UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

         [xx] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934 FOR THE TRANSITION
                            PERIOD FROM ____ TO ____

                        Commission file Number: 000-33499

                               FIDELIS ENERGY INC.
                 (Name of small business issuer in its charter)
                                     Nevada
         (State or other jurisdiction of incorporation or organization)

                                   16-1599721
                     (I.R.S. Employer Identification Number)

            9595 Wilshire Blvd., Suite 900, Beverly Hills, CA, 90212
                    (Address of principal executive offices)
                                 (310) 300-4062
                           (Issuer's telephone number)

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

Securities registered under Section 12(g) of the Exchange Act: Common Shares

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of Issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.
[X]

Total revenues for fiscal year ended December 31, 2006: $1,971,262

At December 31, 2006,  the aggregate  market value of the voting and  non-voting
stock held by  non-affiliates  of the registrant was  approximately  $ 3,748,491
based on the closing  trade  reported on the OTC BB. Shares of common stock held
by each officer and director and by each person who owns five percent or more of
the  outstanding  common stock have been excluded from this  calculation as such
person may be  considered  to be  affiliated  with the Company.  As of March 15,
2007,  the number of shares  outstanding  of the  registrant's  Common Stock was
166,834,354 including 54,000,000 of treasury stock issued on November 17, 2005.

Transitional Small Business Disclosure Format (Check one):  Yes ____; No __X__


<PAGE>



                                TABLE OF CONTENTS




PART I   1

Item 1.  Business                                                              1

Item 1a.  Risk Factors                                                         1

Item 2.  Properties                                                            8

Item 3.  Legal Proceedings                                                    12

Item 4.  Submission of Matters to a Vote of Security Holders                  12

PART II  12

Item 5. Market for Registrant's Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities                             12

Item 6.  Selected Financial Data                                              13

Item 7. Management's discussion and analysis of Financial
Condition and Results of Operations                                           14

Item 7A. Quantitative and Qualitative Disclosures about market risk           23

Item 8.  Financial Statements                                                 24

Item 9.  Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure                                           24

Item 9A.  Controls and Procedures                                             24

PART III 24

Item 10.  Directors and Executive Officers of the Registrant.                 24

Item 11. Executive Compensation                                               27

Item 12.  Security Ownership of Certain Beneficial owners and Management      29

Item 13.  Certain  Relationships and Related Transactions                     29

Item 14.  Principal Accounting Fees and Services                              30

PART IV  31

Item 15. Exhibits and Reports on 8-K                                          31








<PAGE>

PART I

ITEM 1.  BUSINESS

COMPANY HISTORY

Fidelis Energy Inc. ("Fidelis" or "the Company") was incorporated under the laws
of the State of Nevada on November 6, 2000. The Company was originally formed to
engage primarily in the business of providing comparative automobile information
via the Internet and printed  materials.  The Company was not  successful in its
plans and during the 2nd quarter of 2003 changed the business plan.

The Company is in the oil and gas industry.  The Company's  primary objective is
to  identify,  acquire  and develop  working  interest  percentages  in smaller,
underdeveloped oil and gas projects in California,  Texas and Canada that do not
fit the  portfolio  requirements  of the larger  producers and  developers.  The
Company intends to acquire smaller,  underdeveloped  working interests,  royalty
interests and/or producers,  often under control of small family-owned operators
who are  interested  in selling  out.  Through  analyzing  information  obtained
through  modern  development  techniques  such as  horizontal  drilling  and 3-D
seismic,  production from these under developed and under utilized  projects can
often be  increased.  The  Company  acquires  projects  following  positive  due
diligence examinations.

ITEM 1A.  RISK FACTORS

GENERAL RISK FACTORS

WE WILL NOT BE ABLE TO DEVELOP OUR  PROPERTIES  OR MAKE  ACQUISITIONS  IF WE ARE
UNABLE TO GENERATE SUFFICIENT CASH FLOW OR RAISE CAPITAL.

