time that we are able to generate such
additional financing or additional cash flow from operations. Our ability to
maintain profitability and positive cash flow is dependent upon our ability to
exploit our mineral holdings, generate revenue from our planned business
operations and control our exploration cost.  To fully carry out our
business plans we need to raise a substantial amount of additional capital,
which we are currently seeking. We can give no assurance that we will be able to
raise such capital. We have limited financial resources until such time that we
are able to generate positive cash flow from operations. Our ability to maintain
profitability and positive cash flow is dependent upon our ability to locate
profitable natural gas or oil properties, generate revenue from our planned
business operations, and control exploration cost. Should we be unable to raise
adequate capital or to meet the other above objectives, it is likely that we
would have to substantially curtail our business activity, and that our
investors would incur substantial losses of their investment.




Financing
and Restructuring





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. 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.





23
 Table of Contents


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. 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”).


24
 Table of Contents





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.





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.




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.




New Financing




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 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 New
Debentures were paid in full in cash on August 6, 2007 in connection with the
sale of the Company's interest in the Carbon County project.


25
 Table of Contents





Results of Operations





Previous
Operations.After several months of
production and workover efforts, as of June 2007, we decided it was in the
best interest of the Company to sell our ownership in the Carbon County
project.  The decision was made to sell this project after considering our
required outstanding debenture obligations, the prospect of paying off
a significant portion of our debt, as well as record a gain on the
sale.





Subsequently
on August 6, 2007, we entered into a purchase and sale
agreement pursuant to which we sold our interests in the Carbon
County project for total consideration of $3.0 million The purchase was
consummated via the assumption of and payment on various debts owed by the
Company amounting to $2,763,000, with the remainder held as a note receivable in
the amount of $237,000.  Which amount was in dispute during the period
ended December 31, 2008, for which we established an allowance against this
amount and wrote it off as of December 31, 2008.





During
the year ended December 31, 2007, we had gross revenues of $108,000 from our
Carbon County project.





Revenues.
For the year ended December 31, 2008, we had no revenues compared to $31,000 in
2007.




Operating
Expenses.  Operating expenses for 2008 were approximately
$416,000 as compared to $7,410,000 for 2007.  These expenses primarily
consisted of the following:





In
2008, Our general and administrative expense were approximately $416,000, which
included in legal, consultant, and audit fees, and other costs including rent,
insurance, payroll, payroll taxes, travel, and stock issuance
costs.




Interest Expense.Our 2008 interest expense was approximately $528,000, down by $1,737,000
from 2007 of $2,265,000 which is due to prior year convertible debenture related
interest, issuance cost, and discount expense incurred in 2006.




Other
Expenses.We also recorded approximately $200,000 in expenses
primarily relating to the write-off of the remaining receivable disputed by
Thunderbird Energy from the sale of the Carbon County project.





Net Income or
Loss.For the year ended December 31, 2008, our net loss from
operations was $1,144,000.  For the year ended December 31, 2007, we
had a net loss of $9,313,217 from operations and $2,815 from our discontinued
operations.


26
 Table of Contents




ITEM 7. FINANCIAL STATEMENTS.





FELLOWS
ENERGY LTD.





INDEX TO
FINANCIAL STATEMENTS





PageBalance
      Sheets
            
            
            28Statements of
      Operations
            
            
            29Statements of
      Changes in Stockholders' Equity
            
            
            30Statements of Cash
      Flows
            
            
            31Notes to
      Financial Statements
            
            
            32





27
 Table of Contents




Fellows EnergyLtd.


Balance
Sheets


Year
      EndedDecember
      31,2008
              
              
              2007AssetsCash
      and cash equivalents
              
              $
              —
              
              
              $
              3,654Accounts
      receivable
              
              
              —
              
              
              
              202,220Settlement
      receivable
              
              
              —
              
              
              
              243,104Total
      current assets
              
              
              —
              
              
              
              448,978Unproved
      oil & gas property
              
              
              1,034,870
              
              
              
              951,140Equipment,
      net of $61,232 and $44,387 accumulated depreciation
      respectively
              
              
              26,027
              
              
              
              42,871Restricted
      cash
              
              
              —
              
              
              
              160,000Total
      assets
              
              $
              1,060,897
              
              
              $
              1,602,989Liabilities
      And Stockholders’ EquityAccounts
      payable
              
              $
              522,131
              
              
              $
              395,147Other
      accrued liabilities
              
              
              175,419
              
              
              
              230,838Taxes
      payable
              
              
              7,088
              
              
              
              3,564Interest
      payable
              
              
              365,700
              
              
              
              291,100Notes
      payable
              
              
              44,521
              
              
              
              393,381Convertible
      debenture
              
              
              1,983,139
              
              
              
              2,253,139Total
      current liabilities
              
              
              3,097,998
              
              
              
              3,567,169Interest
      payable – related party
              
              
              775,826
              
              
              
              358,234Notes
      payable – related party
              
              
              3,406,858
              
              
              
              2,753,573Stockholders’
      equityPreferred
      stock, $.001 par value; 25,000,000 shares authorized; none
      outstanding
              
              
              —
              
              
              
              —Common
      stock, $.001 par value; 100,000,000 shares authorized; 100,000,000 and
      100,000,000 shares issued and outstanding
              
              
              100,000
              
              
              
              100,000Additional
      paid-in capital
              
              
              20,302,435
              
              
              
              20,328,962Stock
      pledged as collateral
              
              
              (26,526
              )
              
              
              (53,053
              )Accumulated
      deficit
              
              
              (26,595,694
              )
              
              
              (25,451,896
              )Total
      stockholders’ equity
              
              
              (6,219,785
              )
              
              
              (5,075,987
              )Total
      liabilities and stockholders’ equity
              
              $
              1,060,897
              
              
              $
              1,602,989





See
accompanying notes.




