**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**







**FORM
        10-KSB/A**


(Amendment
        No. 2)






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






**For
      the Fiscal Year Ended December 31, 2005**






[
      ] **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.)**370
                Interlocken Boulevard, Suite 400**
              **Broomfield,
                Colorado**
            **80021****(303)
                327-1525**(Address
                of principal executive office)
            (Postal
                Code)    (Issuer's
                telephonenumber)




Securities
      registered under Section 12(b) of the Exchange Act:




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






Indicate
      by check mark whether the issuer (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.




Yes  
      [ x ]  No  [ ]




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




Yes [
      ] No  [ x ]




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




Yes [
      ] No  [ x ]  Delinquent filers are disclosed herein.




Fellows
      had no revenue in 2005, other than revenue in the fourth quarter 2005 from
      the
      Carbon County project applied as a credit towards the purchase price of the
      project, which closed in March of 2006.




The
      aggregate market value of the Common Stock held by non-affiliates (as affiliates
      are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed
      by
      reference to the average of the high and low sale price on April 14, 2006,
      was
      $17,262,556.41.




As
      of
      April 14, 2006 there were 55,810,777 shares of issuer’s common stock
      outstanding .














**FELLOWS
      ENERGY LTD.**


**FORM
      10-KSB**




**For
      the Fiscal Year Ended December 31, 2005**




Part
                  l
              PageItem
                  1. Description of Business.
              3Item
                  2. Description of Property.
              16Item
                  3. Legal Proceedings.
              17Item
                  4. Submission of Matters to a Vote of Security Holders.
              17Part
                  ll
              PageItem
                  5. Market for Common Equity and Related Stockholder
                  Matters.
              18Item
                  6. Management's Discussion and Analysis or Plan of
                  Operation.
              19Item
                  7. Financial Statements
              F-1Item
                  8. Changes In and Disagreements With Accountants on Accounting
                  and
                  Financial Disclosure.
              24Item
                  8A. Controls and Procedures.
              24Item
                  8B. Other Information.
              24Part
                  lll
              PageItem
                  9. Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a)of
                  the Exchange Act.
              25Item
                  10. Executive Compensation.
              27Item
                  11. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              28Item
                  12. Certain Relationships and Related Transactions.
              29Item
                  13. Exhibits.
              30Item
                  14. Principal Accountant Fees and Services.
              30Signatures.
              31
  This
            amended annual report on Form 10-KSB/A is filed to provide certain changes
            to
            the audit report from our independent auditors and certain disclosures
            under the
            footnotes to the financial statements. For the convenience of the reader,
            this
            Form 10-KSB/A sets forth the original Form 10-KSB in its entirety. However,
            this
            Form 10-KSB/A only amends the audit report and footnotes to our financial
            statements. No other information in the original Form 10-KSB is amended
            hereby.
            In addition, pursuant to the rules of the SEC, the original Form 10-KSB
            has been
            amended to contain currently dated certifications from the Company's
            Chief
            Executive Officer and Chief Financial Officer, as required by Sections
            302 and
            906 of the Sarbanes-Oxley Act of 2002.


2





**PART
      I**





**FORWARD-LOOKING
      INFORMATION**





This
      Annual Report of Fellows Energy Ltd. on Form 10-KSB contains forward-looking
      statements, particularly those identified with the words, "anticipates,"
      "believes," "expects," "plans," “intends”, “objectives” and similar expressions.
      These statements reflect management's best judgment based on factors known
      at
      the time of such statements. The reader may find discussions containing such
      forward-looking statements in the material set forth under "Legal Proceedings"
      and "Management's Discussion and Analysis and Plan of Operations," generally,
      and specifically therein under the captions "Liquidity and Capital Resources"
      as
      well as elsewhere in this Annual Report on Form 10-KSB. Actual events or results
      may differ materially from those discussed herein.





**ITEM
      1. DESCRIPTION OF BUSINESS.**





**Company
      History**




Fellows
      Energy Ltd. (f/k/a Fuel Centers, Inc.) was incorporated in Nevada on April
      9,
      2001. In November 2001, the Commission declared effective our registration
      statement to register 31,185,150, as adjusted, shares of common stock held
      by
      our stockholders. We were originally formed to offer business consulting
      services in the retail automobile fueling industry. During the fourth quarter
      of
      2003, we decided to change management, enter the oil and gas business and cease
      all activity in the automobile refueling industry. On November 12, 2003, we
      changed our name to Fellows Energy Ltd. and shifted our focus to exploration
      for
      oil and gas in the Rocky Mountain Region. Our common stock is publicly traded
      over-the-counter and quoted on the OTC Bulletin Board under the symbol
“FLWE.OB.”





We
      are an
      early stage oil and gas company led by an experienced management team and
      focused on exploration and production of natural gas, especially from
“unconventional plays” such as tight sands and coal beds, and oil in the Rocky
      Mountain Region. In many unconventional plays accumulations of hydrocarbons
      are
      found over a large areal expanse and/or a thick vertical section, which when
      compared to conventional plays, typically have a higher geological and/or
      commercial development risk and lower average decline rate. Whereas a
“conventional play” is an accumulation of hydrocarbons in a structural or
      stratigraphic setting within high-quality reservoirs. Our strategy is to pursue
      selected opportunities that are characterized by reasonable entry costs,
      favorable economic terms, high reserve potential relative to capital
      expenditures and the availability of existing technical data that may be further
      developed using current technology.





On
      January 5, 2004, we acquired certain interests in certain oil and gas leases
      and
      other interests owned by Diamond Oil & Gas Corporation, a Nevada
      corporation. Diamond is wholly owned by George S. Young, our CEO, President
      and
      a Director.





In
      connection with the transaction with Diamond, we (1) issued 3,500,000
      shares of our common stock to Diamond at $1.83 per share; (2) completed a
      private placement of $2,750,000, pursuant to which we issued 2,750,000 shares
      of
      our common stock at $1.00 per share; (3) appointed George S. Young as our
      President, Chief Executive Officer and a Director and Steven L. Prince as our
      Vice President and a Director; and (4) accepted the resignation of our then
      management and redeemed 52,610,000 shares of our common stock owned by the
      outgoing and former management in exchange for an aggregate sum of
      $27,000.




3





**Business
      Strategy**





We
      seek
      to: (1) achieve attractive returns on capital for the benefit of our
      stockholders through investment in exploration and development of unconventional
      plays; (2) maintain a strong balance sheet to preserve maximum financial and
      operational flexibility; and (3) create strong employee incentives through
      equity ownership.




***Focus
      on Unconventional Coal Bed Methane and Tight Gas Sand
      Plays***




We
      plan
      to continue our focus on coal bed methane and tight gas sand plays in the Rocky
      Mountain Region.




In
      our
      short operating history in the oil and gas industry, we have positioned Fellows
      to control and exploit potential reserves from a number of large oil and gas
      projects. These projects focus on coal bed methane, tight sands gas and oil
      from
      fractured shales and are characterized by their widespread occurrence, large
      reserve potential, low finding and development costs, high drilling success
      rates, and low geologic and operating risks. The current project portfolio
      highlights our ability to negotiate deals where it controls such opportunities
      with relatively small amounts of capital. If we can establish that a particular
      play has commercial oil and/or gas reserves, the associated land position takes
      on substantial value as the resource is translated into proven reserves through
      development drilling. If we can achieve large proven reserves that result from
      initial drilling success, then we could have the ability to raise debt financing
      for development of the field.




We
      also
      plan to include conventional oil and gas projects in its mix to create cash
      flow
      and reserves in the short term to support our overhead and allow for orderly
      development of the larger, more capital and lead-time intensive unconventional
      projects.




We
      believe the Powder River Basin (located in Wyoming and Montana), Overthrust
      Belt
      (located in Utah and Wyoming) and Uinta Basin (located in Utah) represent some
      of the most attractive regions for unconventional plays in North America due
      to
      a combination of available land, large unconventional play opportunities, low
      finding and development cost and production potential. Moreover, because of
      these regions’ proximity to major pipeline networks serving important U.S.
      markets, price differentials for gas sales can be managed at acceptable levels.




***Disciplined
      Acquisition Strategy***




We
      intend
      to acquire producing oil and gas properties where we believe significant
      additional value can be created. Management is primarily interested in
      unconventional play properties with a combination of these factors:
      (1) opportunities for long life production with stable production levels;
      (2) geological formations with multiple producing horizons;
      (3) substantial exploitation potential; and (4) relatively low capital
      investment production costs.




***Exploitation
      of Properties***




We
      intend
      to maximize the value of our properties through a combination of successful
      exploration, drilling, increasing production, increasing recoverable reserves
      and reducing operating costs. Where we deem appropriate, we will employ
      technology to improve recoveries such as directional and horizontal drilling.
      Directional and horizontal drilling and completion methods have historically
      produced oil and gas at faster rates and with lower operating costs basis than
      traditional vertical drilling.




***Experienced
      and Incentivized 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.




4


***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. The incentive stock option
      plan
      for our executive officers authorizes up to 2,000,000 shares of 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 common stock on the date of grant. The options vested 50%
      on
      the grant date and will 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.




**Company
      and Industry Highlights**





***Solid
      Rocky Mountain Fundamentals***




According
      to the report *Balancing
      Natural Gas Policy - Fueling Demands of a Growing Economy* (September 25, 2003), released in the fall of 2003 by the National Petroleum
      Council:




Current
      higher gas prices are the result of a fundamental shift in the supply and demand
      balance. North America is moving to a period in its history in which it will
      no
      longer be self-reliant in meeting its growing natural gas needs as production
      from traditional U.S. and Canadian basins has plateaued. Government policy
      encourages the use of natural gas but does not address the corresponding need
      for additional natural gas supplies.




Furthermore,
      within the State of Wyoming, as indicated by data compiled by the Wyoming Oil
      & Gas Conservation Commission and available on its website at
      www.wogcc.state.wy.us, gas production has increased 80% since the mid-1990s
      and
      is expected to surpass 6 Bcf per day this year, largely from coal bed methane
      production in the Powder River Basin and tight sands gas production from the
      Green River Basin. In the Powder River Basin, 16,000 wells have been drilled
      to
      date (mostly in the last five years) and approximately 50,000 additional drill
      locations have been identified. Although this area has been historically
      challenged by pipeline capacity restraints and tough environmental regulations,
      substantial progress has been made with the doubling of capacity of the Kern
      River Pipeline and the completion of the Grasslands and Cheyenne Plains
      Pipelines, which Management believes bodes well for future development, growth
      and economics in the Rocky Mountain Region.




***Focus
      on Unconventional Plays***




In
      building our inventory of oil and gas projects, we have concentrated primarily
      on unconventional plays.




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.




5


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. Four out of the five with
      estimated reserves of over 30 TCF were unconventional tight sands or coal bed
      methane unconventional plays.




***Strong
      Acquisition Market***




The
      recent sales of major Rocky Mountain independent oil and gas companies such
      as
      Westport Resources Corporation, Tom Brown, Inc., Evergreen Resources, Inc.,
      Patina Oil & Gas Corporation and Prima Energy Corporation for total
      consideration of over ten billion dollars, in the opinion of our management,
      bear testimony to the strength of the acquisition market for companies that
      have
      established proven reserve growth from unconventional plays. While only
      Evergreen was a pure unconventional-play oriented company, each of the others
      has had a major component of such plays as part of their portfolio which helped
      to increase their exit valuations due to the large amount of proven undeveloped
      category reserves associated with them. Although there are no assurances, we
      anticipate that the success of any of our major unconventional plays will
      quickly make it a favored acquisition target for large, public companies seeking
      to grow through strategic acquisitions, thus providing an attractive exit
      strategy for our stockholders.




***Large
      Strategic Land Position***




Through
      our direct ownership of mineral rights in the Powder River Basin, Overthrust
      Belt and Uinta Basin, we have a strategic land position in the oil and gas
      producing basins of the Rocky Mountains. Known hydrocarbon resources in
      reservoirs in unconventional plays such as coal seams, thick oil-bearing shales,
      and extensive bodies of tight gas-bearing sands throughout the properties create
      the potential for a large inventory of drilling locations should initial
      exploration efforts prove successful. Although there are no assurances, this
      inventory could support future net reserve additions and production growth
      over
      the next several years.




***Strong
      Underlying Industry Fundamentals***




According
      to the National Petroleum Council Gas Report, the domestic natural gas
      fundamentals will continue to be attractive, for the foreseeable future. The
      U.S. faces a significant natural gas supply problem due to the maturing of
      its
      traditional producing basins, the increase in exploration and development costs,
      and demand increases coupled with production decline rates. The U.S. has several
      ways to combat this supply problem through measures including increased
      development and importation of Canadian and Alaskan gas and delivery of
      liquefied natural gas. However, the impact of these efforts is expected to
      only
      mitigate the supply decline or at best increase supply marginally.




***Proven
      Management Expertise***




Our
      CEO
      and President George S. Young and our Vice President Steve Prince have
      experience in operating and growing an oil and gas public company. Mr. Young
      brings strong leadership and business qualifications, an understanding from
      having been trained as both an attorney and engineer and 25 years of natural
      resource industry experience. Mr. Prince brings 13 years of oil and gas industry
      experience as a geologist and as a significant contributor to the development
      of
      major producing fields in areas of interest to us.




6


**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 equity
      capital to support the initial phases of exploration and exploitation work
      required on our projects. To the extent the plays mature into “Proven” status as
      determined by independent third-party engineers, we plan to utilize debt sources
      for a large percentage of our capital requirements so as to maximize the return
      on equity that these projects generate. This debt may be in the form of senior
      bank debt, junior or subordinated bank debt, and/or mezzanine debt. We cannot
      provide any assurance that we will be able to raise additional debt or equity
      to
      fund future operational and exploration needs or terms acceptable to
      us.




Additionally,
      we may generate funds through (1) a joint venture, sale or farm out on an
      interest in one or more of its properties and/or (2) divesting one or more
      of
      our properties that are determined not to fit with its strategic core holdings.




**Property
      Summary**





In
      our
      short operating history in the oil and gas industry, we have positioned Fellows
      to control and exploit potential reserves from a number of large unconventional
      oil and gas resource type projects covering approximately 236,000 gross and
      151,000 net 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.




**Competition**





Oil
      and
      gas exploration and acquisition of undeveloped properties is a highly
      competitive and speculative business. We compete with a number of other
      companies, including major oil companies and other independent operators which
      are more experienced and which have greater financial resources. Such companies
      may be able to pay more for prospective oil and gas properties. Additionally,
      such companies may be able to evaluate, bid for and purchase a greater number
      of
      properties and prospects than our financial and human resources permit. We
      do
      not hold a significant competitive position in the oil and gas industry.




**Regulation**





Our
      operations are or will be subject to various types of regulation at the federal,
      state and local levels. Such regulation includes requiring permits for the
      drilling of wells; maintaining bonding requirements in order to drill or operate
      wells; implementing spill prevention plans; submitting notification and
      receiving permits relating to the presence, use and release of certain materials
      incidental to oil and gas operations; and regulating the location of wells,
      the
      method of drilling and casing wells, the use, transportation, storage and
      disposal of fluids and materials used in connection with drilling and production
      activities, surface usage and the restoration of properties upon which wells
      have been drilled, the plugging and abandoning of wells and the transporting
      of
      production. Our operations are or will be also subject to various conservation
      matters, including the regulation of the size of drilling and spacing units
      or
      proration units, the number of wells which may be drilled in a unit, and the
      unitization or pooling of oil and gas properties. In this regard, some states
      allow the forced pooling or integration of tracts to facilitate exploration
      while other states rely on voluntary pooling of lands and leases, which may
      make
      it more difficult to develop oil and gas properties. In addition, state
      conservation laws establish maximum rates of production from oil and gas wells,
      generally limit the venting or flaring of gas, and impose certain requirements
      regarding the ratable purchase of production. The effect of these regulations
      is
      to limit the amounts of oil and gas we may be able to produce from our wells
      and
      to limit the number of wells or the locations at which we may be able to drill.




7


Our
      business is affected by numerous laws and regulations, including energy,
      environmental, conservation, tax and other laws and regulations relating to
      the
      oil and gas industry. We plan to develop internal procedures and policies to
      ensure that our operations are conducted in full and substantial environmental
      regulatory compliance.




Failure
      to comply with any laws and regulations may result in the assessment of
      administrative, civil and criminal penalties, the imposition of injunctive
      relief or both. Moreover, changes in any of these laws and regulations could
      have a material adverse effect on business. In view of the many uncertainties
      with respect to current and future laws and regulations, including their
      applicability to us, we cannot predict the overall effect of such laws and
      regulations on our future operations.




We
      believe that our operations comply in all material respects with applicable
      laws
      and regulations and that the existence and enforcement of such laws and
      regulations have no more restrictive an effect on our operations than on other
      similar companies in the energy industry. We do not anticipate any material
      capital expenditures to comply with federal and state environmental
      requirements.




**Environmental
      Matters**





Operations
      on properties in which we have an interest are subject to extensive federal,
      state and local environmental laws that regulate the discharge or disposal
      of
      materials or substances into the environment and otherwise are intended to
      protect the environment. Numerous governmental agencies issue rules and
      regulations to implement and enforce such laws, which are often difficult and
      costly to comply with and which carry substantial administrative, civil and
      criminal penalties and in some cases injunctive relief for failure to comply.




Some
      laws, rules and regulations relating to the protection of the environment may,
      in certain circumstances, impose “strict liability” for environmental
      contamination. These laws render a person or company liable for environmental
      and natural resource damages, cleanup costs and, in the case of oil spills
      in
      certain states, consequential damages without regard to negligence or fault.
      Other laws, rules and regulations may require the rate of oil and gas production
      to be below the economically optimal rate or may even prohibit exploration
      or
      production activities in environmentally sensitive areas. In addition, state
      laws often require some form of remedial action, such as closure of inactive
      pits and plugging of abandoned wells, to prevent pollution from former or
      suspended operations.