We will be  required to make  substantial  capital  expenditures  to develop our
existing  reserves and to discover new oil and gas  reserves.  Historically,  we
have financed these  expenditures  primarily with proceeds from the sale of debt
and equity  securities.  As of  December  31,  2006,  we had cash on hand in the
amount of $5,917.  These funds are not  sufficient  to meet our  obligations  in
connection with the oil and gas  exploration  and development  interests that we
have  purchased.  In order to meet these  obligations  or acquire any additional
business  interest,  we will have to raise additional funds. We also make offers
to  acquire  oil and  natural  gas  properties  in the  ordinary  course  of our
business.  If  these  offers  are  accepted,  our  capital  needs  may  increase
substantially.

We have  arrangements for limited financing and we can provide no assurance that
we will be able  to  obtain  the  additional  required  financing  when  needed.
Obtaining additional  financing will be subject to a number of factors,  such as
market conditions, investor acceptance of potential business assets and investor
sentiment.  These factors may make the timing,  amount,  terms and conditions of
additional financing unattractive or unavailable to us. If we are not successful
in achieving  financing in the amount necessary to meet our present  obligations
in connection  with the oil and gas interests  that we have acquired or business
interests that we may acquire,  implementation  of our business plan may fail or
be delayed.

WE DO NOT CONTROL ALL OF OUR OPERATIONS

We do not operate any of our properties and we therefore have limited  influence
over the testing, drilling and production operations of our properties. Our lack
of control could result in the following:

1.                  the operator  initiating  exploration  or  development  on a
                    faster or slower pace than we prefer;

2.                  the  operator  proposing  to drill  more wells or build more
                    facilities  on a project  than we have  funds for or that we
                    deem  appropriate,  which  could  mean that we are unable to
                    participate   in  the  project  or  share  in  the  revenues


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<PAGE>

                    generated  by the  project  even though we paid our share of
                    exploration  costs,  and we could have our working  interest
                    ownership  in  the  related  lands  and  petroleum  reserves
                    reduced  as a  result  of  our  failure  to  participate  in
                    development expenditures; and;

3.                  losses from an operator  refusing to initiate a project on a
                    timely basis.

Any of these events could materially reduce the value of our properties.


WE MAY NOT BE ABLE TO FINANCE FUTURE NEEDS OR ADAPT OUR BUSINESS PLAN TO CHANGES
BECAUSE OF RESTRICTIONS PLACED ON US BY THE INSTRUMENTS GOVERNING OUR DEBT.

Our agreements  with the selling  stockholders  who purchased our senior secured
convertible  promissory  notes contain various  covenants that limit our ability
to, among other things:

1.                  pay dividends on our common stock,  redeem or repurchase our
                    common stock or other equity security;

2.                  sell assets; and

3.                  issue any  securities  that rank pari passu or senior to the
                    senior secured  convertible  promissory notes that we issued
                    to the selling stockholders.

Our ability to comply with such  covenants  may be affected by events beyond our
control,  including  prevailing  economic,  financial  and industry  conditions.
Additionally,  our agreements  with the selling  stockholders  contain  numerous
affirmative covenants,  including covenants regarding reporting requirements and
compliance with applicable laws and regulations. Additional debt we incur in the
future may subject us to future covenants.

Our failure to comply with these  covenants  could result in a default under the
agreements governing the relevant debt. In addition,  if any such default is not
cured or waived, the default could result in an acceleration of debt under other
debt  instruments that contain cross  acceleration or cross-default  provisions,
which  could  require us to repay or  repurchase  debt,  together  with  accrued
interest,  prior to the date it otherwise is due and that could adversely affect
our  financial  condition.  If a default  occurs  under the notes,  the  selling
stockholders could cause all of the outstanding debt obligations under the notes
to  become  due and  payable.  Upon a  default  or  cross-default,  the  selling
stockholders could proceed against the collateral. Even if we are able to comply
with all of the applicable covenants,  the restrictions on our ability to manage
our  business in our sole  discretion  could  adversely  affect our business by,
among other  things,  limiting  our  ability to take  advantage  of  financings,
mergers, acquisitions and other corporate opportunities that we believe would be
beneficial to us.