28
 Table of Contents








Fellows EnergyLtd.


Statements
of Operations


Year
      EndedDecember
      31,2008
              
              
              2007Revenue
              
              $
              —
              
              
              $
              31,169Operating
      expenseExploration
      and production
              
              
              —
              
              
              
              6,918General
      and administrative
              
              
              416,318
              
              
              
              1,276,678Relinquishment
      of property
              
              
              —
              
              
              
              6,126,262(416,318
              )
              
              
              (7,378,689
              )Other
      income (expense)Interest
      expense
              
              
              (528,244
              )
              
              
              (2,265,417
              )Gain
      (loss) on extinguishment of debt
              
              
              —
              
              
              
              (958,152
              )Miscellaneous
      income (expense)
              
              
              (199,236
              )
              
              
              (321,178
              )Total
      other expense
              
              
              (727,480
              )
              
              
              (3,544,747
              )Loss
      from continuing operations before income tax
              
              
              (1,143,798
              )
              
              
              (10,923,436
              )Income
      tax expense
              
              
              —
              
              
              
              —Deferred
      tax benefit
              
              
              —
              
              
              
              —Loss
      from continuing operations
              
              $
              (1,143,798
              )
              
              $
              (10,923,436
              )Revenue
      from discontinued operations
              
              
              —
              
              
              
              108,344Expenses
      from discontinued operations
              
              
              —
              
              
              
              (111,159
              )Gain
      on sale of property
              
              
              —
              
              
              
              1,610,299Loss
      from discontinued operations
              
              
              —
              
              
              
              1,607,484Net
      loss
              
              $
              (1,143,798
              )
              
              $
              (9,315,952
              )Basic
      and diluted loss per share
              
              $
              (0.01
              )
              
              $
              (0.10
              )Basic
      and diluted weighted average shares outstanding
              
              
              100,000,000
              
              
              
              96,925,784





See
accompanying notes.


29
 Table of Contents




Fellows EnergyLtd.


Statements
of Changes in Stockholders’ Equity


December
31, 2008






Additional
                
                
                StockCommon
      Stock
                
                
                Paid-In
                
                
                Obligation/
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Capital
                
                
                Pledged
                
                
                Deficit
                
                
                TotalBalance,
      December 31, 2006
                
                
                73,447,619
                
                
                $
                73,447
                
                
                $
                18,484,181
                
                
                $
                (124,629
                )
                
                $
                (16,135,944
                )
                
                $
                2,297,055Issue
      1,075,343 shares for debenture redemption
                
                
                1,075,343
                
                
                
                1,076
                
                
                
                64,627
                
                
                
                —
                
                
                
                —
                
                
                
                65,703Issue
      2,000,000 shares in professional fees for restructuring
      debentures
                
                
                2,000,000
                
                
                
                2,000
                
                
                
                118,000
                
                
                
                —
                
                
                
                —
                
                
                
                120,000Issue
      118,057 shares for debenture redemption
                
                
                118,057
                
                
                
                118
                
                
                
                7,095
                
                
                
                —
                
                
                
                —
                
                
                
                7,213Issue
      9,996,547 shares for debenture restructuring
                
                
                9,996,547
                
                
                
                9,997
                
                
                
                598,435
                
                
                
                —
                
                
                
                —
                
                
                
                608,432Issue
      5,454,546 shares for debenture restructuring
                
                
                5,454,546
                
                
                
                5,455
                
                
                
                484,455
                
                
                
                —
                
                
                
                —
                
                
                
                489,909Issue
      1,449,825 shares for debenture restructuring
                
                
                1,449,825
                
                
                
                1,450
                
                
                
                129,034
                
                
                
                —
                
                
                
                —
                
                
                
                130,484Issue
      6,458,063 shares for debenture restructuring
                
                
                6,458,063
                
                
                
                6,458
                
                
                
                574,767
                
                
                
                —
                
                
                
                —
                
                
                
                581,225Mark
      to market of shares held as collateral
                
                
                —
                
                
                
                —
                
                
                
                (131,632
                )
                
                
                71,576
                
                
                
                —
                
                
                
                (60,056
                )Comprehensive
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (9,315,952
                )
                
                
                (9,315,952
                )Balance,
      December 31, 2007
                
                
                100,000,000
                
                
                $
                100,000
                
                
                $
                20,328,962
                
                
                $
                (53,053
                )
                
                $
                (25,451,896
                )
                
                $
                (5,075,987
                )Mark
      to market of shares held as collateral
                
                
                
                
                
                
                
                
                
                
                (26,526
                )
                
                
                26,526
                
                
                
                —
                
                
                
                —Comprehensive
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (1,143,798
                )
                
                
                (1,143,798
                )Balance,
      December 31, 2008
                
                
                100,000,000
                
                
                $
                100,000
                
                
                $
                20,302,435
                
                
                $
                (26,526
                )
                
                $
                (26,595,694
                )
                
                $
                (6,219,785
                )





See
accompanying notes.




30
 Table of Contents




Fellows EnergyLtd.