Legislation
      has been proposed in the past and continues to be evaluated in Congress from
      time to time that would reclassify certain oil and gas exploration and
      production wastes as “hazardous wastes.” This reclassification would make these
      wastes subject to much more stringent storage, treatment, disposal and clean-up
      requirements, which could have a significant adverse impact on operating costs.
      Initiatives to further regulate the disposal of oil and gas wastes are also
      proposed in certain states from time to time and may include initiatives at
      the
      county, municipal and local government levels. These various initiatives could
      have a similar adverse impact on operating costs.




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.




8


It
      is
      also not uncommon for neighboring landowners and other third parties to file
      claims for personal injury or property or natural resource damages allegedly
      caused by the hazardous substances released into the environment. Under CERCLA,
      certain oil and gas materials and products are, by definition, excluded from
      the
      term “hazardous substances.” At least two federal courts have held that certain
      wastes associated with the production of crude oil may be classified as
      hazardous substances under CERCLA. Similarly, under the federal Resource,
      Conservation and Recovery Act, or RCRA, which governs the generation, treatment,
      storage and disposal of “solid wastes” and “hazardous wastes,” certain oil and
      gas materials and wastes are exempt from the definition of “hazardous wastes.”
This exemption continues to be subject to judicial interpretation and
      increasingly stringent state interpretation. During the normal course of
      operations on properties in which we have an interest, exempt and non-exempt
      wastes, including hazardous wastes, that are subject to RCRA and comparable
      state statutes and implementing regulations are generated or have been generated
      in the past. The federal Environmental Protection Agency and various state
      agencies continue to promulgate regulations that limit the disposal and
      permitting options for certain hazardous and non-hazardous wastes.




We
      believe that the operator of the properties in which we have an interest is
      in
      substantial compliance with applicable laws, rules and regulations relating
      to
      the control of air emissions at all facilities on those properties. Although
      we
      maintain insurance against some, but not all, of the risks described above,
      including insuring the costs of clean-up operations, public liability and
      physical damage, there is no assurance that our insurance will be adequate
      to
      cover all such costs, that the insurance will continue to be available in the
      future or that the insurance will be available at premium levels that justify
      our purchase. The occurrence of a significant event not fully insured or
      indemnified against could have a material adverse effect on our financial
      condition and operations. Compliance with environmental requirements, including
      financial assurance requirements and the costs associated with the cleanup
      of
      any spill, could have a material adverse effect on our capital expenditures,
      earnings or competitive position. We do believe, however, that our operators
      are
      in substantial compliance with current applicable environmental laws and
      regulations. Nevertheless, changes in environmental laws have the potential
      to
      adversely affect operations. At this time, we have no plans to make any material
      capital expenditures for environmental control facilities.




**EMPLOYEES**





As
      of
      April 1, 2006, we have six full-time employees. The majority of development
      services have been provided to us by the officers and outside, third-party
      vendors. Currently, there exist no organized labor agreements or union
      agreements between us and our employees. We do not have employment agreements
      with any of our employees. We believe that our relations with our employees
      are
      good.





**RISKS
      RELATED TO BUSINESS**





You
      should carefully consider the following risk factors and all other information
      contained herein as well as the information included in this Annual Report
      in
      evaluating our business and prospects. The risks and uncertainties described
      below are not the only ones we face. Additional risks and uncertainties, other
      than those we describe below, that are not presently known to us or that we
      currently believe are immaterial may also impair our business operations. If
      any
      of the following risks occur, our business and financial results could be
      harmed. You should refer to the other information contained in this Annual
      Report, including our consolidated financial statements and the related
      notes.




**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 $2,498,816 and $3,760,308 for the years ended December
      31, 2005 and 2004, respectively. We cannot assure you that we can achieve or
      sustain profitability on a quarterly or annual basis in the future. Our
      operations are subject to the risks and competition inherent in the
      establishment of a business enterprise. There can be no assurance that future
      operations will be profitable. Revenues and profits, if any, will depend upon
      various factors, including whether we will be able to continue expansion of
      our
      revenue. We may not achieve our business objectives and the failure to achieve
      such goals would have an adverse impact on us.




9


**If
      We Are Unable to Obtain Additional Funding, Our Business Operations Will be
      Harmed and If We Do Obtain Additional Financing, Our Then Existing Shareholders
      May Suffer Substantial Dilution.**




We
      will
      require additional funds to sustain and expand our acquisition, exploration
      and
      production of natural gas from coal bed methane. We anticipate that we will
      require up to approximately $500,000 to fund our continued operations for
      the next twelve months from the date of this prospectus, depending on revenues
      from operations. Additional capital will be required to effectively support
      the
      operations and to otherwise implement our overall business strategy. There
      can
      be no assurance that financing will be available in amounts or on terms
      acceptable to us, if at all. The inability to obtain additional capital will
      restrict our ability to grow and may reduce our ability to continue to conduct
      business operations. If we are unable to obtain additional financing, we will
      likely be required to curtail our marketing and development plans and possibly
      cease our operations. Any additional equity financing may involve substantial
      dilution to our then existing shareholders.




**Our
      Independent Registered Public Accounting Firm Has Stated There is Substantial
      Doubt About Our Ability to Continue As a Going Concern, Which May Hinder Our
      Ability to Obtain Future Financing.**





In
      their
      report dated March 29, 2005 on our financial statements as of and for the year
      ended December 31, 2004, our independent registered public accounting firm
      stated that our significant losses from operations as of September 30, 2004
      raised substantial doubt about our ability to continue as a going concern.
      Since
      December 31, 2004, 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 funding from outside sources, including obtaining
      additional funding from the sale of our securities, increasing sales or
      obtaining loans and grants from various financial institutions where possible.
      Our continued net operating losses and stockholders’ deficiency increase the
      difficulty in meeting such goals and there can be no assurances that such
      methods will prove successful.




**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
      no history of revenues from operations and have no significant tangible assets.
      We have yet to generate positive earnings and there can be no assurance that
      we
      will ever operate profitably.  Our company has a limited operating history
      and must be considered in the development stage. 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. We are in the development
      stage and potential investors should be aware of the difficulties normally
      encountered by enterprises in the development stage. If our business plan is
      not
      successful, and we are not able to operate profitably, investors may lose some
      or all of their investment in our company.





**If
      We Are Unable to Retain the Services of Mr. Young or If We Are Unable to
      Successfully Recruit Qualified Managerial and Field Personnel Having Experience
      in Oil and Gas Exploration, We May Not Be Able to Continue Our Operations.**





Our
      success depends to a significant extent upon the continued service of Mr. George
      S. Young, our President, Chief Executive Officer and a director. Loss of the
      services of Mr. Young could have a material adverse effect on our growth,
      revenues, and prospective business. We do not maintain key-man insurance on
      the
      life of Mr. Young. In addition, in order to successfully implement and manage
      our business plan, we will be dependent upon, among other things, successfully
      recruiting qualified managerial and field personnel having experience in the
      oil
      and gas exploration business. Competition for qualified individuals is intense.
      There can be no assurance that we will be able to find, attract and retain
      existing employees or that we will be able to find, attract and retain qualified
      personnel on acceptable terms.





10


**As
      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.





**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. These factors cannot be
      accurately predicted and the combination of these factors may result in our
      company not receiving an adequate return on invested capital.





**Even
      if We are Able to Discover and Generate A Gas Well, There Can be no Assurance
      the Well Will Become Profitable**





We
      have
      not yet make a discovery of coalbed methane gas or drilled a gas well to capture
      any gas. Even if we are able to, a productive well may become uneconomic in
      the
      event water or other deleterious substances are encountered which impair or
      prevent the production of oil and/or gas from the well. In addition, production
      from any well may be unmarketable if it is impregnated with water or other
      deleterious substances. In addition, the marketability of oil and gas which
      may
      be acquired or discovered will be affected by numerous factors, including the
      proximity and capacity of oil and gas pipelines and processing equipment, market
      fluctuations of prices, taxes, royalties, land tenure, allowable production
      and
      environmental protection, all of which could result in greater expenses than
      revenue generated by the well.





**Competition
      In The Oil And Gas Industry Is Highly Competitive And There Is No Assurance
      That
      We Will Be Successful In Acquiring The Leases.**





The
      oil
      and gas industry is intensely competitive. We compete with numerous individuals
      and companies, including many major oil and gas companies, which have
      substantially greater technical, financial and operational resources and staffs.
      Accordingly, there is a high degree of competition for desirable oil and gas
      leases, suitable properties for drilling operations and necessary drilling
      equipment, as well as for access to funds. We cannot predict if the necessary
      funds can be raised or that any projected work will be completed. Our budget
      anticipates our acquisition of additional acreage in the Rocky Mountain Region.
      This acreage may not become available or if it is available for leasing, that
      we
      may not be successful in acquiring the leases.





11




**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.





**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.





We
      believe that our operations comply, in all material respects, with all
      applicable environmental regulations.





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




**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 14, 2006, we had 55,810,777 shares of common stock issued and outstanding,
      convertible debentures issued in June 2005 outstanding that may be converted
      into an estimated 15,174,000 shares of common stock at current market prices,
      convertible debentures issued in September 2005 outstanding that may be
      converted into 10,085,670 shares of common stock, outstanding warrants issued
      in
      June 2005 to purchase 7,191,018 shares of common stock and outstanding warrants
      issued in September 2005 to purchase 2,172,000 shares of common stock. In
      addition, the number of shares of common stock issuable upon conversion of
      the
      outstanding convertible debentures issued in June and September 2005 may
      increase if the market price of our stock declines. All of the shares issuable
      upon conversion of the June and September 2005 debentures and upon exercise
      of
      our June and September 2005 warrants, may be sold without restriction. The
      sale
      of these shares may adversely affect the market price of our common stock.




**The
      Continuously Adjustable Conversion Price Feature of Our Convertible Debentures
      Could Require Us to Issue a Substantially Greater Number of Shares, Which Will
      Cause Dilution to Our Existing Stockholders.**




Our
      obligation to issue shares upon conversion of our convertible debentures is
      potentially limitless. We are required to repay 1/24th of the face amount of
      the
      debentures each month. In the event that we cannot, or choose not to, repay
      the
      amortized amount in cash, we are obligated to issue shares of our common stock
      to cover the amount of the debenture. The following is an example of the amount
      of shares of our common stock that are issuable, upon conversion of our
      outstanding convertible debentures based on market prices
      25%, 50% and 75% below the market price as of April 14, 2006 of $0.34 per share.








Number
            %
                of%
                Below
            Price
                Per
            With
                Discount
            of
                Shares
            OutstandingMarket
            Share
            at
                20%
            Issuable
            Stock25%
            $.255
            $.204
            31,797,467
            36.30%50%
            $.17
            $.136
            47,696,200
            46.08%75%
            $.085
            $.068
            95,392,400
            63.09%






As
      illustrated, the number of shares of common stock issuable upon conversion
      of
      our convertible debentures will increase if the market price of our stock
      declines, which will cause dilution to our existing stockholders.




**The
      Continuously Adjustable Conversion Price Feature of our Convertible Debentures
      May Encourage Investors to Make Short Sales in Our Common Stock, Which Could
      Have a Depressive Effect on the Price of Our Common Stock.**




The
      convertible debentures are convertible into shares of our common stock at a
      20%
      discount to the trading price of the common stock prior to the conversion.
      The
      significant downward pressure on the price of the common stock as the selling
      stockholders convert and sells material amounts of common stock could encourage
      short sales by investors. This could place further downward pressure on the
      price of the common stock. The selling stockholders could sell common stock
      into
      the market in anticipation of covering the short sale by converting their
      securities, which could cause the further downward pressure on the stock price.
      In addition, not only the sale of shares issued upon conversion or exercise
      of
      convertible debentures and warrants, but also the mere perception that these
      sales could occur, may adversely affect the market price of the common stock.





13


**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.




**In
      The Event That Our Stock Price Declines, The Shares Of Common Stock Allocated
      For Conversion Of The Convertible Debentures and Registered Pursuant to
      Registration Statements May Not Be Adequate And We May Be Required to File
      A
      Subsequent Registration Statement Covering Additional Shares. If The Shares
      We
      Have Allocated And Are Registering Herewith Are Not Adequate And We Are Required
      To File An Additional Registration Statement, We May Incur Substantial Costs
      In
      Connection Therewith.**




Based
      on
      our current market price and the potential decrease in our market price as
      a
      result of the issuance of shares upon conversion of the convertible debentures,
      we made a good faith estimate as to the amount of shares of common stock that
      we
      are required to register and allocate for conversion of the convertible
      debentures. Accordingly, we have allocated and registered 16,523,938 shares
      to
      cover the conversion of the convertible debentures issued in June 2005 and
      7,770,000 shares to cover the conversion of the convertible debentures issued
      in September 2005. In the event that our stock price decreases, the shares
      of common stock we have allocated for conversion of the convertible debentures
      may not be adequate. If the shares we have allocated to the registration
      statements are not adequate and we are required to file an additional
      registration statement, we may incur substantial costs in connection with the
      preparation and filing of such registration statement. ****




**If
      We Are Required for any Reason to Repay Our Outstanding Convertible Debentures,
      We Would Be Required to Deplete Our Working Capital, If Available, Or Raise
      Additional Funds. Our Failure to Repay the Convertible Debentures, If Required,
      Could Result in Legal Action Against Us, Which Could Require the Sale of
      Substantial Assets.**




In
      June
      2005, we entered into a Securities Purchase Agreement for the sale of an
      aggregate of $5,501,199.95 principal amount of convertible debentures. The
      convertible debentures are due and payable 27 months from the date of issuance,
      with 1/24th of the face amount due every month starting October 2005.
      In September, 2005, we entered into
      a Securities Purchase Agreement for the sale of an aggregate of
      $3,108,000 principal amount of convertible debentures. The convertible
      debentures are due and payabe 27 months from the date of issuance with
      1/24th of the face amount due every month starting January 2006. In
      addition, any event of default such as our failure to repay the principal when
      due, our failure to issue shares of common stock upon conversion by the holder,
      our failure to timely file a registration statement or have such registration
      statement declared effective, breach of any covenant, representation or warranty
      in the Securities Purchase Agreement or related convertible debentures, the
      assignment or appointment of a receiver to control a substantial part of our
      property or business, the filing of a money judgment, writ or similar process
      against our company in excess of $50,000, the commencement of a bankruptcy,
      insolvency, reorganization or liquidation proceeding against our company and
      the
      delisting of our common stock could require the early repayment of the
      convertible debentures, including default interest on the outstanding principal
      balance of the convertible debentures if the default is not cured with the
      specified grace period. We anticipate that the full amount of the convertible
      debentures will be converted into shares of our common stock, in accordance
      with
      the terms of the convertible debentures. If we are required to repay the
      convertible debentures, we would be required to use our limited working capital
      and raise additional funds. If we were unable to repay the convertible
      debentures when required, the debenture holders could commence legal action
      against us and foreclose on all of our assets to recover the amounts due. Any
      such action would require us to curtail or cease operations.





14


**Risks
      Relating to Our Common Stock** **:**





**If
      We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
      From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers
      to
      Sell Our Securities and the Ability of Stockholders to Sell Their Securities
      in
      the Secondary Market.**





Companies
      trading on the OTC Bulletin Board, such as us, must be reporting issuers under
      Section 12 of the Securities Exchange Act of 1934, as amended, and must be
      current in their reports under Section 13, in order to maintain price quotation
      privileges on the OTC Bulletin Board. If we fail to remain current on our
      reporting requirements, we could be removed from the OTC Bulletin Board. As
      a
      result, the market liquidity for our securities could be severely adversely
      affected by limiting the ability of broker-dealers to sell our securities and
      the ability of stockholders to sell their securities in the secondary market.




**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.




15


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.





**ITEM
      2. DESCRIPTION OF PROPERTY.**





Our
      principal executive offices are located at 370 Interlocken Boulevard, Suite
      400,
      Broomfield, Colorado 80021, and our telephone number is (303) 327-1525. We
      occupy approximately 2,500 square feet of office space under a lease expiring
      in
      February 2006. The monthly rent is $3,300. 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 properties in
      connection with our business activities:





**Overthrust
      Coal Bed Methane Project, Utah and Wyoming**





The
      Overthrust Coal Bed Methane Project is an unconventional play with 183,000
      gross
      and 118,950 net acres targeting coal bed natural gas in southwestern Wyoming
      and
      northeastern Utah. This project also has the potential for conventional oil
      and
      gas.




In
      March
      2004, Fellows entered into an option agreement with Quaneco, L.L.C., an Oklahoma
      limited liability company, to acquire a 65% working interest for $250,000 in
      the
      Overthrust Coal Bed Methane Project. The Overthrust Coal Bed Methane Project
      is
      located in Rich and Summit Counties of northeastern Utah, and Uinta County,
      Wyoming. Quaneco has approximately 183,000 acres under lease in the project
      area. Just east of the project area is over 6 TCF of gas production from the
      conventional “Overthrust” oil and gas play, so pipeline infrastructure and gas
      markets are well established in the area.




Under
      the
      terms of the option agreement with Quaneco, we have paid to Quaneco an option
      payment of $100,000 and issued 200,000 shares of common stock in early 2005.
      We
      are presently renegotiating the balance of the terms of our earn-in agreement
      with Quaneco based on our work performed to date, as described.




Based
      upon regional geologic studies of historical oil and gas and coal mining
      activity, plus the results from seven exploratory wells previously drilled
      by
      Quaneco, the Overthrust coal bed methane play has multiple coal seams of
      Tertiary and Cretaceous age that may contain coal bed methane. Some of this
      coal
      is of similar age and depositional condition to other productive coal bed
      methane fields such as the Drunkard’s Wash field in eastern Utah which has
      estimated reserves of 2 TCF.




In
      May
      2004, we completed the first round of our exploratory activity with the drilling
      of the Crane #6-7 Well on the northern portion of the Overthrust Coal Bed
      Methane Project lease block in northern Utah. The well reached a depth of 4,280
      feet. we cored coals and carbonaceous shales over a combined interval of 556
      feet. The core tests confirm the presence of coals with potentially commercial
      gas contents in the Frontier and Bear River formations.