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<PAGE>

IF WE ARE  UNABLE TO ACCESS OUR  PROPERTIES  OR CONDUCT  OUR  OPERATIONS  DUE TO
SURFACE CONDITIONS, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

Our  exploitation  and development of oil and natural gas reserves  depends upon
access to the areas  where our  operations  are to be  conducted.  We  conduct a
portion of our operations in northern regions where we are only able to do so on
a seasonal basis.  Unless the surface is sufficiently  frozen,  we are unable to
access our properties,  drill or otherwise conduct our operations as planned. In
addition,  if the  surface  thaws  earlier  than  expected,  we must  cease  our
operations for the season  earlier than planned.  Our operations are affected by
road bans  imposed  from time to time during the break-up and thaw period in the
spring.  Road bans are also imposed due to snow, mud and rock slides and periods
of high  water,  which  can  restrict  access to our well  sites and  production
facility  sites. In recent years,  winters in our northern  operating areas have
been warmer than normally  experienced and, as a result,  our operating  seasons
have been shorter than in the past. Our inability to access our properties or to
conduct our  operations as planned will result in a shutdown or slow down of our
operations, which will adversely affect our business.

IF WE ARE NOT ABLE TO EFFECTIVELY  MANAGE OUR ANTICIPATED  EXPANSION AND GROWTH,
OUR BUSINESS AND FINANCIAL CONDITION WILL BE NEGATIVELY AFFECTED.

We have  recently  expanded our business  operations.  Any future  growth in our
business may place significant  strain on our limited managerial and operational
resources.  We  cannot  assure  you that we will be able to  implement  adequate
controls over the risks associated with our planned expansion.  If we are unable
to effectively  manage expanded  operations,  our revenues may not  concurrently
increase  with rising costs of  operations  and our business  will be negatively
affected.

OUR COMPLIANCE WITH THE  SARBANES-OXLEY  ACT AND SEC RULES  CONCERNING  INTERNAL
CONTROLS MAY BE TIME CONSUMING, DIFFICULT AND COSTLY FOR US.

It may be time  consuming,  difficult and costly for us to develop and implement
the internal controls and reporting  procedures  required by the  Sarbanes-Oxley
Act. We may need to hire additional financial  reporting,  internal controls and
other  finance  staff in order to develop  and  implement  appropriate  internal
controls and reporting procedures.  If we are unable to comply with the internal
controls  requirements of the  Sarbanes-Oxley  Act, we may not be able to obtain
the independent  accountant  certifications that the Sarbanes-Oxley Act requires
publicly-traded companies to obtain.

RISKS RELATED TO OUR INDUSTRY

OIL AND NATURAL GAS PRICES ARE VOLATILE AND LOW PRICES WILL ADVERSELY AFFECT OUR
BUSINESS.

Fluctuations  in the prices of oil and natural  gas will affect many  aspects of
our business, including:

1.       revenues, cash flow and earnings;

2.       ability to attract capital to finance our operations;

3.       cost of capital; and

4.       the value of our oil and natural gas properties.

Both  oil and  natural  gas  prices  are  extremely  volatile.  Oil  prices  are
determined  by  international   supply  and  demand.   Political   developments,
compliance or  non-compliance  with self-imposed  quotas, or agreements  between
members of the  Organization of Petroleum  Exporting  Countries can affect world
oil supply and  prices.  Prices  obtained  for our natural  gas  production  are
determined by supply and demand factors within North America.