Statements
of Cash Flows





Year
      EndedDecember
      31,2008
              
              
              2007Cash
      flow from operating activities:Net
      loss
              
              $
              (1,143,798
              )
              
              $
              (9,315,952
              )Adjustments
      to reconcile net income to net cash used in operating
      activities:Gain
      on sale of projects
              
              
              —
              
              
              
              (1,610,299
              )Gain
      on extinguishment of debt
              
              
              —
              
              
              
              (244,466
              )Expenses
      paid with stock issuance
              
              
              —
              
              
              
              1,202,617Expenses
      paid with stock issuance obligation
              
              
              —
              
              
              
              —Debt
      issue costs and discount amortization
              
              
              —
              
              
              
              1,746,925Depreciation
              
              
              16,844
              
              
              
              82,050Unproved
      oil and gas property relinquishment
              
              
              —
              
              
              
              6,429,688Changes
      in operating assets and liabilities:Receivables
              
              
              445,323
              
              
              
              157,826Interest
      payable
              
              
              492,192
              
              
              
              288,815Accounts
      payable & other liabilities
              
              
              75,090
              
              
              
              268,595Net
      cash provided by (used in) operating activities
              
              
              (114,349
              )
              
              
              (994,201
              )Cash
      flow from investing activities:Proceeds
      from sale of property
              
              
              —
              
              
              
              34,780Deposits
              
              
              —
              
              
              
              —Unproved
      oil and gas property additions
              
              
              (83,730
              )
              
              
              (13,957
              )Restricted
      Cash
              
              
              160,000
              
              
              
              —Disposition
      of equipment
              
              
              —
              
              
              
              12,779Net
      cash used in investing activities
              
              
              76,270
              
              
              
              33,602Cash
      flow from financing activities:Proceeds
      from issuance of convertible debenture
              
              
              —
              
              
              
              714,500Discount
      on convertible debenture
              
              
              —
              
              
              
              (429,000
              )Payments
      on convertible debenture
              
              
              (270,000
              )
              
              
              —Borrowings
      on note payable
              
              
              653,285
              
              
              
              1,117,537Payments
      on notes payable
              
              
              (348,860
              )
              
              
              (618,710
              )Net
      cash provided by financing activities:
              
              
              34,425
              
              
              
              784,327Net
      decrease in cash and equivalents
              
              
              (3,654
              )
              
              
              (176,272
              )Cash
      and equivalents at beginning of period
              
              
              3,654
              
              
              
              179,926Cash
      and equivalents at end of period
              
              $
              —
              
              
              $
              3,654Supplemental
      Disclosure of Cash Flow and Non-cash Investing and Financing
      Activity:Income
      tax paid
              
              $
              —
              
              
              $
              —Interest
      paid
              
              $
              16,825
              
              
              $
              72,533Non
      cash:Convertible
      debenture paid with stock issuance
              
              $
              —
              
              
              $
              681,350Legal
      and advisory services in exchange for stock issuance
      obligation
              
              $
              —
              
              
              $
              120,000Fees
      paid with stock
              
              $
              —
              
              
              $
              1,202,618




See
accompanying notes.





31
 Table of Contents


Fellows EnergyLtd.


Notes
to Financial Statements


December
31, 2008




Note
1 – Nature of Operations and Summary of Significant Accounting
Policies





Nature
of Operations





Fellows
Energy Ltd. (“the Company” or “we” or “our” or “us”) is engaged in the
exploration, acquisition, development, production and sale of natural gas, crude
oil and natural gas liquids primarily from conventional reservoirs within the
western United States and beyond.  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 Lafayette,
Colorado.





The
accompanying financial statements for the periods of December 31, 2008 and 2007
are presented in accordance with generally accepted accounting principles in the
United States of America (“US GAAP”). These should be read in conjunction with
our Annual Report on Form 10-KSB for the year ended December 31, 2007, as well
as the 10-Q for the quarters ended March 31, 2008, June 30, 2008 and September
30, 2008. In our opinion, we have included all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. Operating
results for the quarters presented are not necessarily indicative of the results
that you may expect for the full year.





The
Company’s efforts have been principally devoted to the raising of capital,
organizational infrastructure development, and the acquisition of oil and gas
properties for the purpose of future extraction of resources. As shown in the
accompanying financial statements, we have incurred operating losses since
inception. As of December 31, 2008, 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. We plan to fund our 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.





Cash
Equivalents





We
consider all highly liquid debt instruments purchased with maturity of three
months or less to be cash equivalents. At December 31, 2008 and 2007, we had no
cash, and approximately $4,000 in cash equivalents respectively.





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, 2008 and 2007, we had
none and $160,000 of restricted cash was on deposit with custodians to secure
reclamation of oil and gas property, respectively.




Property
and Equipment




Property
and equipment is recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the related assets as
follows:




Furniture
and fixtures: 5 years


Software:
3 to 10 years (depending on software)


Computer
and office equipment: 3 to 5 years (depending on equipment)


Field
equipment: 1 to 30 years (depending on equipment)


32
 Table of Contents




The cost
of maintenance and repairs is charged to expense in the period incurred.
Expenditures that increase the useful lives of assets are capitalized and
depreciated over the remaining useful lives of the assets. When items are
retired or disposed of, the cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in income.




Investment
in Oil and Gas Property





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, 2008.




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.




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, 2007, we took a write down on our Gordon Creek and
Weston County projects in the amounts of $2,085,528 and $1,929,752
respectively, in accordance with FAS 19.   In determining an
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, as well as the
projected undiscounted cash flows from the projects. The Company did not
surrender or abandon any of its unproved properties during the year ended
December 31, 2008.




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.


33
 Table of Contents





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.