In
      the
      balance of **** 2006,
      we
      plan to conduct the second round of exploration activities on project, which
      will include well log analysis, seismic analysis and the purchase of additional
      seismic information, and the preparation of drill site locations and permitting
      for additional drilling to target not only the coal bed methane potential,
      but
      also the conventional gas sands that have been encountered in the previous
      exploration work. This activity may also include activity in the southern
      portion of the project, including detailed geologic studies of the Coalville
      and
      Henrys Fork areas, core drilling, and production testing. The Coalville and
      Henrys Fork area contains known thick coals in the Tertiary Adaville and
      Cretaceous Frontier formations. These coals crop out and are mined in and around
      the small town of Coalville, Utah. Wells in the Coalville area were reported
      to
      have penetrated net coal thickness of 100 feet from the Adaville Formation
      and
      50 feet from the Frontier Formation. The State of Utah estimates the
      gas-in-place (coal bed methane gas resource) could range from 0.1 to 1.0 TCF
      from the Tertiary Adaville and Cretaceous Frontier formations.





16


**Weston
      County Project, Wyoming**





The
      Weston County play will focus 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 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.




We
      acquired an option to purchase a 100% working interest for 19,290 acres of
      oil
      and gas rights in Weston County, Wyoming for a total purchase price of $750,000.
      We closed that 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.
      It
      is estimated that the Field may ultimately have reserve potential of up to
      5-10 million barrels according to Thomasson Partner Associates, Inc. We have
      signed a joint venture agreement with JMG Exploration to drill our Weston County
      and Gordon Creek projects. Under the agreement, JMG Exploration will receive
      a
      50% interest in exchange for incurring $2,000,000 in exploration and drilling
      expenditures on the two projects by November 7, 2005. The agreement was amended
      in June 2005 in connection with the repayment of the JMG Exploration loan and
      we
      assigned the remaining 50% interest in the Weston County project to JMG
      Exploration, subject to our right to reacquire such interest for approximately
      $390,000 by June 30, 2005, which has been exercised. Subsequent to this initial
      joint venture drilling commitment being fulfilled, we plan to participate in
      eight 4,500 foot field extension wells at an estimated cost of
      $1,000,000.





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
      Fellows’ 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. We will be working
      to
      develop a plan for the further delineation of these prospects with a plan to
      drill one or more exploratory tests in 2005.




**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 generated by Thomasson Partner Associates.




17


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.




Within
      the general vicinity of the Carter Creek Project there are 21 Niobrara producers
      that have had a combined cumulative production of 629,777 BO and 1.2 Bcf. These
      wells were drilled as vertical producers without the benefit of modern
      exploration concepts, and drilling and completion technology. The best of these
      wells was the Dunlop well in Section 26, T44N-R71W, which produced 205,965
      BO
      and 519,935 Mcf of gas through May of 2004 from a vertical well that was lightly
      acidized. This is a promising result that, if it can be repeated consistently,
      likely would provide a basis for a highly economic oil play.




A study
      by Thomasson Partner Associates of the Carter Creek Project area indicates
      that
      results similar to or better than the Dunlop well may be achieved through
      the use of high-resolution seismic to identify shear and fracture trends
      combined with horizontal drilling technology to maximize exposure to productive
      fracture zones within the Niobrara and Mowry. Management believes that the
      use
      of these exploration and drilling techniques could result in wells with average
      recoveries of 400,000 barrels of oil equivalent or “BOE” (i.e. including gas at
      a 6 MCF to 1 BO ratio). The size of the play could range from 10 to 100 wells
      with reserve potential of 4 to 40 million barrels.




Secondary
      objectives in the play below the Niobrara include the Turner and Muddy zones
      within the over-pressured Cretaceous envelope, as well as the normally pressured
      zones including the deeper Dakota formation. In addition, there are shallower
      secondary objectives including the Shannon, Teapot, Parkman and Teckla
      zones above the Niobrara. These reservoirs could provide significant
      reserve additions to the Niobrara and Mowry and will be evaluated in each
      initial well drilled.




The
      current plan for this project is to acquire additional seismic and leasehold,
      then drill one horizontal well into the Niobrara section at a location where
      the
      available seismic data suggests good fractured reservoir conditions exist.
      If
      successful, additional wells can be drilled in 2005-2006. To minimize formation
      damage, the well will be drilled under-balanced. Cost of the well is projected
      at $1,250,000. Reserve potential could be as much as 400,000 BOE. The risk
      of finding producible reserves in this project is considered low due to the
      widespread occurrence of hydrocarbons within the objective formations, the
      remaining question is whether the production levels achieved will provide
      economic returns on a consistent basis.




**Gordon
      Creek Project, Utah**





The
      Gordon Creek Project targets an unconventional play on 5,242 gross and 3,184
      net
      acres for gas from tight sands in the Ferron formation, plus coal bed natural
      gas from coals in the Emery formation.




In
      January 2004, we acquired an option to purchase 5,242 acres 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.




18


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.




During
      2001, 2002 and 2003, Klabzuba Oil & Gas drilled a series of six wells
      previously drilled into the 100 foot thick Ferron sandstone at Gordon Creek
      Field and completed them for production. Gordon Creek Field is located 3 miles
      south of Fellows’ acreage. The six wells have produced 1.5 Bcf in their first
      year of production according to state records. These early indications of
      production confirm a potentially large play which may someday have reserves
      in
      excess of 2 TCF of gas.




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. Subsequent to initial drilling
      by JMG Exploration on Gordon Creek, we plan to spend $450,000 to drill
      additional wells and acquire acreage in the Ferron sandstone trend.




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 out Gordon Creek
      land holdings. Our project personnel were previously involved in drilling for
      River Gas Corporation in the Drunkard’s Wash field.  The Ferron coal bed
      play trend has estimated reserves of 2 TCF, and the play may eventually have
      twice that level of reserves as coals along trend are developed. The Emery
      coal
      trend is essentially parallel and to the west of the Ferron trend and represents
      a later episode of deposition when the Cretaceous sea level was higher.




**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 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.





19


**Summary
      of Our Projects, Acreage Holdings, and Wells**




**Project**
              **Objective**
              **Play
                  Type**
              **Gross**
                **Acres**
              **Net**
                **Acres****Overthrust
                  Coal Bed Methane, Rich, Morgan & Summit Counties, Utah
                  (1)**Adaville
                  Coal
              Coal
                  Bed Natural Gas
              183,000
              118,950Frontier
                  Coal
              Coal
                  Bed Natural GasBear
                  River Coal
              Coal
                  Bed Natural Gas**Creston
                  Project, Utah**Conventional
                  Oil
              9,000
              9,000**Carbon
                  County Project, Utah**Tight
                  Sands Gas and Coal
              5,953
              2,440**Weston
                  County Project, Wyoming**Turner
              Conventional
                  Oil
              19,290
              19,290Dakota
              Conventional
                  OilMinnelusa
              Conventional
                  Oil**Carter
                  Creek, Converse County, Wyoming**Niobrara
              Oil
                  from Fractured Shale
              14,196
              9,959Mowry
              Oil
                  from Fractured ShaleTurner,
                  Muddy, Dakota
              Conventional
                  Oil**Gordon
                  Creek, Carbon County, Utah**Ferron
                  Sandstone
              Tight
                  Sands Gas
              5,242
              3,184Emery
                  Coal
              Coal
                  Bed Natural Gas**Totals**
              **236,681**
              **162,823**




(1)
      Subject to an earn-in contract with Quaneco, L.L.C. for a 65% working
      interest.





**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.





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 in its early stages. Although we believe we have a strong defense and
      counterclaim, we cannot predict the final outcome of the suit.





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





None.





20




**PART
      II**





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





**MARKET
      INFORMATION**





Our
      common stock is quoted on the OTC Bulletin Board 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 2004**First
                Quarter
            
            
            2.23
            
            
            1.10Second
                Quarter
            
            
            1.62
            
            
            0.81Third
                Quarter
            
            
            1.12
            
            
            0.69Fourth
                Quarter
            
            
            1.02
            
            
            0.71**Fiscal
                Year 2005**First
                Quarter
            
            
            1.25
            
            
            0.71Second
                Quarter
            
            
            1.00
            
            
            0.42Third
                Quarter
            
            
            1.40
            
            
            0.48Fourth
                Quarter
            
            
            0.82
            
            
            0.31**Fiscal
                Year 2006**First
                Quarter
            
            
            0.60
            
            
            0.30Second
                Quarter (1)
            
            
            0.34
            
            
            0.30




(1)
      As of
      April 14, 2006





**HOLDERS**





As
      of
      April 14, 2006, 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.





**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**





None.




21




**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. The operations we plan for 2005 include exploring
      leases we have acquired as well as seeking to acquire and explore additional
      property. Our goal is to discover substantial commercial quantities of oil
      and
      gas, including coalbed methane, on the properties.




In
      February 2005 we amended our Exploration Services Agreement with Thomasson
      Partner Associates. Thomasson Partner Associates provides large-scale
      exploration opportunities to the oil and gas industry. By this agreement
      Thomasson Partner Associates provides to us the first right to review and
      purchase up to a 50% interest (as amended, a 100% interest beginning in February
      2005) in oil and natural gas exploration projects developed by Thomasson Partner
      Associates. Under the agreement, in 2005, Thomasson Partner Associates is to
      present to us a minimum of eight project opportunities each year with the
      reasonable potential of at least 200 Bcf of natural gas reserves or 20 million
      barrels of oil reserves. We have the first right to review exploration projects
      developed by Thomasson Partner Associates and, after viewing a formal
      presentation regarding a project, we have a period of thirty days in which
      to
      acquire up to 100% of the project. We are not obligated to acquire any project.
      In consideration, in 2004 we paid to Thomasson Partner Associates a $400,000
      acquisition consulting fee, and paid an $800,000 fee in 2005. We also pay a
      fee
      for each project we acquire from Thomasson Partner Associates. The agreement
      continues year to year until either party gives 90 days written notice of
      termination. Projects acquired from Thomasson Partner Associates 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 Kansas. In 2005 we paid
      Thomasson a total of $1,350,000, including the $800,000 acquisition consulting
      fee .




**Operations
      Plans**





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.




22


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**




In
      February 2005 we agreed to sell the Circus project for $1.98 million to an
      unrelated third party. We completed the sale in June 2005. We acquired the
      leases in October 2004, with a total cost through the sale of $487,000.
      Additionally, we incurred $53,000 of closing cost on the sale.




In
      February 2005 we extended our agreement with a financial consultant and are
      obligated to issue an additional 50,000 shares to the consultant for
      compensation for his services, as well as a monthly fee of $7,500 for three
      months through April 2005. In April 2005, we further extended our agreement
      with
      the financial consultant through October 2005 on the same terms as the prior
      extension.




In
      March
      2005 we agreed, subject to customary closing conditions, with Quaneco L.L.C.
      to
      acquire up to a 12.5% working interest in the Kirby and Castle Rock Coal Bed
      Natural Gas projects for $3,850,000 in cash and one million dollars worth of
      shares of restricted common stock. Under the terms of the agreement, were to
      participate in a 48-well drilling program during 2005 on the Kirby project
      that
      will extend out from an existing 16-well pilot program of previously drilled
      wells. The other working interest owners in the Kirby project included Quaneco
      (25.0%), Pinnacle Gas Resources (50%) and Galaxy Energy Corporation (12.5%).
      Due
      to our view of the prospects for revenues from the Kirby and Castle Rock
      prospects, as of the first quarter 2006, we determined to not proceed with
      our
      option to purchase the Kirby and Castle Rock projects.




On
      May 2,
      2005, we entered into two option agreements with Thomasson Partner Associates
      to
      participate in the Platte and Badger projects located in Garden and Keith
      Counties, Nebraska, and Stanley and Hughes Counties, South Dakota, respectively.
      Under the agreements, the initial project fee is $100,000 for the Platte project
      and $150,000 for the Badger project. Upon execution of definitive agreements
      we
      paid Thomasson Partner Associates $80,000 for Platte, and $105,000 for Badger.
      This amount represents approximately of the initial project fees plus
      reimbursement of Land Sat cost of $30,000 each. In addition, there will be
      additional costs for a GeoChem survey on Platte and an air photo study on Badger
      for the amounts of $13,000 and $12,000, respectively. The total cost of these
      projects is $143,000 and $217,000, respectively.




On
      May
      18, 2005, we closed on $1,063,650 in equity financing and issued approximately
      545,461 units, at a price of $1.95 per unit, each unit consisting of 3.55 shares
      of our common stock, and one and one-half Series A warrants to purchase our
      common stock. The units were sold to a limited number of accredited investors
      through a private placement memorandum and were exempt from registration under
      the Securities Act, pursuant to Section 4(2) of the Securities Act. We also
      agreed to pay the following to a placement agent: (1) a placement fee equal
      to
      10% of the gross proceeds received from sales to certain investors identified
      by
      the placement agent; (2) a warrant or warrants, identical to the warrants
      contained in the units, equal to 15% of the number of units issued to certain
      investors identified by the placement agent, and (3) a non-accountable expense
      allowance of 3% of the aggregate gross proceeds of the private
      placement.




23


Each
      whole warrant entitles the holder to purchase one share of our common stock
      for
      a price of $1.00 per share for three years from the date of purchase of the
      unit. The warrants also contain limited anti-dilution rights. The warrants
      are
      subject to adjustment in the event of (1) any subdivision or combination of
      our
      outstanding common stock or (2) any distribution by us to holders of common
      stock of (x) a stock dividend, or (y) assets (other than cash dividends payable
      out of retained earnings) to holders of common stock. In addition, until two
      years from the date the registration statement filed pursuant to the
      Registration Rights Agreement is declared effective, and except for certain
      issuances of our common stock including (A) pursuant to rights, warrants,
      convertible securities or options outstanding on the date of issuance of the
      warrants, (B) pursuant to the private placement, or (C) in other limited
      circumstances, if and when we issue or sell any common stock (including rights,
      warrants, convertible securities or options for its capital stock) for a
      consideration per share less than the per share purchase price of such common
      stock in the private placement, then we shall issue additional common stock
      to
      the investors so that the average per share purchase price of the shares of
      common stock issued to the investors (of only the common stock still owned
      by
      such investors) is equal to such other lower price per share.




In
      June
      2005, we paid off the balance on our $1,500,000 loan to JMG Exploration, Inc.,
      an affiliate of JED Oil, Inc., through the assignment of our 50% interest in
      the
      Weston County and Gordon Creek projects, subject to our right to reacquire
      those
      interests for approximately $391,000 by June 30, 2005, which right has been
      exercised.




On
        September 12, 2005, we entered into an agreement to purchase a gas field
        in
        Carbon County, Utah currently producing approximately 30 million cubic feet
        of
        natural gas per month. The field comprises 5,953 gross acres (2,440 net acres)
        with three gas wells currently producing and has an additional six wells
        drilled
        that are presently shut-in. Production is derived from the Ferron Sandstone
        formation, and the gas is marketed into the adjacent gas pipeline operated
        by
        Questar Gas Resources. The field has 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 successful Drunkards Wash field originally
        developed by River Gas Corp. The closing of the purchase agreement is subject
        to
        numerous terms and conditions, including technical and legal due diligence
        which
        we are in the process of completing, and anticipate closing the acquisition
        by
        the end of November. A favorable engineering study has been completed by
        Sproule
& Associates verifying the proven, developed producing reserves and
        undeveloped reserves.





We
      will
      use the experience of our personnel who participated in the development of
      Drunkards Wash to increase current production and expand production in both
      the
      Ferron Sandstone and in the underlying coal bed methane seams that are not
      currently being exploited by the existing wells. We will immediately undertake
      to increase production in the existing wells, complete those wells in the coal
      for their coal bed methane potential, and thereafter drill additional wells
      on
      the acreage being acquired.




24





**Oil
      & Gas Projects**





***Weston
      County, Wyoming***




In
      November 2004 we executed a joint venture agreement with JMG Exploration, to
      drill our Weston County and Gordon Creek projects. Under the agreement, JMG
      Exploration will receive a 50% interest in exchange for spending $2,000,000
      in
      exploration and drilling activity 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 has been 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 has been terminated. In connection with
      this transaction, we recorded a gain from extinguishment of debt of
      $383,531.




The
      Weston County project is a 19,290-acre project on the east flank of the Powder
      River Basin. The prospect is a potential extension of an existing producing
      field. We are continuing our work and evaluation with JMG Exploration on
      permitting and other pre-drilling activities. In addition, we are targeting
      nearby locations with potential in the Minnelusa sandstone and Dakota channel
      sandstone formations.




***Gordon
      Creek, Utah***




JMG
      Exploration will also drill on the 5,242-acre Gordon Creek project, which we
      acquired from The Houston Exploration Company for $288,000. The Gordon Creek
      project is in an area of known coal resources in Carbon County in eastern Utah
      near other operating coal bed methane projects, such as the Drunkard’s Wash
      Project, which our project personnel successfully drilled previously for River
      Gas Corporation.




Based
      on
      exploration results, JMG Exploration, will complete any development programs
      on
      the projects. In connection with repayment of the JMG Exploration loan, we
      have
      assigned the remaining 50% interest in the Gordon Creek project to JMG
      Exploration, subject to our right to reacquire those interests for approximately
      $390,000 by June 30, 2005, which right has been exercised.




***Carter
      Creek, Wyoming***




In
      2004
      we purchased the 10,678-acre Carter Creek Project in the southern Powder River
      Basin. We plan to commence drilling in the near future at the project, in which
      we have a 100% working interest. Based on our analysis of the geologic structure
      of this region, we anticipate productive sections in the Cretaceous, Niobrara,
      Turner (Frontier) and Mowry layers, in that several existing wells in the Carter
      Creek area currently produce oil.




Work
      continues to identify additional areas for leasing and drillsite delineation.
      We
      will continue our evaluation and preparation for drilling the fractured shales.
      It is likely that horizontal drilling methods will be identified as an effective
      technique to tap into the potential of this field.




***Overthrust,
      Utah and Wyoming***




In
      2004
      we optioned the Overthrust project to earn a 65% working interest in 183,000
      acres of oil, gas and coal bed methane leases in northeastern Utah and
      southwestern Wyoming from Quaneco, an Oklahoma company. We plan to test the
      three identified coal seams that run through much of the area. Previous drilling
      has included seven exploratory wells that identified multiple coal seams of
      Tertiary and Cretaceous age that appear to be prospective for coal bed methane.
      Some of the coal is of similar age and depositional condition to other
      productive coal bed methane fields.