Any material  decline in prices  could  result in a reduction  of our  potential
revenue and our overall value.  The economics of producing from some wells could
change as a result of lower prices.  As a result,  we could elect not to produce
from certain wells.

YOU SHOULD NOT UNDULY RELY ON RESERVE  INFORMATION  BECAUSE RESERVE  INFORMATION
REPRESENTS ESTIMATES.

Estimates  of oil and natural gas reserves  involve a great deal of  uncertainty
because they depend in large part upon the reliability of available geologic and
engineering data, which is inherently  imprecise.  Geologic and engineering data
are used to determine  the  probability  that a reservoir of oil and natural gas
exists at a particular location, and whether oil and natural gas are recoverable
from a reservoir.  Recoverability is ultimately  subject to the accuracy of data
regarding, among other factors:

1.       geological characteristics of the reservoir structure;



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<PAGE>

2. reservoir fluid properties;

3. the size and boundaries of the drainage area; and

4. reservoir pressure and the anticipated rate of pressure depletion.

The evaluation of these and other factors is based upon available  seismic data,
computer modelling,  well tests and information  obtained from production of oil
and natural gas from adjacent or similar properties,  but the probability of the
existence and recoverability of reserves is less than 100% and actual recoveries
of proved reserves usually differ from estimates.

Estimates of oil and natural gas  reserves  also  require  numerous  assumptions
relating to operating conditions and economic factors, including, among others:

1.       the price at which recovered oil and natural gas can be sold;

2.       the costs associated with recovering oil and natural gas;

3.       the prevailing  environmental  conditions  associated with drilling and
         production sites;

4.       the availability of enhanced recovery techniques;

5.       the ability to transport oil and natural gas to markets; and

6.       governmental   and  other  regulatory   factors,   such  as  taxes  and
         environmental laws.

A change in any one or more of these factors could result in known quantities of
oil  and  natural  gas  previously   estimated  as  proved   reserves   becoming
unrecoverable.  For example, a decline in the market price of oil or natural gas
to an amount  that is less than the cost of recovery of such oil and natural gas
in  a  particular   location   could  make   production   thereof   commercially
impracticable.  The risk  that a decline  in price  could  have  that  effect is
magnified  in  the  case  of  reserves  requiring   sophisticated  or  expensive
production  enhancement  technology and  equipment,  such as some types of heavy
oil. Each of these factors,  by having an impact on the cost of recovery and the
rate of  production,  will also affect the present value of future net cash flow
from estimated reserves.

In addition,  estimates of reserves and future net cash flows expected from them
prepared  by  different  independent  engineers  or by  the  same  engineers  at
different times, may vary substantially.

DRILLING  AND  OTHER  CAPITAL  ACTIVITIES  ARE  SUBJECT  TO MANY  RISKS  AND ANY
INTERRUPTION OR LACK OF SUCCESS IN OUR DRILLING ACTIVITIES WILL ADVERSELY AFFECT
OUR BUSINESS.

Drilling  activities  are  subject  to many  risks,  including  the risk that no
commercially productive reservoirs will be encountered.  New wells that we drill
may  not be  productive  or we  may  not  recover  all  or  any  portion  of our
investment. Drilling for oil and natural gas could involve unprofitable efforts,
not only from dry wells,  but from wells that are  productive but do not produce
enough net revenue to return a profit after drilling, operating and other costs.
The cost of drilling,  completing and operating  wells is often  uncertain.  Our
drilling,  completion,  well  workover and  pipeline  and facility  construction
operations  could be  curtailed,  delayed or  cancelled  as a result of numerous
factors, many of which are beyond our control, including:

1.       adverse weather conditions;

2.       compliance with governmental regulations; and



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<PAGE>

3.       mechanical  difficulties  or  shortages  or delays in the  delivery  of
         equipment and services.

OUR  OPERATIONS  ARE AFFECTED BY  OPERATING  HAZARDS AND  UNINSURED  RISKS AND A
SHUTDOWN OR SLOWDOWN OF OUR OPERATIONS WILL ADVERSELY AFFECT OUR BUSINESS.