Asset
Retirement Obligation




We follow
the 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 carrying value of a property associated with
the capitalization of an asset retirement cost is included in proved oil
and gas property in the balance sheets. The future cash outflows for oil and gas
property associated with settling the asset retirement obligations are
accrued in the balance sheets, and are excluded from ceiling test
calculations. Our 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,
2008, the Company had no asset retirement obligation or related accretion
expense.





Use
of Estimates




The
preparation of financial statements in conformity with U.S. GAAP requires us to
make certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Although these estimates are based
on the knowledge of current events and actions that we may undertake in the
future, they may ultimately differ from actual results. Included in these
estimates are assumptions about allowances for valuation of deferred tax assets.
Accounts receivable are stated after evaluation as to their collectability and
an appropriate allowance for doubtful accounts is provided where considered
necessary. The provision for asset retirement obligation, depletion, as well as
our impairment assessment on our oil and gas properties and other long lived
assets are based on estimates and by their nature, these estimates are subject
to measurement uncertainty and the effect on the financial statements of changes
in these estimates, in future periods, could be significant.




Revenue
Recognition




We use
the sales method of accounting for oil and gas revenues. Under this method,
revenues are recognized based on the actual volumes of gas and oil sold to
purchasers. The volume sold may differ from the volumes we are entitled to,
based on our individual interest in the property. Periodically, imbalances
between production and nomination volumes can occur for various reasons. In
cases where imbalances have occurred, a production imbalance receivable or
liability will be recorded. Costs associated with production are expensed in the
period in which they are incurred.





Income
Tax




Income
taxes are determined using the liability method in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. In addition, a valuation allowance is established
to reduce any deferred tax asset for which it is determined that it is more
likely than not that some portion of the deferred tax asset will not be
realized.


34
 Table of Contents





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. For the period ended December 31, 2008, all weighted average shares
outstanding have been included in the calculation. The Company had no
stock-option or warrant obligations that were dilutive as of December 31,
2008.





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. The Company had zero unrealized gains or losses as of
December 31, 2008 and 2007.





New
Accounting Pronouncements




Accounting
for Uncertainty in Income Taxes – In June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”),
an interpretation of FASB Statement No. 109, “Accounting for Income Taxes”. FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation requires that the
Company recognize in the financial statements, the impact of a tax position, if
that position is more likely than not of being sustained on audit, based on the
technical merits of the position. FIN 48 also provides guidance on recognition,
classification, interest and penalties, accounting in interim periods and
disclosure. FIN 48 is effective for fiscal years beginning after December 15,
2006, and we adopted these new requirements as of the beginning of fiscal 2008,
with the cumulative effect of the change in accounting principle recorded as an
adjustment to the opening balance of deficit. We have evaluated the impact of
FIN 48, and have concluded that the Company has not taken any tax positions that
would be less than likely of being sustained upon audit.




Fair
Value Measurements – In September 2006, the FASB issued FAS No. 157, “Fair Value
Measurements” (“FAS 157”), which defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. FAS
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. In February 2008, the FASB
issued Staff Position No. FAS 157-2.  That guidance proposed a
one year deferral of the implementation of SFAS 157 for non-financial
assets and liabilities that are recognized or disclosed at fair value on a
nonrecurring basis (less frequent than annually).





On
January 1, 2008, we adopted SFAS No. 157 with the one-year deferral for
non-financial assets and liabilities.  The adoption of SFAS
No. 157 did not have a material impact on our financial position, results
of operations, or cash flows.  Beginning January 1, 2009, we expect to
adopt the provisions for non-financial assets and non-financial liabilities that
are not required or permitted to be measured at fair value on a recurring
basis.  While we are in the process of evaluating this standard with
respect to its effect on non- financial assets and liabilities, we have not yet
determined the impact that it will have on our financial statements upon full
adoption in 2009.


35
 Table of Contents




The Fair
Value Option for Financial Assets and Financial Liabilities – In February 2007,
the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities – Including an amendment of FASB Statement No. 115”, (“FAS
159”) which permits entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates. A business entity
is required to report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
This statement is expected to expand the use of fair value measurement. FAS 159
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and was
applicable beginning in the first quarter of 2008. The adoption of the
provisions of SFAS 159 did not have a material effect on our financial position,
results of operations, or cash flows.





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 six 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 six
months from the date of grant.




Effective
the date of the Company’s restructure of certain of its debentures on February
15, 2007, the Board of Directors of the Company elected to cancel all
outstanding stock options, as they had been significantly "out of the money" and
worthless as valued under the black-scholes option value pricing model since
December, 2005 (See Note 9).  Therefore, all the options in the plan
have been returned to the treasury of the option plan.




Note
2 – 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, 2008, 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.





Note
3 – Settlement 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 indicated in
the agreement, in the event that sufficient services were not performed, the
amount would convert to a loan, 12% per annum, commencing February,
2006.  The amount was secured with field equipment including a pumping
unit, engine, treater, and rods.


36
 Table of Contents





In
addition to the foregoing, and 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.  Upon default, and pursuant to the Master Wellbore Agreement
dated, October 19, 2005, the Company became entitled to $160,000 of the net
revenues from the 1-16A1E well effective January 1, 2006.  Repayment
was secured by a pumping unit located on the Dye-Hall well for the value of the
working capital and well bonding.





On
October 15, 2007, we entered into a settlement agreement with Creston Resources
Ltd (successor in interest to Mountain Oil and Gas, Inc.) to settle the advances
owed to us.  The settlement agreement released all claims by either party
except; $83,358 as consideration for oil sales on the 1-34B well payable to us,
and a promissory note for the amount of $300,000 payable to us without interest
(except in case of default) in twelve equal monthly installments of
$25,000.  The first payments commenced on October 15, 2007, and remained
payable on the 15th of each month thereafter.  As of December 31,
2008, the full $300,000 had been paid.