25


We
      drilled our first well in the project in 2004, the Crane 6-7, in Rich County,
      Utah. The well reached a total depth of 4280 feet. We cored coal and
      carbonaceous shale over a combined interval of 556 feet. In September 2004
      we
      received the results from the gas desorption tests from the Spring Valley coal
      of the Frontier formation and the coal in the Bear River formation in the well.
      Results showed 253 cubic feet of gas per ton on an ash-free basis in the coal
      in
      the well. Lesser amounts of gas were present in the carbonaceous shale in the
      well. These tests corroborate earlier data that was generated by Quaneco, our
      partner on the project, suggesting that coal in an area of the project that
      lies
      a considerable distance north of the Crane 6-7 may contain between 200 and
      400
      cubic feet of gas per ton. We have expensed the cost of this well as exploration
      expense, although we may choose to re-enter the well at a later date. The
      overall results indicate the potential for coal in a much wider area to contain
      economic levels of coal bed methane, and will help to further guide our ongoing
      logging, geologic and drilling operations. We believe the Overthrust project
      has
      attractive coal bed methane potential, although additional exploration activity
      will be necessary to prove up gas reserves.




During
      the quarter ending September 30, 2005, we paid $275,000 to Quaneco representing
      payment obligations on the project and have negotiated extensions for various
      payment and work commitments in the future. We have progressed in the geologic
      evaluation of many of the potentially productive coal seams, and have delineated
      a number of areas for further work. Previous drilling activities have also
      identified reservoir quality sand which we believe has significant potential
      for
      conventional gas production if present in a favorable structural position.
      We
      will now review seismic data covering the area to evaluate the conventional
      gas
      potential simultaneously with our ongoing activities to pursue the coal bed
      methane potential of the project. After evaluating the seismic data and further
      evaluation of the logs from previous drilling, we will design and implement
      the
      next drilling phase to target both conventional and coal bed methane gas.




***Bacaroo,
      Colorado***




In
      2004
      we optioned the Bacaroo project in Colorado through our affiliation with
      Thomasson Partner Associates. We believe the project is an opportunity to
      establish conventional oil and gas production with comparatively inexpensive
      drilling in areas of established production, while other projects being reviewed
      offer longer term, larger potential exploration opportunities. We are acquiring
      additional acreage in the prospect prior to
      commencing drilling operations .




Leasing
      and seismic evaluation activities continue. One entire target area is now under
      lease, and two additional areas are now undergoing leasing. We will perform
      additional geologic evaluation and permitting work in preparation for drilling
      in 2006.




***Kirby
      and Castle Rock Projects, Powder River Basin, Montana***




In
      March
      2005 we agreed, subject to customary closing conditions, with Quaneco to acquire
      a 12.5% working interest in the Kirby and Castle Rock Coal Bed Methane projects
      for $3,850,000 in cash and one million dollars worth of shares of restricted
      common stock. We paid $500,000 toward the purchase, which vests in us a pro
      rata
      portion of the 12.5% interest, and we had until September 1, 2005 to pay
      additional amounts of the purchase price and vest in additional amounts. During
      the quarter ending September 30, 2005, we negotiated with Quaneco for an
      extension of the time to make payments, but as of year end did not finalized
      any
      extension. Under the terms of the agreement, we were to participate in a 48
      well
      drilling program during 2005 on the Kirby project that was to extend out from
      an
      existing 16 well pilot program of previously drilled wells. We were to have
      ownership in the previously drilled wells, which were being dewatered and were
      expected to commence production later in the near future. However, due to the
      Company’s view of the prospects for revenues from the Kirby and Castle Rock
      prospects, as of the first quarter 2006, the Company determined to not proceed
      with its option to purchase the Kirby and Castle Rock projects. The other
      working interest owners in the Kirby project included Quaneco (25.0%), Pinnacle
      Gas Resources (50%) and Galaxy Energy Corporation (12.5%).





26


***Circus
      Project, Montana***




In
      May
      2004, we optioned the Circus project through our affiliation with Thomasson
      Partner Associates. In February 2005 we agreed to sell the Circus project for
      $1.98 million to an unrelated third party. We completed the sale in June 2005.
      We acquired the leases in October, 2004, with a total cost through the sale
      of
      $487,000. Additionally, we incurred $53,000 of closing cost on the
      sale.




***Johns
      Valley Project, Utah***




In
      early
      2004 we acquired an agreement with Johns Valley Limited Partnership whereby
      we
      have the option to earn 70% working interest in 25,201 acres of oil and gas
      leases from the Utah School and Institutional Trust Lands Administration. The
      option, which expired in October 2004, was for fifteen oil and gas leases that
      were for terms of ten years. Due to permitting delays and other operating
      parameters in the field, we are negotiating to restructure the potential option
      and the timing and amounts of our work commitments as provided under the option
      assignment agreement.




In
      mid-2004 we drilled the 10-33C2 well in this project to its planned depth of
      1,365 feet. We drilled through a potentially productive coal seam. We cored
      the
      well and have sent the core to a lab for evaluation. We have expensed the cost
      of this well as exploration expense.




On
      April
      14, 2005, we entered into a letter of intent to purchase the project, and we
      are
      under continuing negotiations to purchase the project or an interest in the
      project through an earn-in arrangement.




***Creston
      Project, Uintah Basin, Utah***





On
      October 25, 2005, the Company entered into a participation agreement with
      Mountain Oil and Gas, Inc., Creston Resources Ltd, and Homeland Gas and Oil
      Ltd.
      (collectively “Creston”), and began negotiations with private investors, whereby
      the Company will supply operating expertise and program supervision to earn
      working interests in up to 45 producing oil wells in the Uintah Basin of Utah.
      Thereafter, the Company immediately commenced a rework program to re-complete
      previously-completed zones and extend behind pipe reserves in the first well
      chosen in the program, located in the prolific Altamont-Bluebell Field, which
      has produced over 350 million barrels of oil equivalent. Creston will retain
      the
      current or historical production while the Company and the private investors
      will earn a variable percentage of the production increase resulting from the
      reworking operations. The Company completed work on the first well and commenced
      production in the first quarter of 2006, and plans to maintain continuous
      operations until all wells have been brought to full potential.





Under
      the
      participation agreement, Fellows will begin reworking wells as necessary to
      revitalize production across the 9,000 acres that pertain to the wells. Due
      to
      the over-pressured, fractured nature of reservoir in the field, as well as
      the
      large vertical extent of potential pay zones, many of the wells have formation
      damage resulting from high drilling mud weights and cementing operations. These
      conditions have left many zones unable to produce to their potential. Fellows
      will employ a variety of conventional and innovative proprietary techniques
      to
      reduce the effects of formation damage and increase oil and gas recovery.





During
      the first quarter of 2006, the Company completed joint venture financing
      arrangements with private investors to provide for $1.25 million in funds to
      conduct the reworking program.





27


***Carbon
      County Project, Utah***





On
        September 12, 2005, the Company entered into an option agreement to purchase
        a
        gas field in Carbon County, Utah currently producing approximately 30 million
        cubic feet of natural gas per month. The field comprises 5,953 gross acres
        (2,440 net acres) with three gas wells currently producing and has an additional
        five wells drilled that are presently shut-in. Production is derived from
        the
        Ferron Sandstone formation, and the gas is 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 has potential for
        20
        additional well sites on 160 acre spacing on the undeveloped acreage. The
        property is adjacent to Fellows’ 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 the Company
      closed the purchase of the acquisition on March 13, 2006 with an industry
      partner, MBA Resource Corp. of Canada. (“MBA”). MBA paid $1.5 million and
      arranged third party financing of $750,000 toward the $3 million purchase price
      in exchange for a 50% interest in the project. Fellows previously paid a deposit
      toward the purchase price and has received production credits since October
      1,
      2005. Fellows will thus acquire a 50% interest in the project with only an
      additional payment of $241,000. Fellows and MBA will form a joint operating
      company to carry out gas production and drilling operations as well as gas
      gathering activities for both project gas and adjacent third party
      production.





Fellows
      will use the experience of its personnel who participated in the development
      of
      Drunkards Wash to increase current production and expand production in both
      the
      Ferron Sandstone and in the underlying coal bed methane seams that are not
      currently being exploited by the existing wells. Fellows will immediately
      undertake to increase production in the existing wells, complete those wells
      in
      the coal for their coal bed methane potential, and thereafter drill additional
      wells on the acreage being acquired.





We
      are
      continuing with the 45-well reworking program in the Creston Project. We expect
      to engage in continuous operations until all 45 wells are successfully
      recompleted. In addition, we have mobilized a workover rig to commence reworking
      on one producing well and one shut-in well on the Carbon County Project. We
      similarly expect to engage in continuous operations at Carbon County until
      all
      wells are suitably reworked and all prospective new wellsites are drilled.
      We
      also have plans to finance and drill on the Overthrust project, the Carter
      Creek
      project, the Bacaroo project and the Johns Valley project during 2006. With
      our
      partner, JMG, will also plan to drill on the Weston County and Gordon Creek
      projects in 2006. We are seeking additional capital which we need in order
      to
      perform these projects.





The
      operations we plan for 2006 include continuing development drilling and
      reworking activities on the Carbon County and Creston projects, exploring leases
      on the other projects we have acquired as well as seeking to acquire and explore
      additional property, and implementing production on one or more of our projects.
      Our goal is to discover and continue to produce substantial additional
      commercial quantities of oil and gas, including coalbed methane, on the
      properties, although no assurances can be given that commercial quantities
      are
      available, if at all.





**Liquidity 
      and Capital Resources**




In
      2005,
      we incurred a loss of approximately $3,592,000. In the year ended December
      31,
      2004, we incurred a net loss of $3,760,000. At December 31, 2005, we had
      $348,000 of cash and cash equivalents, $406,000 in marketable securities, and
      a
      $100,000 note receivable. Our total current assets were $853,000, and current
      liabilities were $326,000, including accounts payable and a $12,000 note
      payable.





In
      February 2005 we sold the Circus project for $2.04 million to an unrelated
      third
      party. We acquired the leases in October, 2004, with a total cost of $487,000
      and thus realized a gain of $1.5 million on the sale. Additionally, we incurred
      $53,000 of closing cost on the sale.





28


On
      May
      18, 2005, we closed on the private placement of $1,064,000 of securities. We
      incurred an estimated $141,000 of fees and cost, netting approximately $922,000.
      We sold 1,936,391 shares of common stock and 818,192 warrants. Each warrant
      entitles the holder to purchase one share of common stock for $1.00
      until May 18, 2008. We also issued 81,819 of the same warrants to the
      placement agent as additional compensation.





On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with three accredited investors for the issuance of $5.5 million in face
      amount of debentures maturing at the end of the 27th month from the date of
      issuance, and three year warrants purchasing common stock of the company. The
      debentures do not accrue interest and the investors paid $3.85 million for
      the
      debentures. A commission of 9% on the $3.85 million was paid in connection
      with
      the transaction, and we paid $30,000 of the investor’s counsel’s legal fees,
      resulting in net proceeds to the company of $3.4 million. Net proceeds will
      be
      used for general working capital.




Based
      upon our significant operating losses from inception, there is substantial
      doubt
      as to our ability to continue as a going concern. Our audited and unaudited
      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 and unaudited
      consolidated 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.





The
      Carbon County and Creston projects were acquired in late 2005, and were not
      brought into production until the first quarter, 2006. They have not yet been
      in
      production for a sufficient time, and have not yet been sufficiently reworked
      by
      additional field operations to determine their productive capacities. At this
      point, we have not generated sufficient oil and gas sales to sustain our
      operations. To fully carry out our business plans we need to increase production
      revenues, 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.




*June
                2005 Private Placement*




On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with
      three accredited investors for the issuance of $5,501,199.95 in face amount
      of
      debentures maturing September 16, 2008, and three year warrants to purchase
      our
      common stock. The debentures do not accrue interest and the investors paid
      $3,849,685 for the debentures. A commission of 9% on the $3,849,685 was paid
      by
      us to HPC Capital Management, a registered broker-dealer, in connection with
      the
      transaction, and we paid $100,000 in expenses and fees including $30,000 of
      the
      investors’ counsel’s legal fees, resulting in net proceeds to us of
      $3,403,267.35. Net proceeds will be used by us for general working
      capital




The
      debentures are unsecured and we are obligated to pay 1/24th of the face amount
      of the debenture on the first of every month, starting October 1, 2005, which
      payment can be made in cash or in shares of our common stock. We may 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 make the payment in cash,
      we
      shall pay 110% of the monthly redemption amount.





29


Except
      as
      provided in the succeeding paragraph and to the extent any debentures remain
      outstanding, at any time, the debentures are convertible into shares of our
      common stock at $0.60 per share.




At
      any
      time after January 15, 2006, and if certain conditions are met, we have the
      right to redeem some or all of the debentures in a cash amount equal to 110%
      of
      the face amount of the debentures being redeemed.




If
      the
      closing price for our common stock exceeds $1.50 for 20 consecutive trading
      days, we can require the holders to convert some or all of the debentures at
      $0.60.




We
      issued
      warrants to the investors, expiring June 17, 2008, to purchase 4,584,334 shares
      of restricted common stock, exercisable at a per share of $0.649. In addition,
      the exercise price of the warrants will be adjusted in the event we issue common
      stock at a price below the exercise price, with the exception of any securities
      issued pursuant to a stock or option plan adopted by our board of directors,
      issued in connection with the debentures issued pursuant to the securities
      purchase agreement, or securities issued in connection with acquisitions or
      strategic transactions. Upon an issuance of shares of common stock below the
      exercise price, the exercise price of the warrants will be reduced to equal
      the
      share price at which the additional securities were issued and the number of
      warrant shares issuable will be increased such that the aggregate exercise
      price
      payable for the warrants, after taking into account the decrease in the exercise
      price, shall be equal to the aggregate exercise price prior to such
      adjustment.





Warrants
      to purchase 250,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.




If
      in any
      period of 20 consecutive trading days our stock price exceeds 250% of the
      warrants’ exercise price, all of the warrants shall expire on the 30th trading
      day after we send a call notice to the warrant holders. If at any time after
      one
      year from the date of issuance of the warrants there is not an effective
      registration statement registering, or no current prospectus available for,
      the
      resale of the shares underlying the warrants, then the holder may exercise
      the
      warrant at such time by means of a cashless exercise. In the event the investors
      exercise the warrants on a cashless basis, then we will not receive any
      proceeds.




The
      conversion price of the debentures and the exercise price of the warrants may
      be
      adjusted in certain circumstances such as if we pay a stock dividend, subdivide
      or combine outstanding shares of common stock into a greater or lesser number
      of
      shares, or take such other actions as would otherwise result in dilution of
      the
      investors’ position.





The
      investors have agreed to restrict their ability to convert their debentures
      or
      exercise their warrants and receive shares of our common stock such that the
      number of shares of common stock held by them in the aggregate and their
      affiliates after such conversion or exercise does not exceed 4.99% of the then
      issued and outstanding shares of common stock.




*September
                2005 Private Placement*




On
      September 21, 2005, we closed a financing pursuant to a securities purchase
      agreement with two accredited investors for the issuance of $3,108,000 in face
      amount of debentures maturing December 20, 2008, and three year warrants to
      purchase our common stock. The debentures do not accrue interest and the
      investors paid $2,174,947.52 for the debentures. A commission of 8% on
      $2,000,000 raised was paid by us to HPC Capital Management, a registered
      broker-dealer, in connection with the transaction and we placed $50,000 in
      escrow for the payment of future legal fees in connection with our registration
      statement, resulting in net proceeds to us of $1,964,947.52, before our legal
      fees. Net proceeds will be used by us for general working capital.




30


The
      debentures are unsecured and we are obligated to pay 1/24th of the face amount
      of the debenture on the first of every month, starting January 1, 2006, which
      payment can be made in cash or in shares of our common stock. We may 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 make the payment in cash,
      we
      shall pay 110% of the monthly redemption amount.





Except
      as
      provided in the succeeding paragraph and to the extent any debentures remain
      outstanding, at any time, the debentures are convertible into shares of our
      common stock at $0.75 per share.





At
      any
      time after 90 days from the date that a registration statement registering
      the
      shares of common stock underlying the debentures and warrants is declared
      effective, and if certain conditions are met, we have the right to redeem some
      or all of the debentures in a cash amount equal to 110% of the face amount
      of
      the debentures being redeemed.





After
      the
      registration statement registering the shares of common stock underlying the
      debentures and warrants is declared effective, if the closing price for our
      common stock exceeds $1.875 for 20 consecutive trading days, we can require
      the
      holders to convert some or all of the debentures at $0.75.





In the event of default, the investors may require payment, which shall be
      the
      greater of: (A) 130% of the principal amount of the face amount of the debenture
      to be prepaid, or (B) the principal amount of the debenture to be prepaid,
      divided by the conversion price on (x) the date the default amount is demanded
      or otherwise due or (y) the date the default amount is paid in full, whichever
      is less, multiplied by the closing price on (x) the date the default amount
      is
      demanded or otherwise due or (y) the date the default amount is paid in full,
      whichever is greater




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. In
      addition, the exercise price of the warrants will be adjusted in the event
      we
      issue common stock at a price below the exercise price, with the exception
      of
      any securities issued pursuant to a stock or option plan adopted by our board
      of
      directors, issued in connection with the debentures issued pursuant to the
      securities purchase agreement, or securities issued in connection with
      acquisitions or strategic transactions. Upon an issuance of shares of common
      stock below the exercise price, the exercise price of the warrants will be
      reduced to equal the share price at which the additional securities were issued
      and the number of warrant shares issuable will be increased such that the
      aggregate exercise price payable for the warrants, after taking into account
      the
      decrease in the exercise price, shall be equal to the aggregate exercise price
      prior to such adjustment.





Warrants
      to purchase 100,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.