Note
4 – Notes Payable





In
2006, we obtained $1.25 million in industry partner financing to carry the
Creston project forward.  The repayment of the $1.25 million in
financing is secured with 1.6 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.  On May 31, 2007, we refinanced
this note to lower the monthly payments from $90,000 to $45,000 and extend the
due date until June 1, 2008.  In exchange for this, we agreed
to relinquish a 4% working interest in the Bacaroo project and
issue 3,600,000 warrants upon an increase in the authorized common stock of
the Company.  The terms of the warrants remained unformalized, and as such,
we could not place a value on such warrants as of June 30, 2007. The parties
further acknowledge that the Company has issued all of its authorized shares and
that such warrants would not be exercisable only if an increase in the
authorized shares occurs. The interest rate on this note is 18% per annum. 
As of December 31, 2008, we owed $45,000 on the note.




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. As of June 30, 2007, we had paid
$226,000 towards the principal and interest. On August 6, 2007, and in
connection with the sale of our interests in the Carbon County project, the note
was retired.




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 June 30, 2007, we had paid $170,000 towards the
principal and interest. On August 6, 2007, and in connection with the sale of
our interests in the Carbon County project the note was retired.





As of
December 31, 2008, we owed two unsecured notes of $2,806,858 and $600,000. The
notes accrue interest at a rate of 10% and 18% per annum, respectively,
compounded daily to an entity controlled by our CEO.  As of December
31, 2008, the accrued interest was $775,826.


37
 Table of Contents





Notes
      Payable
            
            December
      31,2008
            
            
            2007Notes
      payable current portionNote
      for project development - Dec 2006
            
            
            45,000
            
            
            
            393,000Notes
      payable long term portionNote
      from related party
            
            
            3,407,000
            
            
            
            2,754,000





Note
5 – Convertible Debentures




On June
4, 2004, we entered into a financing arrangement whereby we issued a convertible
debenture with a conversion price of $1.25 per share of common stock, subject to
anti-dilution adjustments. The offering resulted in gross proceeds prior to the
deduction of fees and costs, of approximately $1,000,000, with 8% simple
interest. In connection with the placement, we also issued warrants to purchase
an aggregate amount of up to 400,000 shares at $1.50 per share, which have
expired. The net proceeds from the offering were used for working capital needs
and other general corporate purposes.  As of December 31, 2008,
the debentures and accrued interest due was $1,365,700.




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 $5,501,200 in face amount of debentures maturing September 16, 2007
(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. Payment could be made either in the form
of 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.





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.


38
 Table of Contents




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, 2007 (the
“September 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. Payment could be made either in the form of 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 2,072,000 shares of restricted common stock, exercisable at a per share
of $0.80. 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
June Debentures and the September Debentures (“Old Debentures”) and the warrants
issued under the June Debentures and the September Debentures (“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 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. 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.


39
 Table of Contents




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 in principal amount of the Old Debentures.  Such Monthly
Redemption Shares were issued as payment for the previously delinquent monthly
redemptions owed to Palisades for the periods from December 1, 2006 through
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 there under for
Palisades pursuant to the Old Debentures.   In addition, the exercise
price of the Old Warrants was reduced to $0.0866, which Palisades exercised on a
cashless basis and received an additional 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.
The fee, however, was immediately settled upon the issuance of 5,454,546 shares
of restricted common stock.  We also issued Palisades 1,449,825 shares
of common stock in the form of 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.





February,
2007 Financing





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 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.  These have been accrued for at fair market
value.




The New
Debentures were paid in full in cash on August 6, 2007 in connection with the
sale of the Company's interest in the Carbon County project.





Note
6 – Common Stock




We
issued 11,189,947 shares of common stock in the first quarter of 2007, for the
debt service of our convertible debentures.  The first quarter
redemption share payments amounted to 1,075,343 shares, 118,057 shares, and
7,025,789 shares.  We also issued 2,970,758 shares for warrants exercised
at an average price of $0.09 per share.


40
 Table of Contents





In
addition to the redemption issuances above, we issued 5,454,546, 1,449,825, and
6,458,063 at $0.09 in connection with the convertible debenture
restructuring.





In January 2007, we issued 2,000,000 shares to our legal counsel as payment for
services relating to the debenture restructuring as well as outstanding legal
fees, which we valued at $120,000.




We
issued no stock during the second, third, or fourth quarter of 2008, as all
authorized stock is issued and outstanding.





Note 7
– Related Party Transactions




At
December 31, 2008, we owed two unsecured notes of $2,806,858 and $600,000. The
notes accrue interest at a rate of 10% and 18% per annum compounded daily to an
entity controlled by our CEO.  As of December 31, 2008, accrued interest
was $775,826.





In
2006, we obtained $1.25 million in industry partner financing to carry the
Creston project forward.  The repayment of the $1.25 million in
financing is secured with 1.6 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.  On May 31, 2007, we refinanced
this note to lower the monthly payments from $90,000 to $45,000 and extend the
due date until June 1, 2008.  In exchange for this, we agreed
to relinquish a 4% working interest in the Bacaroo project and
issue 3,600,000 warrants upon an increase in the authorized common stock of
the Company.  The terms of the warrants remained unformalized, and as such,
we could not place a value on such warrants as of June 30, 2007. Furthermore,
the Company has issued all of its authorized shares and that such warrants would
not be exercisable unless and until an increase in the authorized shares occurs.
The interest rate on this note is 18% per annum.  As of December 31, 2008,
we owed $45,000 on the note.