After
      the
      effective date of this registration statement, if in any period of 20
      consecutive trading days our stock price exceeds 250% of the warrants’ exercise
      price, all of the warrants shall expire on the 30th trading day after we send
      a
      call notice to the warrant holders. If at any time after one year from the
      date
      of issuance of the warrants there is not an effective registration statement
      registering, or no current prospectus available for, the resale of the shares
      underlying the warrants, then the holder may exercise the warrant at such time
      by means of a cashless exercise. In the event the investors exercise the
      warrants on a cashless basis, then we will not receive any
      proceeds.





The
      conversion price of the debentures and the exercise price of the warrants may
      be
      adjusted in certain circumstances such as if we pay a stock dividend, subdivide
      or combine outstanding shares of common stock into a greater or lesser number
      of
      shares, or take such other actions as would otherwise result in dilution of
      the
      investors’ position.





31


The
      investors have agreed to restrict their ability to convert their debentures
      or
      exercise their warrants and receive shares of our common stock such that the
      number of shares of common stock held by them in the aggregate and their
      affiliates after such conversion or exercise does not exceed 4.99% of the then
      issued and outstanding shares of common stock.




***Cash
        flow*** **.** In 2005,
        we used $3,971,000 in our operating activity. We used $1,639,000 in investing
        activity for property and option acquisitions, and obtained $5,809,000 in
        financing activity from capital obtained through financings. We increased
        our
        2004 cash balance of $149,000 to $348,000 at December 31,
        2005.




**Results
      of Operations**





***Revenue.*** For the
      years ended December 31, 2005 and 2004, we had no revenue, other
      than revenue in the fourth quarter 2005 from the Carbon County project applied
      as a credit towards the purchase price of the project, which closed in March
      of
      2006.




***Operating
      Expenses.*** In 2005
      our exploration expense was $1,141,000, which included $800,000 of acquisition
      related fees to Thomasson Partner Associates, and $341,000 of tangible and
      intangible drilling cost, as well as delay rentals paid to retain oil and gas
      leases, and geological and geophysical expense.




Our
      2005
      general and administrative expense was $3,077,000, which primarily included
      $948,000 in convertible debenture related expense such as issuance costs and
      discount expense, $857,000 of business advisory, consulting, financial and
      investor services, $429,000 of legal fees, $453,000 of employee compensation,
      $106,000 of accounting fees, and $336,000 in research and development, insurance
      expense, office expense, and travel expense.




Our
      2005
      operating expense increased from 2004 primarily as a result of the two large
      convertible debenture financings and related expenses.




Subsequent
      to year end, we determined that we would not pursue our interests in the Kirby
      and Castle Rock projects that were acquired during 2005. Accordingly, we have
      written off our unproved property cost related to these interests as of December
      31, 2005.




***Interest
      Expense.*** Our
      2005
      interest expense was $178,000, up by $42,000 from 2004 because of increased
      borrowing in connection with the convertible debentures and other financings
      through the year.




**Critical
      Accounting Policies and Estimates**





This
      Plan
      of Operation discusses our financial statements, which we have prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of these financial statements requires us to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenue and expense during the reporting period. On an on-going basis, we
      evaluate our estimates and judgments, including those related to revenue
      recognition, accrued liabilities, financing operations, and contingencies and
      litigation. We base our estimates and judgments on historical experience and
      on
      various other factors that we believe to be reasonable under the circumstances.
      The results of the estimates form the basis for making judgments about the
      carrying value of assets and liabilities. Actual results may differ from these
      estimates under different assumptions or conditions. The most significant
      accounting estimates inherent in the preparation of our financial statements
      include estimates as to the appropriate carrying value of certain assets and
      liabilities which are not readily apparent from other sources. These accounting
      policies are described at relevant sections in this Plan of Operation and in
      the
      notes to the consolidated financial statements included herein in our
      Annual Report on Form 10-KSB for the year ended December 31, 2005.




32




**ITEM
      7. FINANCIAL STATEMENTS.**





FELLOWS
      ENERGY LTD.





INDEX
      TO
      FINANCIAL STATEMENTS





PageReport
                  of Independent Registered Public Accounting Firm
              
              
              F-2Balance
                  Sheets
              
              
              F-3Statements
                  of Operations
              
              
              F-4Statements
                  of Changes in Stockholders' Equity
              
              
              F-5Statements
                  of Cash Flows
              
              
              F-6Notes
                  to Financial Statements
              
              
              F-7












Report
          of Independent Registered Public Accounting Firm
   To
          the
          Stockholders of
 Fellows
          Energy Ltd.
  We
          have
          audited the accompanying balance sheets of Fellows Energy Ltd., an exploration
          stage company, as of December 31, 2005 and 2004, and the related statements
          of
          operations, changes in stockholders’ equity, and cash flows for the years then
          ended and for the period from inception (November 12, 2003) through December
          31,
          2005. These financial statements are the responsibility of the Company’s
          management. Our responsibility is to express an opinion on these financial
          statements based on our audits.
  We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          financial statements are free of material misstatement. The Company is
          not
          required to have, nor were we engaged to perform, an audit of its internal
          control over financial reporting. Our audits included consideration of
          internal
          control over financial reporting as a basis for designing audit procedures
          that
          are appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the Company’s internal control over financial
          reporting. Accordingly, we express no such opinion. An audit includes examining,
          on a test basis, evidence supporting the amounts and disclosures in the
          financial statements. An audit also includes assessing the accounting principles
          used and significant estimates made by management, as well as evaluating
          the
          overall financial statement presentation. We believe that our audits provide
          a
          reasonable basis for our opinion.
  In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Fellows Energy Ltd., an exploration
          stage company as of December 31, 2005 and 2004, and the results of its
          operations and its cash flows for the years then ended and for the period
          from
          inception (November 12, 2003) through December 31, 2005 in conformity with
          accounting principles generally accepted in the United States of America.
  The
          accompanying financial statements have been prepared assuming that the
          Company
          will continue as a going concern. As discussed in Note 2 to the financial
          statements, the Company has significant losses from operations which raise
          substantial doubt about its ability to continue as a going concern. Management’s
          plans in regard to these matters are described in Note 2. The financial
          statements do not include any adjustments that might result from the outcome
          of
          this uncertainty.
 
  /s/
          Mendoza Berger & Company
 
 Mendoza
          Berger & Company
 Irvine,
          California
 April
          13,
          2006





F-2





Fellows
      Energy Ltd.





(An
      Exploration Stage Company)





Balance
      Sheet




**Year
                Ended**
              **Dec.
                31, 2005**
            
            **Year
                Ended Dec. 31, 2004**AssetsCash
                and Cash Equivalents
            
            $
            347,558
            
            
            149,027Marketable
                securities, available-for-sale
            
            
            405,556
            
            
            —Interest
                Receivable
            
            
            179
            
            
            —Note
                Receivable
            
            
            99,879
            
            
            —Total
                current assets
            
            
            853,172
            
            
            149,027Unproved
                oil & gas property
            
            
            9,575,813
            
            
            9,043,648Equipment,
                net of $18,418 and $5,027 accumulated depreciation
                respectively
            
            
            287,836
            
            
            16,563Deposits
            
            
            716,000
            
            
            —Restricted
                cash
            
            
            235,000
            
            
            135,000Deferred
                debt issue costs
            
            
            533,769
            
            
            —Total
                assets
            
            $
            12,201,590
            
            
            9,344,238Liabilities
                And Stockholders’ EquityAccounts
                payable
            
            $
            313,703
            
            
            434,411Notes
                payable
            
            
            12,000
            
            
            1,556,379Total
                current liabilities
            
            
            325,703
            
            
            1,990,790Convertible
                note payable
            
            
            —
            
            
            350,000Convertible
                debenture
            
            
            5,063,848
            
            
            1,000,000Stockholders’
                equityPreferred
                stock, $.001 par value; 25,000,000 sharesauthorized;
                none outstanding
            
            
            —
            
            
            —Common
                stock, $.001 par value; 100,000,000 sharesauthorized;
                52,545,329 and 41,743,150 shares issued and outstanding
            
            
            52,545
            
            
            41,743Additional
                paid-in capital
            
            
            15,973,152
            
            
            9,556,702Stock
                issuance obligation
            
            
            —
            
            
            362,500Stock
                pledged as collateral
            
            
            (1,665,000
            )
            
            —Accumulated
                deficit
            
            
            (197,189
            )
            
            (197,189
            )Deficit
                accumulated during the exploration stage
            
            
            (7,351,469
            )
            
            (3,760,308
            )Total
                stockholders’ equity
            
            
            6,812,039
            
            
            6,003,448Total
                liabilities and stockholders’ equity
            
            $
            12,201,590
            
            
            9,344,238







See
      accompanying notes.











F-3





Fellows
      Energy Ltd.





(An
      Exploration Stage Company)





Statements
      of Operations




**Inception****Years
                  Ended**
              
              
              **(Nov.
                  12, 2003) to****December
                  31,**
              
              
              **December
                  31,****2005**
              
              
              **2004**
              
              
              **2005**Revenue
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  expensesExploration
              
              
              1,141,202
              
              
              2,253,295
              
              
              3,394,497Relinquishment
                  of property option
              
              
              1,143,882
              
              
              ---
              
              
              1,143,882General
                  and administrative
              
              
              3.077,108
              
              
              1,371,280
              
              
              4,448,388Operating
                  loss
              
              
              (5,362,192
              )
              
              (3,624,575
              )
              
              (8,986,767
              )Other
                  income (expense)Interest
                  expense, net
              
              
              (177,945
              )
              
              (135,733
              )
              
              (313,678
              )Gain
                  on sale of unproved property
              
              
              1,550,797
              
              
              —
              
              
              1,550,797Gain
                  on extinguishment of debt
              
              
              383,531
              
              
              —
              
              
              383,531Miscellaneous
              
              
              14,132
              
              
              —
              
              
              14,132Total other income (expense)
              
              
              1,770,515
              
              
              (135,733
              )
              
              1,634,782Loss
                  before income tax
              
              
              (3,591,677
              )
              
              (3,760,308
              )
              
              (7,351,985
              )Income
                  tax expense
              
              
              —
              
              
              —
              
              
              —Deferred
                  tax benefit
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              $
              (3,591,677
              )
              $
              (3,760,308
              )
              $
              (7,351,985
              )Other
                  comprehensive income (loss)Unrealized
                  holding gains on marketable securities
              
              
              516
              
              
              —
              
              
              516Comprehensive
                  loss
              
              $
              (3,591,161
              )
              $
              (3,760,308
              )
              $
              (7,351,469
              )Basic
                  loss per share
              
              $
              (0.08
              )
              $
              (.09
              )
              $
              (0.16
              )Basic
                  weighted average shares outstanding
              
              
              47,599,638
              
              
              42,065,000
              
              
              44,832,319Diluted
                  loss per share
              
              $
              (0.05
              )
              $
              (.09
              )
              $
              (0.13
              )Diluted
                  weighted average shares outstanding
              
              
              71,903,993
              
              
              42,065,000
              
              
              56,984,496






See
      accompanying notes.





F-4





Fellows
      Energy Ltd.





(An
      Exploration Stage Company)





Statements
      of Changes in Stockholders’ Equity




November
      12, 2003 (inception) through December 31, 2005




**Deficit****Accumulated****Additional**
            
            **Stock**
            
            
            
            **During****Common
                Stock**
            
            **Paid-In**
            
            **Obligation/**
            
            **Accumulated**
            
            **Exploration****Shares**
            
            **Amount**
            
            **Capital**
            
            **Pledged**
            
            **Deficit**
            
            **Stage**
            
            **Total**Balance,
                November 12, 2003
            
            
            87,853,150
            
            $
            87,853
            
            $
            —
            
            $
            —
            
            $
            (197,189
            )
            
            —
            
            $
            (109,336
            )Retire
                shares held by former Management
            
            
            (52,610,000
            )
            
            (52,610
            )
            
            25,610
            
            
            —
            
            
            —
            
            
            —
            
            
            (27,000
            )Issue
                shares in exchange for oil and gas interests
            
            
            3,500,000
            
            
            3,500
            
            
            6,401,500
            
            
            —
            
            
            —
            
            
            —
            
            
            6,405,000Private
                placement
            
            
            2,750,000
            
            
            2,750
            
            
            2,672,342
            
            
            —
            
            
            —
            
            
            —
            
            
            2,675,092Issue
                shares as fee for January 5, 2004 transactions
            
            
            250,000
            
            
            250
            
            
            457,250
            
            
            —
            
            
            —
            
            
            —
            
            
            457,500Obligation
                to issue 200,000 shares with acquisition of oil and gas
                interests
            
            
            
            
            
            
            
            
            
            
            
            194,000
            
            
            —
            
            
            —
            
            
            194,000Obligation
                to issue 200,000 shares to financial advisers
            
            
            —
            
            
            —
            
            
            —
            
            
            168,500
            
            
            —
            
            
            —
            
            
            168,500Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,760,308
            )
            
            (3,760,308
            )Balance,
                December 31, 2004
            
            
            41,743,150
            
            $
            41,743
            
            $
            9,556,702
            
            $
            362,500
            
            $
            (197,189
            )
            
            (3,760,308
            )
            $
            6,003,448Issue
                200,000 shares for drilling purchase agreement
            
            
            200,000
            
            
            200
            
            
            193,800
            
            
            (194,000
            )
            
            —
            
            
            —
            
            
            —Issue
                550,000 shares to business advisors
            
            
            550,000
            
            
            550
            
            
            432,450
            
            
            (168,500
            )
            
            —
            
            
            —
            
            
            264,500Issue
                1,00,000 shares for oil and gas interests
            
            
            1,000,000
            
            
            1,000
            
            
            599,000
            
            
            —
            
            
            —
            
            
            —
            
            
            600,000Issue
                2,449,265 shares for conversion of note
            
            
            2,449,265
            
            
            2,449
            
            
            392,262
            
            
            —
            
            
            —
            
            
            —
            
            
            394,711Issue
                1,936,391 shares under private placement
            
            
            1,936,391
            
            
            1,936
            
            
            1,061,714
            
            
            —
            
            
            —
            
            
            —
            
            
            1,063,650Warrant
                valuation under convertible debentures
            
            
            —
            
            
            —
            
            
            1,099,673
            
            
            —
            
            
            —
            
            
            —
            
            
            1,099,673Issue
                200,000 shares to financial advisors
            
            
            200,000
            
            
            200
            
            
            117,800
            
            
            —
            
            
            —
            
            
            —
            
            
            118,000Issue
                1,000,000 shares converted under convertible debentures
            
            
            1,000,000
            
            
            1,000
            
            
            599,000
            
            
            —
            
            
            —
            
            
            —
            
            
            600,000Issue
                50,000 shares as fee under convertible debenture
            
            
            50,000
            
            
            50
            
            
            29,950
            
            
            —
            
            
            —
            
            
            —
            
            
            30,000Issue
                2,652,632 shares held as collateral in escrow
            
            
            2,652,632
            
            
            2,653
            
            
            1,662,348
            
            
            (1,665,000
            )
            
            —
            
            
            —
            
            
            —Issue
                763,891 shares as redemption under convertible debenture
            
            
            763,891
            
            
            764
            
            
            228,453
            
            
            —
            
            
            —
            
            
            —
            
            
            229,218Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,591,161
            )
            
            (3,591,161
            )Balance,
                December 31, 2005
            
            
            52,545,329
            
            
            52,545
            
            
            15,973,152
            
            
            (1,665,000
            )
            
            (197,189
            )
            
            (7,351,469
            )
            
            6,812,039





See
      accompanying notes.








F-5





Fellows
      Energy Ltd.





(An
      Exploration Stage Company)





Statements
      of Cash Flows







**Years
                Ended**
              **December
                31,**
            
            
            **Inception
                (Nov 12, 2003) to**
              **December
                31,****2005**
            
            **2004**
            
            
            
            **2005**Cash
                flow from operating activities:Net
                income (loss)
            
            $
            (3,591,677
            )
            $
            (3,760,308
            )
            
            
            $
            (7,351,985
            )Adjustments
                to reconcile net income to net cash used in operating
                activities:Gain
                on sale of marketable securities
            
            
            7,989
            
            
            —
            
            
            
            
            7,989Gain
                on sale of unproved property
            
            
            (1,550,797
            )
            
            —
            
            
            
            
            (1,550,797
            )Gain
                from extinguishment of debt
            
            
            (383,531
            )
            
            —
            
            
            
            
            (383,531
            )Relinquishment
                of property option
            
            
            1,143,882
            
            
            —
            
            
            
            
            1,143,882Debt
                issue costs and discount amortization
            
            
            819,622
            
            
            —
            
            
            
            
            819,622Depreciation
            
            
            13,391
            
            
            5,027
            
            
            
            
            18,418Expenses
                paid with stock issuance
            
            
            294,500
            
            
            457,500
            
            
            
            
            752,000Expenses
                paid with stock issuance obligation
            
            
            —
            
            
            168,500
            
            
            
            
            168,500Interest
                paid with stock issuance
            
            
            44,711
            
            
            —
            
            
            
            
            44,711Changes
                in operating assets and liabilities:Receivables
            
            
            (100,058
            )
            
            —
            
            
            
            
            (100,058
            )Prepaid
                expense
            
            
            (15,000
            )
            
            —
            
            
            
            
            (15,000
            )Deferred
                debt issue costs
            
            
            (533,769
            )
            
            —
            
            
            
            
            (533,769
            )Accounts
                payable
            
            
            (120,708
            )
            
            383,630
            
            
            
            
            262,922Net
                cash provided by (used in) operating activities
            
            $
            (3,971,445
            )
            $
            (2,745,651
            )
            
            
            $
            (6,717,096
            )Cash
                flow from investing activities:Purchase
                of marketable securities
            
            
            (413,545
            )
            
            —
            
            
            
            
            (413,545
            )Deposits
                on unproved oil and gas property
            
            
            (716,000
            )
            
            —
            
            
            
            
            (716,000
            )Proceeds
                on sale of oil and gas property
            
            
            2,038,206
            
            
            —
            
            
            
            
            2,038,206Unproved
                oil and gas property additions
            
            
            (2,163,456
            )
            
            (2,444,648
            )
            
            
            
            (2,163,456
            )Restricted
                Cash
            
            
            (100,000
            )
            
            (135,000
            )
            
            
            
            (235,000
            )Purchase
                of equipment
            
            
            (284,664
            )
            
            (21,590
            )
            
            
            
            (306,254
            )Net
                cash provided by (used in) investing activities
            
            $
            (1,639,459
            )
            $
            (2,601,238
            )
            
            
            $
            (4,240,697
            )Cash
                flow from financing activities:Proceeds
                from issuance of convertible debenture
            
            
            6,024,633
            
            
            1,000,000
            
            
            
            
            7,024,633Proceeds
                from issuance of common stock
            
            
            945,650
            
            
            2,675,092
            
            
            
            
            3,620,742Retirement
                of former management’s stock
            
            
            —
            
            
            (27,000
            )
            
            
            
            (27,000
            )Proceeds
                from notes payable
            
            
            171,000
            
            
            2,241,000
            
            
            
            
            2,412,000Payments
                on notes payable
            
            
            (1,331,848
            )
            
            (684,621
            )
            
            
            
            (2,016,469
            )Net
                cash provided by financing activities:
            
            
            5,809,435
            
            
            5,204,471
            
            
            
            
            11,013,906Net
                increase in cash and equivalents
            
            
            198,531
            
            
            (142,418
            )
            
            
            
            56,113Cash
                and equivalents at beginning of period
            
            
            149,027
            
            
            291,445
            
            
            
            
            291,445Cash
                and equivalents at end of period
            
            $
            347,558
            
            $
            149,027
            
            
            
            $
            347,558Supplemental
                Disclosure of Cash Flow and Non-cash Investing and Financing
                Activity:Income
                tax paid
            
            $
            —
            
            $
            —
            
            
            
            $
            —Interest
                paid
            
            $
            81,750
            
            $
            25,681
            
            
            
            $
            107,431Non
                cash:Conversion
                of $350,000 convertible note into common stock
            
            $
            394,711
            
            $
            —
            
            
            
            $
            394,711Acquisition
                of oil & gas interest in exchange for common stock (as
                restated)
            
            $
            600,000
            
            $
            6,405,000
            
            
            
            $
            7,005,000Contribution
                of oil & gas interest in exchange for stock issuance obligation
            
            $
            —
            
            
            194,000
            
            
            
            $
            194,000Fees
                paid with stock
            
            $
            309,211
            
            
            457,500
            
            
            
            $
            766,711







See
      accompanying notes.





F-6





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




**Note
      1 - Nature Of Operations And Significant Accounting Policies**




Nature
      of
      Operations - Fellows Energy Ltd. is engaged in the exploration, extraction,
      processing and reclamation of coalbed methane, natural gas, and oil projects
      within the Western United States. We incorporated in the state of Nevada on
      April 9, 2001 as Fuel Centers, Inc. On November 12, 2003, we changed our name
      to
      Fellows Energy Ltd. Our principal offices are in Boulder, Colorado.




Cash
      Equivalents - We consider all highly liquid debt instruments purchased with
      maturity of three months or less to be cash equivalents. At December 31, 2005
      and 2004, we had approximately $348,000 and $149,000 in cash equivalents
      respectively.




Fair
      Value of Financial Instruments - The carrying amount of our financial
      instruments, which includes cash and accounts payable, approximate their fair
      value due to the short period to maturity of these instruments.




Restricted
      Cash - Restricted cash is cash balances held in the form of bank certificates
      of
      deposit. At December 31, 2005 and 2004, $235,000 and $135,000 respectively,
      of
      restricted cash was on deposit with custodians to secure reclamation of oil
      and
      gas property.




Revenue
      Recognition - we record revenue when title passes, delivery occurs to our
      customers and the customer assumes the risks and rewards of ownership, when
      the
      price is fixed and determinable, and when collectibility is reasonably assured.




Income
      Tax - We recognize deferred tax assets and liabilities based on differences
      between the financial reporting and tax bases of assets and liabilities using
      the enacted tax rates and laws that are expected to be in effect when the
      differences are expected to be recovered. We provide a valuation allowance
      for
      deferred tax assets when we consider realization of such assets to be less
      likely than not.




Net
      Loss
      per Common Share - We have adopted Statement of Financial Accounting Standards
      No. 128, Earnings Per Share. Statement 128 requires the reporting of basic
      and
      diluted earnings/loss per share. We calculate basic loss per share by dividing
      net loss by the weighted average number of outstanding common shares during
      the
      period. We calculate diluted loss per share by dividing net loss by the weighted
      average number of outstanding common shares including all potentially dilutive
      securities during the period.





Comprehensive
      Loss - We apply Statement of Financial Accounting Standards No. 130, Reporting
      Comprehensive Income. Statement 130 establishes standards for the reporting
      and
      display of comprehensive income or loss, requiring its components to be reported
      in a financial statement. For the years ended December 31, 2005 and 2004, our
      comprehensive loss was comprised of our net loss and an unrealized holding
      gain
      on our marketable securities as reported in our statements of
      operations.




Use
      of
      Estimates - Accounting principles generally accepted in the United States
      require us to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenue and
      expense during the reporting period. Actual results could differ from those
      estimates.







F-7





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




Concentration
      of Credit Risk - Financial instruments that potentially subject us to
      concentration of credit risk consist of cash. At December 31, 2005, we had
      $247,558 in cash in excess of federally insured limits.




Oil
      and
      Gas Activity - We follow the successful-efforts method of accounting for oil
      and
      gas property as defined under Statement of Financial Accounting Standards No.
      19, Financial Accounting and Reporting by Oil and Gas Producing Companies (“FAS
      19”). Under this method of accounting, we capitalize all property acquisition
      cost and cost of exploratory and development wells when incurred, pending
      determination of whether the well has found proved reserves. If an exploratory
      well does not find proved reserves, we charge to expense the cost of drilling
      the well. We include exploratory dry hole cost in cash flow from investing
      activities within the cash flow statement. We capitalize the cost of development
      wells whether productive or nonproductive. We had no exploratory well cost
      that
      had been suspended for one year or more as of December 31, 2005.




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. We calculate
      expected future cash flow on all proved reserves using a 10% discount rate
      and
      escalated prices. Should the net capitalized cost exceed the undiscounted future
      net revenue of a property, we write down the cost of the property to fair value,
      which we 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, 2005, we were making sufficient progress on assessing
      our acquired properties and considered those not relinquished as still
      economically and operationally viable, in accordance with FAS 19. In
      determining 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.




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.




F-8




**Fellows
      Energy Ltd.**





**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




We
      account for the sale of a partial interest in an unproved property as a recovery
      of cost when substantial uncertainty exists as to recovery of the cost
      applicable to the interest retained. We recognize a gain on the sale to the
      extent that the sales price exceeds the carrying amount of the unproved
      property. We recognize a gain or loss for all other sales of non-producing
      properties and include the gain or loss in the results of operations.




Stock
      Options - On October 9, 2003, we adopted an incentive stock option plan,
      pursuant to which shares of our common stock are reserved for issuance to
      satisfy the exercise of options. The purpose of the incentive stock option
      plan
      is to attract and retain qualified and competent officers, employees and
      directors. The plan authorizes up to 2,000,000 shares of authorized common
      stock
      to be purchased pursuant to the exercise of options. Our stockholders approved
      the plan on November 10, 2003. On September 15, 2004, we granted an option
      for
      200,000 shares to our CEO, 150,000 shares to our vice president and 125,000
      shares to an employee. These options are exercisable at $0.80 per share, the
      price of our stock on the grant date. The options vested 50% on the grant date
      and vest 50% on September 15, 2005. On October 3, 2005, we granted an option
      for
      100,000 shares to our CEO, 150,000 to our Vice President and 175,000 and 200,000
      shares to two employees respectively. The options vest 6 months from the date
      of
      grant.




In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        123(R), “Share-Based Payment” (“SFAS 123(R)”), which is a revision of SFAS No.
        123, Accounting for Stock-Based Compensation. SFAS 123(R) is effective for
        public companies for the first fiscal year beginning after June 15, 2005,
        supersedes Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for
        Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows. SFAS
        123(R) eliminates the option to use APB 25’s intrinsic value method of
        accounting and requires recording expense for stock compensation based on
        a fair
        value based method.
 
 On
        July
        1, 2005, the Company adopted the “modified prospective method” which requires
        the Company to recognize compensation costs, for all share-based payments
        granted, modified or settled, in financial statements issued subsequent to
        July
        1, 2005, as well as for any awards that were granted prior to the adoption
        date
        for which the required service has not yet been performed. The adoption of
        SFAS
        123(R) did not have a material effect on the Company’s financial condition or
        results of operations because subsequent to July 1, 2005, the Company did
        not
        enter into any share-based transactions.





F-9





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**






Prior
        to
        July 1, 2005, the Company accounted for its stock-based compensation using
        APB
        25 and related interpretations. Under APB 25, compensation expense was
        recognized for stock options with an exercise price that was less than the
        market price on the grant date of the option. For stock options with exercise
        prices at or above the market value of the stock on the grant date, the Company
        adopted the disclosure-only provisions of Statement of Financial Accounting
        Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”) for the
        stock options granted to the employees and directors of the Company.
        Accordingly, no compensation cost was recognized for these options prior
        to June
        30, 2005.
 
 Compensation
        expense has been recognized in the accompanying financial statements for
        stock
        options that were issued to our outside consultants. Had compensation expense
        for the options granted to our employees and directors been determined based
        on
        the fair value at the grant date for options, consistent with the provisions
        of
        SFAS 123, the Company’s net (loss) income and net (loss) income per share for
        the years ended December 31, 2005 and 2004 would have been increased to the
        pro
        forma amounts indicated below.


We
          estimate the fair value of the options we grant at the date of grant using
          a
          Black-Scholes option pricing model with the following weighted-average
          assumptions for the year ended December 31, 2005: a risk-free interest
          rate of
          4.37%; no expected dividend; a volatility factor of 97.5%; and a maturity
          date
          of ten years.
  For
          purposes of pro forma disclosures, we amortize to expense the estimated
          fair
          value of the options over the options’ vesting period.
 
 Three
                    Months
                  Ended
                
                Three
                    Months EndedDecember
                    31, 2005
                
                December
                    31, 2004Net
                    Income (loss) as reported
                
                $
                (3,591,677
                )
                $
                (3,760,308
                )Deduct:
                    Total stock based employee compensation expensedetermined
                    under fair value based method for all awards
                
                
                (13,955
                )
                
                (102,000
                )Pro
                    forma net income (loss)
                
                $
                (3,605,632
                )
                $
                (3,862,508
                )Basic
                    and diluted earnings per share—as reported
                
                $
                (0.08
                )
                $
                (0.09
                )Pro
                    forma basic and diluted gain per share
                
                $
                (0.05
                )
                $
                (0.09
                )
  The
          Black-Scholes option-pricing model was developed for use in estimating
          the fair
          value of traded options that have no vesting restrictions, are fully
          transferable, and are not subject to trading restrictions or blackout periods.
          In addition, option valuation models require the input of highly subjective
          assumptions, including the expected stock price volatility. Because our
          employee
          stock options have characteristics significantly different from those of
          traded
          options, and because changes in the subjective input assumptions can materially
          affect the fair value estimate, it is our opinion that the existing models
          do
          not necessarily provide a reliable single measure of the fair value of
          our
          employee stock options.




**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, 2005, 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. However, in the first quarter of 2006 we closed the
      acquisition of an interest in the Carbon County project, a producing gas field,
      and commenced production in the first well of the Creston
      project.  Our ability to continue 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. 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.





F-10





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




Although
      management believes production from these two projects will generate revenues
      sufficient to sustain the Company, no assurance can be given that such revenues
      will be generated from the projects and there is no assurance that we will
      be
      able to obtain additional financing from investors or private
      lenders.




**Note
      3 - Note Receivable**





In
      October 2005, we entered into an agreement to obtain up to a 75% working
      interest in certain well bores owned by Mountain Oil and Gas. In connection
      with
      this, we agreed to advance Mountain Oil and Gas a total of $100,000 for the
      purpose of well bonding and working capital. This was due and payable back
      to
      the Company on December 30, 2005 either in cash or labor towards the workover
      of
      the well bore. As a result, we are entitled to $160,000 of the net
      revenues from the 1-16A1E well beginning January 1, 2006. Repayment is secured
      by a pumping unit located on the Dye-Hall well for the value of the working
      capital and well bonding.








**Note
      4 - Sale of Unproved Property**





In
      February 2005 we sold the Circus project for $2.04 million to an unrelated
      third
      party. We acquired the leases in October, 2004, with a total cost of $487,000
      and thus realized a gain of $1.5 million on the sale. Additionally, we incurred
      $53,000 of closing cost on the sale.








**Note
      5 - Convertible Note Payable**




On
      September 9, 2003, we received $350,000 for issuance of a convertible note
      payable to a third party investor. The principal is due and payable on March
      9,
      2005 together with interest at the rate of 8% per year. The note also contains
      a
      conversion feature that gives the holder the right to convert all or any portion
      of the principal indebtedness into shares of common stock on or before its
      due
      date. On March 3, 2005, the note holder notified us that they were exercising
      their right to convert the entire $350,000 note at a conversion rate of $0.1429
      per share, or 2,449,265 shares.




**Note
      6 - Convertible Debentures**




In
      June
      2004 we issued a two-year convertible debenture with a conversion price of
      $1.25
      per share of common stock, subject to anti-dilution adjustments, in a private
      placement to two purchasers. The convertible debenture is secured by our assets
      and is due in June 2006. In connection with the issuance, we also issued
      warrants to purchase up to 400,000 shares of common stock at $1.50 per share.
      The warrants are exercisable for two years following conversion of the
      convertible debenture at an exercise price of $1.50. The offering resulted
      in
      gross proceeds to us, prior to the deduction of fees and cost, of approximately
      $1,000,000. We used the proceeds from the offering for working capital and
      general corporate purposes.




The
      conversion price of the convertible debenture and the exercise price of the
      warrants are subject to customary anti-dilution rights. In addition, if we
      issue
      common stock at a price less than the conversion price of the convertible
      debenture, then the conversion price will be reduced to the lower price. Under
      such circumstances, the exercise price of the warrants will be adjusted to
      the
      same price as the conversion price. As part of the placement, we agreed to
      provide piggyback registration rights to register for resale all of the shares
      of common stock issuable upon conversion of the debenture and upon exercise
      of
      the warrants.






F-11




**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




We
      issued
      the above securities utilizing an exemption from registration requirements
      of
      the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act and
      Regulation D promulgated under the Securities Act based on the representations
      of the Purchaser that it was an “accredited investor” (as defined under Rule 501
      of Regulation D) and that it was purchasing the securities without a present
      view toward a distribution of the securities. In addition, we conducted no
      general solicitation in connection with the sale of the securities.





On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with
      three accredited investors for the issuance of $5,501,200 in face amount of
      debentures maturing at the end of the 27th month from the date of issuance,
      and
      three year warrants to purchase common stock of the company. The debentures
      bear
      no interest and the investors paid $3,849,685, after discounts of $1,651,515,
      for the debentures. A commission of 9% on the $3.85 million was paid in
      connection with the transaction, and we paid $100,000 in legal fees, resulting
      in net proceeds to the company of $3,403,267. The debentures are unsecured
      and
      we are obligated to pay 1/24th of the face amount of the debenture on the first
      of every month, starting October 1, 2005, which payment can be made in cash
      or
      in common stock. We may pay this amortization payment in cash or in stock at
      the
      lower of $0.60 per share (the Set Price) or 80% of the volume weighted average
      price of the stock for the five trading days prior to the repayment date. In
      the
      event that we make the payment in cash, we shall pay 110% of the monthly
      redemption amount. At any time after 90 days from the date that a registration
      statement registering the shares of common stock underlying the debentures
      and
      warrants is declared effective (the Effective Date), and if certain conditions
      are met, we have the right to redeem some or all of the debentures in a cash
      amount equal to 110% of the face amount of the debentures being redeemed. At
      any
      time, the debentures are convertible into common stock at the Set
      Price.





We
      issued
      warrants to the investors, expiring June 17, 2008, to purchase 4,584,334 shares
      of restricted common stock, exercisable at a per share of $0.649. In addition,
      the exercise price of the warrants will be adjusted in the event we issue common
      stock at a price below the exercise price, with the exception of any securities
      issued pursuant to a stock or option plan adopted by our board of directors,
      issued in connection with the debentures issued pursuant to the securities
      purchase agreement, or securities issued in connection with acquisitions or
      strategic transactions. Upon an issuance of shares of common stock below the
      exercise price, the exercise price of the warrants will be reduced to equal
      the
      share price at which the additional securities were issued and the number of
      warrant shares issuable will be increased such that the aggregate exercise
      price
      payable for the warrants, after taking into account the decrease in the exercise
      price, shall be equal to the aggregate exercise price prior to such
      adjustment.





Warrants
      to purchase 250,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.





In
      addition to the $1,651,515 cash discount, we also recorded a discount of
      $626,042 based on a Black-Scholes model valuation of the 4,584,334 warrants
      issued to the debenture holders and the 250,000 warrants issued to HPC Capital
      Management.








F-12





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




On
      September 21, 2005, we closed a financing pursuant to a securities purchase
      agreement with two accredited investors for the issuance of $3,108,000 in face
      amount of debentures maturing December 21, 2008, and three year warrants to
      purchase common stock of the company. The debentures do not accrue interest
      and
      the investors paid $2,174,947.52 for the debentures. A commission of 8% on
      $2,000,000 raised was paid to in connection with the transaction, and we placed
      $50,000 in escrow for the payment of future legal fees, resulting in net
      proceeds to the company of $1,964,947.52 before $39,000 in associated current
      legal fees. Net proceeds will be used for general working capital. The
      debentures are unsecured and we are obligated to pay 1/24th of the face amount
      of the debenture on the first of every month, starting January 1, 2006, which
      payment can be made in cash or in restricted common stock. We may pay this
      amortization payment in cash or in stock at the lower of $0.75 per share (the
      Set Price) or 80% of the volume weighted average price of the stock for the
      five
      trading days prior to the repayment date, provided that there is an effective
      registration statement and the monthly conversion price is greater of than
      $0.60. In the event that we make the payment in cash, we shall pay 110% of
      the
      monthly redemption amount. At any time after 90 days from the date that a
      registration statement registering the shares of common stock underlying the
      debentures and warrants is declared effective (the Effective Date), and if
      certain conditions are met, we have the right to redeem some or all of the
      debentures in a cash amount equal to 110% of the face amount of the debentures
      being redeemed. At any time, the debentures are convertible to restricted common
      stock at the Set Price.