Note
8 – Property Reserves (Unaudited)





As of December 31, 2008, we did not
have any proved reserves, nor did we in closing out 2007, due to the sale of our
Carbon County project in mid 2007.





Undeveloped
Acreage




The below
table summarizes the undeveloped and developed leasehold acreage, by area, that
we hold as of December 31, 2008 and 2007.  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.




At
      December 31, 2008
            
            
            At
      December 31, 2007Summary
      of Acreage
            Undeveloped
      acres
            
            Developed
      acres
            
            
            Undeveloped
      acres
            
            
            Developed
      acresGross
            
            
            Net
            
            Gross
            
            
            Net
            
            
            Gross
            
            
            Net
            
            
            Gross
            
            
            NetUtah
            
            
            5,242
            
            
            
            1,592
            
            
            
            —
            
            
            
            —
            
            
            
            5,242
            
            
            
            1,592
            
            
            
            ―
            
            
            
            ―Wyoming
            
            
            19,290
            
            
            
            9,645
            
            
            
            —
            
            
            
            —
            
            
            
            19,290
            
            
            
            9,645
            
            
            
            —
            
            
            
            —Colorado
            
            
            3,440
            
            
            
            3,440
            
            
            
            —
            
            
            
            —
            
            
            
            3,440
            
            
            
            3,440
            
            
            
            —
            
            
            
            —Total
      acres
            
            
            27,972
            
            
            
            14,677
            
            
            
            —
            
            
            
            —
            
            
            
            27,972
            
            
            
            14,677
            
            
            
            ―
            
            
            
            ―




Note
9 – Income Tax




At
December 31, 2008, we have available for federal income tax purposes a net
operating loss carryforward of approximately $14,500,000,
expiring at various times through 2028 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 $4,900,000 at December
31, 2008. 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 $(4,900,000) 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, 2008:





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
            
            
            
            1,802,5002007
            
            
            3,260,583
            
            
            
            1,108,5982008
            
            
            671,050
            
            
            
            228,157Less:
      valuation allowance
            
            
            —
            
            
            
            (4,924,517
            )Totals:
            
            $
            14,483,767
            
            
            $
            —





Note
10 – 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 discovery stages. Although we believe we have a strong
defense and counterclaim, we cannot predict the final outcome of the
suit.





On
October 19, 2007, we entered into a settlement agreement with Alpha Capital in
connection with the May 2005 equity financing. Pursuant to the terms of the
settlement, the Company owes Alpha Capital $200,000 due and payable no later
than February 15, 2008 or upon the Company’s merger with a third party. Should
such amount not be paid at that time, the creditor has the right to convert the
outstanding amount owed into equity at a 15% discount of the last 30 day average
trading price. Should the creditor not choose to convert the obligation into
equity, the obligation reverts to a note payable at the rate of 18% per
annum.


41
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.





On
February 18, 2008, we engaged the firm of Kelly Allen & Associates, Inc
(“Kelly Allen & Associates”) to serve as its independent registered public
accountants for the fiscal year ending December 31, 2007. On February 15, 2008,
the Company notified Mendoza Berger and Company, LLP (“Mendoza Berger and
Company”) that it was terminating Mendoza Berger and Company’s services. The
decision to change accountants was recommended and approved by the Company’s
Audit Committee and Board of Directors. The Company decided to switch its
independent registered public accounting firm because of the new
firm's intimate knowledge of the oil and gas industry.  The
Company believes this firm's intimate knowledge of the oil and gas industry
merits a transition to Kelly Allen & Associates.




During
the two fiscal years ended December 31, 2006 and 2005, and through February 18,
2008, (i) there were no disagreements between the Company and Mendoza Berger and
Company on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of Mendoza Berger and Company would have caused Mendoza Berger and
Company to make reference to the matter in its reports on the Company’s
financial statements, and (ii) except for Mendoza Berger and Company’s report on
the Company's December 31, 2006 financial statements dated April 17, 2007,
except for Note 2, which included an explanatory paragraph wherein they
expressed substantial doubt about the Company's ability to continue as a going
concern, Mendoza Berger and Company’s reports on the Company’s financial
statements did not contain an adverse opinion or disclaimer of opinion, or was
modified as to audit scope or accounting principles. During the two fiscal years
ended December 31, 2005 and 2006 and through February 18, 2008, there were no
reportable events.





ITEM 8A– CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures




As
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
(the "Exchange Act"), the term "disclosure controls and procedures" means
controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.





The Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
Company's disclosure controls and procedures and concluded that the Company's
disclosure controls and procedures were effective as of December 31,
2008.


42
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Changes
in Internal Control Over Financial Reporting




There
were no changes in the Company’s internal control over financial reporting
during the quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.





Management's
Annual Report on Internal Control Over Financial Reporting





The
management of Fellows Energy Ltd. is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company
as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.  This
system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.





The
Company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and the directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a
material effect on the financial statements, and provide reasonable assurance as
to the detection of fraud.





Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements.  Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time.





With the
participation of the Chief Executive Officer and Chief Financial Officer, the
Company’s management conducted an evaluation of the effectiveness of the
Company’s internal control over financial reporting based on the framework and
criteria established in Internal Control-Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, the Company’s management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2008.





This
Annual Report on Form 10-K does not include an attestation report of the
Company’s independent registered public accounting firm regarding internal
control over financial reporting.  Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission  that permit the Company to provide only management’s
report in this Annual Report on Form 10-K.