We
      issued
      warrants to the investors, expiring September 21, 2008, to purchase 2,072,000
      shares of restricted common stock, at a price per share of $0.80. The number
      of
      shares underlying the warrants equals 50% of the shares issuable on full
      conversion of the debentures at the set price (as if the debentures were so
      converted on September 21, 2005). In addition, the exercise price of the
      warrants will be adjusted in the event we issue common stock at a price below
      the exercise price, with the exception of any securities issued pursuant to
      a
      stock or option plan adopted by our board of directors, issued in connection
      with the debentures issued pursuant to the securities purchase agreement, or
      securities issued in connection with acquisitions or strategic transactions.
      Upon an issuance of shares of common stock below the exercise price, the
      exercise price of the warrants will be reduced to equal the share price at
      which
      the additional securities were issued and the number of warrant shares issuable
      will be increased such that the aggregate exercise price payable for the
      warrants, after taking into account the decrease in the exercise price, shall
      be
      equal to the aggregate exercise price prior to such adjustment.





Warrants
      to purchase 100,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.





In
      addition to the $933,052 cash discount, we also recorded a discount of $614,905
      based on a Black-Scholes model valuation of the 2,072,000 warrants issued to
      the
      debenture holders and the 100,000 warrants issued to HPC Capital
      Management.








F-13





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




**Note
      7 - Note Payable**





In
      November 2004 we entered into a joint venture agreement with an unrelated
      company in which the company received a 50% interest in certain of our
      properties in exchange for a $2,000,000 commitment for exploration and drilling
      on the properties. In addition, the company loaned us $1,500,000, 50% of which
      was due on January 31, 2005 and we have repaid with interest and 50% of which
      was payable on April 30, 2005, with interest at 18%. This note was secured
      by
      our assets. In February 2005 we paid $750,000 principal of the 18% $1,500,000
      note payable to JMG, plus accrued interest of $82,000. In May 2005, we assigned
      our remaining 50% interest in the Gordon Creek and Weston County properties
      to
      JMG as full payment of the unpaid principal and accrued interest on the note.
      As
      part of the settlement agreement, JMG's commitment to spend $2,000,000 in
      exploration and drilling activity on the two projects by November 7, 2005 was
      terminated and JMG granted us the option to re-acquire our 50% ownership by
      June
      30, 2005 for the amount of $391,000. We exercised this option in June 2005.
      Under this transaction, the Company removed itself from the liability of the
      note payable, and re-acquired the 50% ownership in the Gordon Creek and Weston
      County properties for $391,000. In connection with this transaction, we recorded
      a gain from extinguishment of debt of $383,531.




**Note
      8 - Common Stock**




In
      November 2003 our Board of Directors approved a seven-to-one stock split of
      our
      issued and outstanding common stock, which was done with a dividend of six
      shares for each share of common stock outstanding as of the record date. The
      dividend was payable on November 17, 2003, for shareholders of record on
      November 14, 2003. The common stock continues to be $.001 par value.




In
      November 2003 we amended the Articles of Incorporation to change our name from
      Fuel Centers, Inc. to Fellows Energy Ltd. The amendment also ratified an
      increase in the authorized number of shares of our $.001 par value common stock
      from 50,000,000 to 100,000,000 shares and an increase in the number of preferred
      shares from 5,000,000 to 25,000,000.




In
      January 2004 we acquired interest in certain oil and gas leases of the Johns
      Valley, Utah projects and the rights to acquire interest in the Weston County,
      Carter Creek, Deer Creek and the Gordon Creek Projects, as well as to enter
      into
      the Exploration Services Funding Agreement with Thomasson Partner
      Associates, Inc. of Denver, Colorado, owned by Diamond Oil and Gas
      Corporation, in exchange for 3,500,000 shares of common stock. Initially,
      the transaction was deemed to have value of $1,050,000 based on the $0.30 stock
      price at the time the agreement was negotiated. Since determining that there
      were conditions precedent to close this transaction, we have restated the
      valuation of these assets and interests to properly account for them under
      the
      guidance of EITF 98-16.  The transaction is deemed to have value of
      $6,405,000 under this guidance, at the stock price of $1.83. For related
      discussion see Note 14.




In
      we
      entered into an agreement with a financial consultant in which we were obligated
      to issue the consultant 50,000 shares of common stock at $0.97 per share. In
      February 2005 we extended the agreement and were obligated to issue the
      consultant an additional 50,000 shares of common stock, which we issued in
      April
      2005, and recorded the value at $0.86 per share or $43,000, as financial
      consultation expense..




In
      April
      2005 we issued 2,999,265 shares of common stock for the following stock issuance
      obligations:





F-14





**Fellows
      Energy Ltd.**





**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




• 200,000
      shares of common stock at $0.97 to Quaneco, LLC pursuant to a March 16, 2004
      agreement;


• 50,000
      shares of common stock at $0.97 to a business consultant pursuant to an August
      1, 2004 agreement;


• 150,000
      shares of common stock at $0.80 to a business consultant pursuant to a November
      8, 2004 agreement;


• 100,000
      shares of common stock at $0.93 to a business advisor pursuant to a January
      10,
      2005 agreement;


• 50,000
      shares of common stock at $0.86 to a business consultant pursuant to a February
      1, 2005 agreement;


• 2,449,265
      shares of common stock at $0.14 on conversion of the 8% $350,000 convertible
      note issued September 9, 2003.





In
      April
      2005, we issued 1,000,000 shares of common stock to Quaneco, LLC pursuant to
      a
      March 1, 2005 agreement as part of the consideration for the acquisition of
      the
      Kirby and Castle Rock projects. In accordance with the final purchase agreement,
      we have valued these shares at $0.60 per share.





On
      May
      18, 2005, we closed on the private placement of $1,064,000 of securities. We
      incurred an estimated $141,000 of fees and cost, netting approximately $922,000.
      We sold 1,936,391 shares of common stock and 818,192 warrants. Each warrant
      entitles the holder to purchase one share of common stock for $1.00 until May
      18, 2008. We also issued 81,819 of the same warrants to the placement agent
      as
      additional compensation. We have agreed to register the resale of the shares
      sold and the shares underlying the warrants with the U.S. Securities and
      Exchange Commission.





In
      June
      and October 2005, we issued 50,000, 150,000, and 200,000 shares of common stock
      in connection with agreements with financial consultants at $0.77, $0.60, and
      $0.59 respectively.





In
      October 2005, we issued 1,000,000 shares of common stock under voluntary
      redemption from the June 17, 2005 convertible debenture at $0.60, and 50,000
      shares of common stock in related fees also at $0.60.





In
      November and December 2005 we issued 1,800,000 and 852,632 shares of common
      stock as collateral to be held in escrow at $0.70 and $0.47 respectively.





In
      December 2005, we issued 382,030 and 381,861 shares of common stock as a
      redemption payment under the June 17, 2005 convertible debenture at $0.60 and
      $0.30 respectively.





**Note
      9 - Related Party Transactions**




On
      January 5, 2004, we acquired interests in certain oil and gas leases of the
      Johns Valley, Utah project and the rights to acquire interests in the Weston
      County, Carter Creek, Deer Creek and Gordon Creek Projects, as well as to enter
      into the Exploration Services Funding Agreement with Thomasson Partner
      Associates, Inc. of Denver, Colorado, 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.




We
      acquired the option to earn a 70% working interest in 25,201 acres of oil and
      gas leases from Diamond, a corporation controlled by our CEO. As a result,
      we
      appointed new management while accepting the resignation of our former
      management and redeemed 52,610,000 shares of common stock owned by the outgoing
      and former management in exchange for approximately $27,000.




F-15




**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




Over
      the
      period May through October 2004 we borrowed $741,000 on an unsecured 8% demand
      note payable to an entity controlled by our CEO. In December 2004 we paid
      $684,621 of principal on the note plus $25,681 of interest. The December 31,
      2004 balance on the note was $56,379. During 2005, we borrowed another $171,000
      and paid down $216,000. On December 31, 2005 the remaining balance was
      $12,000.




**Note
      10 - Income Tax**




At
      December 31, 2005, we have available for federal income tax purposes a net
      operating loss carryforward of approximately $5,300,000, expiring at various
      times through 2024 that may be used to offset future taxable income. Therefore,
      we have provided no provision for income tax.




In
      addition, we have deferred tax assets of approximately $1,800,000 at December
      31, 2005. 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 $(1,800,000) 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, 2005:






**Year**
              
              **NOL carryforward**
              
              **Deferred tax asset**2001
              
              $
              10,241
              
              $
              3,4812002
              
              
              21,560
              
              
              7,3302003
              
              
              122,915
              
              
              41,7912004
              
              
              3,138,118
              
              
              1,066,9602005
              
              
              1,957,800
              
              
              665,700Less:
                  valuation allowance
              
              
              —
              
              
              (1,785,262
              )Totals:
              
              $
              5,280,657
              
              $
              —


**Note
      11 - Commitments and contingencies**




With
      our
      Exploration Services Funding Agreement with Thomasson, as amended, we paid
      Thomasson an $800,000 fee in 2005 for the first right to review and purchase
      up
      to a 100% interest in oil and natural gas exploration projects they develop
      as
      well as fees for any projects that we acquire from Thomasson. Under the
      agreement, in 2005 Thomasson was to present to us an average of eight projects
      per year with an area of interest of 10,000 to 80,000 acres per project with
      a
      reasonable potential of at least 200 billion cubic feet of natural gas reserves
      or 20 million barrels of oil reserves. After viewing a formal presentation
      regarding a project, we have a period of thirty days in which we have the option
      to acquire the project. We are not obligated to acquire any project. The
      agreement continues year to year until either party gives 90 days written notice
      of termination.







F-16





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




Johns
      Valley Project, Utah. In early 2004 we acquired an agreement with Johns Valley
      Limited Partnership whereby we have the option to earn 70% working interest
      in
      25,201 acres of Utah oil and gas leases. In order to maintain the option in
      good
      standing, we had an obligation to spend certain amounts on exploration drilling
      on or before the dates specified to better characterize the coal and coalbed
      methane potential. Due to permitting delays and other operating parameters
      in
      the field, we are restructuring the timing and amounts of our work commitments
      as provided for under the option assignment agreement. We have no current
      payment commitments or obligations, but continue to hold the option in good
      standing.




Operating
      Lease - As of year-end, we had a one year operating lease through January 2006
      for use of our office facilities with an option to renew at market rate. The
      rent was $1,681 per month. Aggregate minimum rental payments were $20,172 in
      2005. Since the expiration of the lease, we have occupied office space provided
      by our CEO. Accordingly, as of year-end we had not determined occupancy cost
      to
      the Company, but expect to have such amount determined based on the square
      foot
      percentage assumed multiplied by the CEO’s total monthly cost. Until such time,
      the occupation is considered an additional capital contribution by the CEO.




We
      were
      sued in the Sixth Judicial District Court, Garfield County, Utah on November
      10,
      2004, by Midway Perforating and Drilling in a complaint alleging nonpayment
      of
      charges connected with drilling the Johns Valley 10-33C2 well in Garfield
      County, UT. The complaint seeks damages of $100,000 and costs of $10,000. We
      filed our Answer and Counterclaim on January 19, 2005. We believe we have a
      strong defense and counterclaim in that the plaintiff failed to follow our
      instructions to use appropriate equipment for controlling deviation of the
      wellbore, and that such failure caused significant deviation of the wellbore,
      causing the well to be unusable and a breach of contract. The well bore failed
      to penetrate the target zone within the permitted drilling spacing unit due
      to
      horizontal deviation improperly allowed to occur by the plaintiff contractor.
      The suit is in its early stages. Although we believe we have a strong defense
      and counterclaim, we cannot predict the final outcome of the suit.




**Note
      12 - Discontinued Operations**





**Fuel
      Centers, Inc.**





In
      December 2003, the Company disposed of its subsidiary, Fuel Centers, Inc.,
      which
      was engaged in the automotive fuel and supercenter operations. At December
      31,
      2003, the Company recorded a loss on discontinuance in the statement of
      operations of $123,475, making our total loss from 2001-2003 from discontinued
      operations $197,189







F-17





**Fellows
      Energy Ltd.**


**(An
      Exploration Stage Company)**





**Notes
      to Financial Statements**


**December
      31, 2005 and 2004**




**Note
      13 - Subsequent Events**




In
      March
      2005 we agreed, subject to customary closing conditions, with Quaneco to acquire
      a 12.5% working interest in the Kirby and Castle Rock Coal Bed Methane projects
      for $3,850,000 in cash and one million dollars worth of shares of restricted
      common stock. We paid $500,000 toward the purchase, which vests in us a pro
      rata
      portion of the 12.5% interest, and we had until September 1, 2005 to pay
      additional amounts of the purchase price and vest in additional amounts. During
      the quarter ending September 30, 2005, we negotiated with Quaneco for an
      extension of the time to make payments, but as of year end did not finalized
      any
      extension. Under the terms of the agreement, we were to participate in a 48
      well
      drilling program during 2005 on the Kirby project that was to extend out from
      an
      existing 16 well pilot program of previously drilled wells. We were to have
      ownership in the previously drilled wells, which were being dewatered and were
      expected to commence production later in the near future. However, due to the
      Company’s view of the prospects for revenues from the Kirby and Castle Rock
      prospects, as of the first quarter 2006, the Company determined to not proceed
      with its option to purchase the Kirby and Castle Rock projects. As such, our
      entire interest in these projects has been written off as relinquished at
      December 31, 2005.





In
      2005,
      we entered into a purchase option to acquire a producing gas project, the Carbon
      County project, for $3 million, including three producing wells, five shut-in
      wells, and an associated gas gathering system, pipeline and compressor facility.
      We closed that acquisition in March of 2006 jointly with an industry partner,
      MBA Resource Corporation (“MBA”) in an arrangement in which MBA paid $1.5
      million and provided financing for all but $241,000 of the balance of the net
      purchase price, net of deposits and production credits, in exchange for a 50%
      interest. We are now generating production from this project and have ongoing
      development drilling activities underway.





Also
      in
      2005, we entered into a 45-well workover program, the Creston Project, in which
      we completed and placed the first well into production in the first quarter
      of
      2006. We also have obtained $1.25 million in industry partner financing to
      carry
      the project forward. In connection with the transaction, we acquired the rights
      to up to a 75% working interest, reduced to 45% interest in 18 months, in the
      wells to be completed in the program as well as $1.25 million in project
      financing from an industry partner in exchange for 1,642,632 shares of
      restricted common stock and warrants to purchase 1.8 million shares at $0.70
      per
      share. The repayment of the $1.25 million in financing is secured with 1.8
      million shares of restricted stock held in escrow and is personally guaranteed
      by George S. Young, our CEO, and by his private company, Diamond Oil and Gas
      Corporation.




**Note
      14 - Restatement**




The
      accompanying financial statements as of December 31, 2004 have been restated.
      The restatement reflects and adjustment in the acquisition cost of certain
      oil
      and gas property in exchange for 3,500,000 shares of the Company’s common stock
      on January 5, 2004 based on the determination date of when this transaction
      closed and when the parties were committed to perform vs. when the transaction
      was originally consummated as detailed following.







F-18





**Fellows
          Energy Ltd.**
 **(An
          Exploration Stage Company)**
 
 **Notes
          to Financial Statements**
 **December
          31, 2005 and 2004**
  On
          January 5, 2004, we acquired interests in certain oil and gas leases of the
          Johns Valley, Utah project and the rights to acquire interests in the Weston
          County, Carter Creek, Deer Creek and Gordon Creek Projects, as well as
          to enter
          into the Exploration Services Funding Agreement with Thomasson Partner
          Associates, Inc. of Denver, Colorado, owned by Diamond Oil & Gas
          Corporation, in exchange for 3,500,000 shares of common stock. Initially,
          the
          transaction was deemed to have value of $1,050,000 based on the $0.30 stock
          price at the time the agreement was negotiated. Since determining that
          there
          were conditions precedent to close this transaction, we have restated the
          valuation of these assets and interests to properly account for them under
          the
          guidance of ETIF 98-16.  The transaction is deemed to have value of
          $6,405,000 under this guidance, at the share price on date of acquisition
          of
          $1.83, which was the value of the stock on the date that performance under
          the
          agreement was completed.
  Upon
          applying the criteria of EITF 98-16, the Company increased the valuation
          of its
          oil and gas property acquired by $5,355,000 to $6,405,000 from $1,050,000,
          as
          previously stated.. There was no effect on the Company’s statements of
          operations for the year ended December 31, 2004 or for the period from
          inception
          (November 12, 2003) through December 31, 2004.
  Following
          is the effect of our restatement on our Balance Sheet for the year ended
          December 31, 2004:
  As
                      Previously Reported
                  
                  Adjustment
                  
                  As
                      RestatedOil
                      and gas property
                  
                  $
                  3,688,648
                  
                  $
                  5,355,000
                  
                  $
                  9,043,648Additional
                      paid in capital
                  
                  $
                  (4,201,702
                  )
                  $
                  (5,355,000
                  )
                  $
                  (9,556,702
                  )$
                  -
  
  F-19
   **ITEM
          8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
          DISCLOSURE.**
 
 On
          March
          10, 2006, Fellows Energy, Ltd. (the “Company”) engaged the firm of Mendoza
          Berger & Company, LLP (“Mendoza Berger”) to serve as its independent registered public accountants for
          the fiscal year ending December 31, 2005. On March 9, 2006, the Company
          notified
          Hall and Company, CPAs (“Hall and Company”) that it was terminating Hall and
          Company’s services. The
          decision to change accountants was recommended and approved by the Company’s
          Board of Directors. The Company decided to switch its independent registered
          public accountanting firm because the audit engagement partner it had worked
          with at Hall and Company left to join Mendoza Berger. The Company believes
          this
          partner’s intimate knowledge of its operations from inception merits a
          transition to Mendoza Berger.
 