By:/s/ George S.
      Young
            
            By:/s/ Brooke E.
      HorspoolGeorge
      S. Young, President
            
            Brooke
      E. HorspoolChief
      Executive Officer
            
            Chief
      Financial OfficerApril
      30, 2009
            
            April
      30, 2009




ITEM 8B– OTHER INFORMATION





None.


43
 Table of Contents





PART III




ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.




DIRECTORS
AND EXECUTIVE OFFICERS




Name
            Age
            PositionGeorge
      S. Young
            57
            Chairman,
      Chief Executive Officer and PresidentSteven
      L. Prince
            50
            Vice
      President and DirectorBrooke
      E. Horspool
            34
            Chief
      Financial Officer




Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are three seats on
our board of directors.





Directors
serve without cash compensation and without other fixed remuneration. Officers
are elected by the Board of Directors and serve until their successors are
appointed by the Board of Directors. Biographical resumes of each officer and
director are set forth below.





George
S. Young




On
January 5, 2004, our board of directors appointed Mr. Young as our President,
Chief Executive Officer and Chairman of the board of directors. Mr. Young is an
experienced business executive in the mining and petroleum industries. He is an
attorney and engineer by profession, and began his legal career in the law
department of Exxon Company USA. Mr. Young also worked at Kennecott Copper
Corporation as a metallurgical engineer involved in the construction and
start-up of a new copper smelter. From 1998 to 2002, Mr. Young practiced
natural resource law in Salt Lake City, Utah. Prior to that Mr. Young was
the President of Oro Belle Resources Corporation in Golden, Colorado from 1996
to 1998. Previous positions also include General Counsel and Acting General
Manager for the Intermountain Power Project, a $4.4 billion coal-fired power
project; Domestic Minerals Division Counsel for Getty Oil Company; and General
Counsel for Bond International Gold, Inc., Director of Palladon Ventures Ltd., a
British Columbia corporation which trades on the TSX Venture Exchange under the
trading symbol PLL.V, and International Royalty Corporation, a company listed on
the Toronto Stock Exchange and the American Stock Exchange. Mr. Young is
the sole owner, officer and director of Diamond Oil & Gas Corporation, a
privately held Nevada corporation. He holds a B.Sc. in Metallurgical
Engineering, which he earned in 1975 from the University of Utah and a J.D.
degree, which he earned in 1979 from the University of Utah. Mr. Young is a
member of the Society of Mining Engineers, and the state bars of Utah, Colorado
and Texas.




Steven
L. Prince




As of
January 5, 2004, our board of directors appointed Mr. Prince as our Vice
President and a member of our board of directors. Mr. Prince is a petroleum
engineer with over 23 years of operating experience in conventional oil and gas
drilling and in coal bed natural gas drilling and field development. Prior to
joining Fellows Energy, Mr. Prince had been the Senior Petroleum Engineer for
the Navajo Nation of Indians. From 2001 to 2003, Mr. Prince was the Operations
Manager for Coal Bed Methane Production Consultants. From 1997 to 2002, he
served as Executive Director of the Castle Valley Gas Producers Council, a gas
industry trade association. Previous positions also include Drilling Engineer
for Shell Western Exploration & Production; Operations Manager and
Engineering Manager for River Gas Corporation, Facilities Engineer for Atlantic
Richfield Co., and Production Engineer for Amoco Production Co.  Mr.
Prince is a member of the Society of Petroleum Engineers.  Mr. Prince
received his B.S. in Petroleum Engineering with honors from Montana College of
Mineral Science and Technology in 1987.




44
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Brooke
E. Horspool




As of November 1, 2007, we appointed Mr. Horspool as our Chief Financial
Officer, to help with our financial reporting and Sarbanes-Oxley
compliance.  Mr. Horspoool is a practicing CPA in the state of California.
He is currently partner at Horspool & Company where he specializes in
financial and tax compliance. Previously, he served six years as an auditor with
PricewaterhouseCoopers auditing many public and private companies. Mr. Horspool
received a B.S. degree in accounting from the University of Utah.





COMPLIANCE
WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934





Section
16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Commission initial reports of ownership and reports of changes in ownership
of the Company's Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
the Commission's regulations to furnish the Company with copies of all Section
16(a) forms they filed.




We have
been provided with copies of all forms (3, 4 and 5) filed by officers,
directors, or ten percent shareholders within three days of such filings. Based
on our review of such forms that we received, or written representations from
reporting persons that no Forms 5s were required for such persons, we believe
that, during fiscal 2008, all Section 16(a) filing requirements have been
satisfied on a timely basis for members of the Board of Directors and Executive
Officers.





Code
of Ethics




We have
adopted a code of ethics that applies to our principal executive officers,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We filed our code of ethics as an exhibit
to a previous SEC filing. We incorporate it by reference as an exhibit to this
Form 10-K.




Audit
Committee Financial Expert




Our
financial expert on the Audit Committee is Brooke E. Horspool, a practicing CPA
in the state of California.  He is currently partner at Horspool &
Company where he specializes in financial and tax
compliance.  Previously, he served six years as an auditor with
PricewaterhouseCoopers auditing many public and private
companies.  Mr. Horspool received a B.S. degree in accounting from the
University of Utah.




ITEM
10.  EXECUTIVE
COMPENSATION.





The
following table sets forth the annual and long-term compensation paid to our
Chief Executive Officer, Chief Financial Officer, and the other executive
officers who earned more than $100,000 per year at the end of the last two
completed fiscal years.  We refer to all of these officers
collectively as our "named executive officers."




45
 Table of Contents


Summary
Compensation Table


Name
      & Principal Position
            Year
            
            Salary
      ($)
            
            Bonus
      ($)
            Stock
      Awards($)
            Option
      Awards ($)
            Non-Equity
      Incentive Plan Compensation ($)
            Change
      in Pension Value and Non-Qualified Deferred Compensation Earnings
      ($)
            All
      Other Compensation ($)
            
            Total
      ($)George
      S. Young, CEO, Principal Executive Officer
            2008
            
            $
            ―
            
            
            
            
            
            
            
            
            
            ―George
      S. Young, CEO, Principal Executive Officer
            2007
            
            $
            20,000
            
            
            
            
            
            
            
            
            $
            20,000Steven
      Prince, VP of Operations
            2008
            
            
            ―
            
            
            
            
            
            
            
            
            
            ―Steven
      Prince, VP of Operations
            2007
            
            $
            45,000
            
            
            
            
            
            
            
            
            $
            45,000Brook
      E. Horspool, Chief Financial Officer
            2008
            
            
            ―
            
            
            
            
            
            
            
            
            
            ―Brook
      E. Horspool, Chief Financial Officer
            2007
            
            $
            2,000
            
            
            
            
            
            
            
            
            $
            2,000




Outstanding Equity Awards at Fiscal
Year-End and Stock Option Plan





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 retain qualified
and competent officers, employees and directors. As noted in the table below,
the incentive stock option plan for our executive officers authorizes up to
2,000,000 shares of our common stock, to be purchased pursuant to the exercise
of options. The effective date of the stock option plan was October 9, 2003, and
the stock option plan was approved by our shareholders 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.


46
 Table of Contents




Our board
of directors, or a committee thereof, administers the stock option plan and is
authorized, in its discretion, to grant options thereunder to all of our
eligible employees, including officers, and to our directors, whether or not
those directors are also our employees. Options will be granted pursuant to the
provisions of the incentive stock option plan on such terms, subject to such
conditions and at such exercise prices as shall be determined by our board of
directors. Options granted pursuant to the stock option plan will not be
exercisable after the expiration of ten years from the date of
grant.





After
having issued all authorized common stock during the first quarter of 2007, the
Board of Directors of the Company elected to cancel all outstanding stock
options, as they have been significantly “out of the money” and valueless as
valued under the black-scholes option value pricing model since December 2005 as
noted in the below table.  Therefore the all options totaling
1,400,000 shares, have been returned to the treasury of the option
plan.  Accordingly as of December 31, 2007, no stock options or other
equity awards are outstanding.





Employment
Agreements with Executive Officers





None.





Director
Compensation





Our
Directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and
qualified.  A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of
business.  The directors must be present at the meeting to constitute
a quorum.  However, any action required or permitted to be taken by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the
action.  Directors did not receive any compensation for their services
during fiscal year 2008.





ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





The
following table sets forth certain information regarding beneficial ownership of
our common stock as of April 30, 2009:




· by
each person who is known by us to beneficially own more than 5% of our common
stock;


· by
each of our officers and directors; and


· by
all of our officers and directors as a group.





NAME
      AND ADDRESS
            
            
            NUMBER
      OF
            
            
            PERCENTAGE
      OFOF
      OWNER
            TITLE
      OF CLASS
            
            SHARES
      OWNED (1)
            
            
            CLASS
      (2)George
      S. Young
            Common
      Stock
            
            
            3,500,000
            (3)
            
            
            3.5
            %370
      Interlocken Blvd, Suite 400Broomfield,
      CO  80021All
      Officers and Directors
            Common
      Stock
            
            
            3,500,000
            (3)
            
            
            3.5
            %As a
      Group (2 persons)





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(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of April 30, 2009 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.





(2)
Percentage based on 100,000,000 shares of common stock outstanding as of April
30, 2009.





(3)
Includes 3,500,000 shares owned by Diamond Oil & Gas Corporation, of which
Mr. Young is the sole owner and is therefore deemed to be the beneficial
owner.




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.





Since the
beginning of our prior fiscal year, there have been no transactions, or proposed
transactions, which have materially affected or will materially affect us in
which any director, executive officer or beneficial holder of more than 10% of
the outstanding common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest. We have no policy regarding entering into transactions with affiliated
parties.




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.





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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




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





49
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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.





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
            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.




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10.12
            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.




10.13
            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




16.1
            Letter
      on change in Certifying Accountant on Form 8-K filed with the
      Commission on February 21, 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)




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit
Fees




The
aggregate fees billed by our auditors, for professional services rendered for
the audit of the Company's annual financial statements for the years ended
December 31, 2008 and 2007, and for the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q during the fiscal years
were $100,000 and $15,600, respectively.




Audit-Related
Fees




There
have not been any fees billed in each of the last two years for assurance and
related services by the principal independent accountant that are reasonably
related to the performance of the audit or review of our financial
statements.




Tax
Fees




The aggregate fees billed for
each of the last two fiscal years total$10,000 for professional services
rendered by the principal independent accountant for tax compliance, tax advice,
and tax planning.




All
Other Fees




No other
fees have been billed in the last two years for products and services provided
by the principal accountant other than the services reported pursuant to the
above portions of this Item 14.




Our board
of directors acts as the audit committee and had no “pre-approval policies and
procedures” in effect for the auditors’ engagement for the audit years 2008 and
2007.


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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
      30, 2009
            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
      30, 2009By:/s/
      BROOKE E. HORSPOOL
              Brooke
      E. Horspool
            Chief
      Financial Officer
            April
      30, 2009