 During
          the two fiscal years ended December 31, 2003 and 2004, and through March
          9,
          2006, (i) there were no disagreements between the Company and Hall 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 Hall and Company would have caused Hall and Company to
          make
          reference to the matter in its reports on the Company’s financial statements,
          and (ii) except for Hall and Company’s report on the Company's December 31, 2004
          financial statements dated March 29, 2005, except for Note 12, as to which
          the
          date is February 13, 2006, which included an explanatory paragraph wherein
          they
          expressed substantial doubt about the Company's ability to continue as
          a going
          concern, Hall 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, 2004 and 2003 and through March 9, 2006, there were no reportable events
          as
          the term described in Item 304(a)(1)(iv) of Regulation S-B.
 
 During
          the two fiscal years ended December 31, 2004 and 2003 and through March
          9, 2006,
          the Company has not consulted with Mendoza Berger regarding either:
 
 1.
                The
                    application of accounting principles to any specific transaction,
                    either
                    completed or proposed, or the type of audit opinion that might
                    be rendered
                    on the Company’s financial statements, and neither a written report was
                    provided to Mendoza Berger nor oral advice was provided that
                    Mendoza
                    Berger concluded was an important factor considered by the Company
                    in
                    reaching a decision as to the accounting, auditing or financial
                    reporting
                    issue; or
 2.
                Any
                    matter that was either subject of disagreement or event, as defined
                    in
                    Item 304(a)(1)(iv) of Regulation S-B and the related instruction
                    to Item
                    304 of Regulation S-B, or a reportable event, as that term is
                    explained in
                    Item 304(a)(1)(iv) of Regulation S-B.
 
 **ITEM
          8A - CONTROLS AND PROCEDURES**
 
 **a)**
                **Evaluation
                    of Disclosure Controls and Procedures**.
                    As of December 31, 2005, the Company’s management carried out an
                    evaluation, under the supervision of the Company’s Chief Executive Officer
                    and Chief Financial Officer of the effectiveness of the design
                    and
                    operation of the Company’s system of disclosure controls and procedures
                    pursuant to the Securities and Exchange Act, Rule 13a-15(e) and
                    15d-15(e)
                    under the Exchange Act).  Based upon that evaluation, the Chief
                    Executive Officer and Chief Financial Officer concluded that
                    the Company’s
                    disclosure controls and procedures were effective, as of the
                    date of their
                    evaluation, for the purposes of recording, processing, summarizing
                    and
                    timely reporting material information required to be disclosed
                    in reports
                    filed by the Company under the Securities Exchange Act of
                    1934.
 
 **b)**
                **Changes
                    in internal controls**.
                    There were no changes in internal controls over financial reporting
                    that
                    occurred during the period covered by this report that has materially
                    affected, or is likely to materially effect, the Company’s internal
                    control over financial reporting.
  
 F-20
 **ITEM
          8B - OTHER INFORMATION**
 
 None. ****
  F-21
  **ITEM
          9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS.**
 
 **DIRECT** **ORS
          AND EXECUTIVE OFFICERS**
  Name
                Age
                PositionGeorge
                    S. Young
                53
                Chairman,
                    Chief Executive Officer and PresidentSteven
                    L. Prince
                46
                Vice
                    President and Director
  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. Mr. Young currently serves as
          a
          director and president of Palladon Ventures Ltd., a British Columbia corporation
          which trades on the TSX Venture Exchange under the trading symbol PLL.V,
          and is
          an exploration company with properties in Southern Argentina. 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 13 years of operating experience in conventional oil
          and gas
          drilling and in coal bed natural gas drilling and field development. From
          2003
          to the present, Mr. Price has been a Senior Petroleum Engineer for the
          Navajo
          Indian Nation. From 2001 to 2003, Mr. Price was an Operations Manager with
          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 with
          Shell
          Western Exploration & Production; Operations Manager and Engineering Manager
          with River Gas Corporation. Mr. Prince is a member of the Society of
          Petroleum Engineers and the Rocky Mountain Association of Geologists. Mr.
          Prince
          received his B.S. in Petroleum Engineering from Montana College of Mining,
          Science and Technology in 1987.
 
  F-22
  **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 2005, 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-KSB.
  **Audit
          Committee Financial Expert**
  We
          do not
          yet have an audit committee financial expert serving on our audit committee
          because we have been focusing our efforts on our new operational direction
          in
          the oil and gas business.
   F-23
  **ITEM
          10. EXECUTIVE COMPENSATION.**
 
 The
          following tables set forth certain information regarding our CEO and each
          of our
          most highly-compensated executive officers whose total annual salary and
          bonus
          for the fiscal years ending December 31, 2005, 2004 and 2003 exceeded $100,000:
 
 SUMMARY
                    COMPENSATION TABLEANNUAL
                    COMPENSATIONOther
                    Annual
                
                Restricted
                
                Options
                
                LTIP
                
                All
                    OtherName
                    & Principal
                
                
                
                Salary
                
                Bonus
                
                Compensation
                
                Stock
                
                SARs
                
                Payouts
                
                CompensationPosition
                
                Year
                
                ($)
                
                ($)
                
                ($)
                
                Awards
                    ($)
                
                (#)
                
                ($)George
                    S. Young (1)
                
                
                2005
                
                
                120,000
                
                
                2,000
                
                
                0
                
                
                -
                
                
                1200,000
                
                
                -
                
                
                -President
                    and Chief
                
                
                2004
                
                
                76,000
                
                
                0
                
                
                0
                
                
                -
                
                
                200,000
                
                
                -
                
                
                -Executive
                    Officer
                
                
                2003
                
                
                0
                
                
                0
                
                
                0
                
                
                -
                
                
                -
                
                
                -
                
                
                -Jack
                    Muellerleile (2)
                
                
                2005
                
                
                0
                
                
                0
                
                
                0
                
                
                -
                
                
                -
                
                
                -
                
                
                -President
                
                
                2004
                
                
                0
                
                
                0
                
                
                0
                
                
                -
                
                
                -
                
                
                -
                
                
                -2003
                
                
                0
                
                
                0
                
                
                0
                
                
                -
                
                
                -
                
                
                -
                
                
                -
  (1)
          Mr.
          Young was appointed President and Chief Executive Officer on January 4,
          2004.
 (2)
          Mr.
          Muellerleile was our President until January 4, 2004.
 
 **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.
 .
 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.
 
  F-24
  **Option/Stock
          Appreciation Right Grants in 2005**
 **Individual
          Grants**
 
 **Name**
                
                **Number of Securities**
                  **Underlying
                    Options**
                  **Granted**
                
                **%
                    of Total Options**
                  **Granted to Employees**
                  **In
                    2005**
                
                **Exercise**
                  **Price**
                  **Per Share**
                
                **Expiration**
                  **Date****(a)**
                
                
                **(b)**
                
                
                **(c)**
                
                
                **(d)**
                
                
                **(e)**George
                    S. Young
                
                
                100,000(1
                )
                
                16
                %
                $
                0.80
                
                
                October
                    3, 2015
  (1)  The
          options vested on April 3, 2006
  **Aggregate
          Option/SAR Exercises in 2005 and December 31, 2005 Option Values**
 
 **Name**
                
                **Shares Acquired**
                  **on
                    Exercise**
                
                **Value**
                  **Realized**
                
                **Number of Securities**
                  **Underlying Unexercised**
                  **Options
                    at 12-31-05**
                  **Exercisable/Unexercisable**
                
                **Value of Unexercised**
                  **In-the Money Options**
                  **At
                    12-31-05**
                  **Exercisable/Unexercisable****(a)**
                
                
                **(b)**
                
                
                **(c)**
                
                
                **(d)**
                
                
                **(e)**George
                    S. Young
                
                
                None
                
                
                None
                
                
                200,000/100,000
                
                
                -
 
 
 **Equity
          Compensation Plan Information**
 
 **Number
                    of**
                  **securities to be**
                  **issued
                    upon**
                  **exercise
                    of**
                  **outstanding**
                  **options, warrants**
                  **and
                    rights**
                  **(a)**
                
                **Weighted-**
                  **average exercise**
                  **price
                    of**
                  **outstanding**
                  **options,**
                  **warrants
                    and**
                  **rights**
                  **(b)**
                
                **Number
                    of**
                  **securities**
                  **remaining**
                  **available for future**
                  **issuance
                    under**
                  **equity**
                  **compensation**
                  **plans
                    (excluding**
                  **securities
                    reflected**
                  **in
                    column (a))**
                  **(c)**Equity
                    compensation plans approved by security holders
                
                
                1,100,000
                
                $
                0.80
                
                
                900,000Equity
                    compensation plans not approved by security holders
                
                
                0
                
                
                0
                
                
                0Total
                
                
                1,100,000
                
                $
                0.80
                
                
                900,000
 
  F-25
  **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 14, 2006
  ·  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 ADRESS
                
                NUMBER
                    OF
                
                
                PERCENTAGE
                    OFOF
                    OWNER
                TITLE
                    OF CLASS
                SHARES
                    OWNED (1)
                
                
                CLASS
                    (2)George
                    S. Young
                Common
                    Stock
                3,800,000
                (3)
                
                6.77%370
                    Interlocken Blvd., Suite 400Broomfield,
                    CO  80021Steven
                    L. Prince
                Common
                    Stock
                300,000
                (4)
                
                *370
                    Interlocken Blvd., Suite 400Broomfield,
                    CO  80021All
                    Officers and Directors
                Common
                    Stock
                4,100,000
                (3)
                (4)
                7.27%As a
                    Group (2 persons)Diamond
                    Oil & Gas  Corp. (6)
                Common
                    Stock
                3,500,000
                
                
                6.27%370
                    Interlocken Blvd., Suite 400Broomfield,
                    CO  80021
  (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 14, 2006 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 55,810,777 shares of common stock outstanding as of
          April
          14, 2006.
 
 (3)
          Includes 300,000 shares issuable pursuant to options and 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.
 
 (4)
          Includes 300,000 shares issuable pursuant to options.
 
 (5)
          Mr.
          Young, our Chairman, Chief Executive Officer, President and a Director,
          is the
          sole owner of Diamond Oil & Gas Corporation and therefore has voting and
          investment control over the shares owned.
   F-26
  **Remuneration
          of Directors**
 
 None.
 
 **Employment
          Agreement s**
 
 None.
 
   F-27
  **ITEM
          12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**
 
 Other
          than as disclosed below, 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.
 
 Prior
          to
          Mr. Young’s becoming our CEO, Diamond Oil & Gas Corporation, a Nevada
          corporation, of which Mr. Young is the sole officer, director and shareholder,
          entered into an agreement dated December 8, 2003 with us to sell us interests
          in
          certain oil and gas leases and other assets in exchange for 3,500,000 shares
          of
          our common stock. The transaction was valued at $1.05 million. See Item
          1,
          Description of Business, Business in our December 31, 2004, Form 10-KSB
          filed
          March 31, 2005. The transaction closed on January 5, 2004.
 
 Over
          the
          period May through October 2004, we borrowed $741,000 on an unsecured 8%
          demand
          note payable to an entity controlled by our CEO, Mr. Young. In December
          2004, we
          paid $684,621 of principal on the note plus $25,681 of interest. On December
          31,
          2004, the balance on the note was $56,379.
 
  F-28




**ITEM
        13. EXHIBITS.**
 
 Exhibit
                  No.
              Description
 
 3.1
              Articles
                  of Incorporation, filed as an exhivit to the registration statement
                  on
                  Form SB-2 filed with the Securities and Exchange Commission (tjhe
                  "Commission") on Aufust 10, 2001, and incorporated herein by
                  reference.
 
 3.2
              Certificate
                  of Amendment to Articles of Incorporation, filed as an exhibit
                  to the
                  amended annual report on Form 10-KSB/A filed with the Commission
                  on May 2,
                  2005, and incorporated herein by
                  reference.
 
 3.3
              Bylaws,
                  filed as an exhibit to the registration statement on Form SB-2
                  filed with
                  the Commission on August 10, 2001, and incorporated herein by
                  reference.
 
 4.1
              Form
                  of Convertible Debenture issued by Fellows Energy, Ltd., dated
                  June 4,
                  2004, filed as an exhibit to the current report on Form 8-K filed
                  with the
                  Commission on June 17, 2004, and incorporated herein by
                  reference.
 
 4.2
              Form
                  of Warrant to Purchase Common Stock of Fellows Energy, Ltd., dated
                  June 4,
                  2004, filed as an exhibit to the current report on Form 8-K filed
                  with the
                  Commission on June 17, 2004, and incorporated herein by
                  reference.
 
 4.3
              Form
                  of Security Agreement of Fellows Energy, Ltd., dated June 4, 2004,
                  filed
                  as an exhibit to the current report on Form 8-K filed with the
                  Commission
                  on June 17, 2004, and incorporated herein by
                  reference.
 
 4.4
              Form
                  of Warrant to Purchase Common Stock of Fellows Energy Ltd. dated
                  May 18,
                  2005, filed as an exhibit to the quarterly report on Form 10-QSB
                  filed
                  with the Commission on May 23, 2005, and incorporated herein by
                  reference.
 
 4.5
              Form
                  of Registration Rights Agreement dated May 18, 2005, filed as an
                  exhibit
                  to the quarterly report on Form 10-QSB filed with the Commission
                  on May
                  23, 2005, and incorporated herein by
                  reference.
  4.6
              Form
                  of Subscription Agreement dated May 18, 2005, filed as an exhibit
                  to the
                  registration statement on Form SB-2 filed with the Commission on
                  August
                  10, 2005, and incorporated herein by
                  reference.
 
 4.7
              Form
                  of Securities Purchase Agreement of Fellows Energy Ltd. dated June
                  17,
                  2005, filed as an exhibit to the registration statement on Form
                  SB-2 filed
                  with the Commission on August 10, 2005, and incorporated herein
                  by
                  reference.
 
 4.8
              Form
                  of Debenture issued by the Company, dated June 17, 2005, filed
                  as an
                  exhibit to the registration statement on Form SB-2 filed with the
                  Commission on August 10, 2005, and incorporated herein by
                  reference.
 
 4.9
              Form
                  of Warrant to purchase Common Stock of the Company, dated June
                  17, 2005,
                  filed as an exhibit to the registration statement on Form SB-2
                  filed with
                  the Commission on August 10, 2005, and incorporated herein by
                  reference.
   F-29
   
 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
 
 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.
    F-30
  
 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
              Consultant
                  Agreement, dated February 1, 2005, between Fellows Energy, Ltd.
                  and
                  CEOCast, Inc., filed as an exhibit to the amended annual report
                  on Form
                  10-KSB/A filed with the Commission on May 2, 2005, and incorporated
                  herein
                  by reference.
 
 10.12
              Consultant
                  Agreement, dated August 1, 2004, between Fellows Energy, Ltd. and
                  CEOCast,
                  Inc., filed as an exhibit to the amended annual report on Form
                  10-KSB/A
                  filed with the Commission on May 2, 2005, and incorporated herein
                  by
                  reference.
 
 10.13
              Letter
                  Agreement, dated December 1, 2004, between Fellows Energy, Ltd.
                  and Axiom
                  Capital Management, Inc., filed as an exhibit to the amended annual
                  report
                  on Form 10-KSB/A filed with the Commission on May 2, 2005, and
                  incorporated herein by reference.
 
 10.14
              Carter
                  Creek Project Purchase Agreement, dated January 9, 2004, between
                  Thomasson
                  Partner Associates, Inc. and Fellows Energy Ltd., filed as an exhibit
                  to
                  the registration statement on Form SB-2 filed with the Commission
                  on
                  October 6, 2005, and incorporated herein by
                  reference.
 
 10.15
              Letter
                  Agreement regarding Bacaroo Project, dated April 14, 2004, between
                  Thomasson Partner Associates, Inc. and Fellows Energy Ltd., filed
                  as an
                  exhibit to the registration statement on Form SB-2 filed with the
                  Commission on October 6, 2005, and incorporated herein by
                  reference.
 
 10.16
              Note
                  between Deseado, LLC and Fellows Energy Ltd., dated September 24,
                  2004,
                  filed as an exhibit to the amended annual report on Form 10-KSB/A
                  filed
                  with the Commission on May 2, 2005, and incorporated herein by
                  reference.
 
 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)
 
  37
 F-31
  **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**
 
 **Audit
        Fees**
  As
        of
        December 31, 2005, Hall & Company, registered independent public accountants
        (“Hall & Company”) was our principal independent accountant and has examined
        our financial statements for each of the last two years. The aggregate fees
        billed for each of the last two fiscal years total $105,823 for professional
        services rendered by the principal independent accountant for the audit of
        our
        annual financial statements, review of financial statements included in our
        10-QSB, and services that are normally provided by the accountant in connection
        with statutory and regulatory filings or engagements. As of March 10, 2006,
        we
        engaged the firm of Mendoza Berger & Company, LLP (“Mendoza Berger”) to
        serve as our independent registered public accountants for the fiscal year
        ending December 31, 2005.
  **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 $5,263
        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 2004 and
        2005. The engagement of Mendoza Berger and Company was approved by our board
        of
        directors.
 
 
  F-32
  **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:
                    October 19, 2006
                By:
                /s/ GEORGE
                  S.
                  YOUNGGeorge
                    S. YoungChief
                    Executive Officer (Principal Executive Officer), Chief Financial
                    Officer
                    (Principal Financial Officer and Principal Accounting 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
                  
                  
                  Date/s/
                      GEORGE S. YOUNG
                    
                    George
                      S. Young
                  
                  
                  Chief
                      Executive Officer (Principal Executive Officer), Chief Financial
                      Officer
                      (Principal Financial Officer and Principal Accounting Officer),
                      President
                      and Chairman of the Board
                  
                  
                  October
                      19, 2006/s/
                      STEVEN L. PRINCE
                    
                    Steven
                      L. Prince
                  
                  
                  Director
                  
                  
                  October
                      19, 2006