There are many  operating  hazards in drilling for and producing oil and natural
gas, including:

1.       encountering unexpected formations or pressures that could cause damage
         to equipment or personal injury;

2.       blowouts,  accidents,  oil spills, fires or other damage to a well that
         could require us to redrill it or take other corrective action;

3.       equipment failures that curtail or stop production; and

4.       poor weather that interrupts drilling operations.

Any of these events could result in damage to or  destruction of oil and natural
gas wells,  production  facilities or other property,  or injury to persons.  In
addition,  any of the  above  events  could  result in  environmental  damage or
personal  injury for which we will be liable.  The  occurrence  of a significant
event  not  fully  insured  or  indemnified  against  could  seriously  harm our
financial condition and operating results.

OUR BUSINESS IS SUBJECT TO ENVIRONMENTAL AND OTHER GOVERNMENT LAWS AND
REGULATIONS IN ALL  JURISDICTIONS  IN WHICH WE OPERATE AND OUR  COMPLIANCE  WITH
SUCH  REGULATIONS  COULD BE COSTLY AND COULD  NEGATIVELY  IMPACT OUR  RESULTS OF
OPERATIONS AND PRODUCTION.

Our operations  are governed by numerous U.S. laws and  regulations at the state
and  federal  levels.  These  laws and  regulations  govern  the  operation  and
maintenance of our  facilities,  the discharge of materials into the environment
and other  environmental  protection issues. The laws and regulations may, among
other potential consequences:

1.       require that we acquire permits before commencing drilling;

3.       limit or prohibit  drilling  activities  on  protected  areas,  such as
         wetlands or wilderness areas;

4.       require that  reclamation  measures be taken to prevent  pollution from
         former operations;

5.       require remedial measures to mitigate pollution from former operations,
         such as plugging abandoned wells and remediating  contaminated soil and
         groundwater; and

6.       require remedial measures be taken with respect to property  designated
         as a contaminated site, for which we are a responsible person.

Under  these  laws and  regulations,  we could be liable  for  personal  injury,
clean-up  costs  and  other  environmental  and  property  damages,  as  well as
administrative,  civil and criminal penalties.  We do not believe that insurance
coverage for the full potential liability of environmental  damages is available
at a reasonable cost.  Accordingly,  we could be liable, or could be required to
cease production on properties, if environmental damage exists or occurs.



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<PAGE>

The costs of complying with environmental laws and regulations in the future may
have that kind of  effect.  Furthermore,  changes  could  occur  that  result in
stricter  standards and enforcement,  larger fines and liability,  and increased
capital  expenditures  and operating  costs,  any of which could have a material
adverse effect on our financial condition or results of operations.

ESSENTIAL EQUIPMENT MIGHT NOT BE AVAILABLE.

Oil and natural gas  exploitation  and  development  activities  depend upon the
availability  of drilling and related  equipment in the  particular  areas where
those  activities  will be  conducted.  Demand  for  that  equipment  or  access
restrictions  may affect the  availability of that equipment to us and delay our
exploitation and development activities.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.

The oil and natural gas industry is highly competitive.  Our competitors include
companies and other entities that have greater financial and personnel resources
than we do.  Our  ability  to  acquire  additional  properties  and to  discover
reserves in the future depends upon our ability to evaluate and select  suitable
properties and to complete transactions in a highly competitive environment.

RISKS RELATED TO OUR CAPITAL STRUCTURE

INSIDERS  HAVE  SUBSTANTIAL  CONTROL  OVER US, AND THEY COULD DELAY OR PREVENT A
CHANGE IN OUR  CORPORATE  CONTROL  EVEN IF OUR OTHER  STOCKHOLDERS  WANTED IT TO
OCCUR.

Our executive  officers,  directors,  and principal  stockholders who hold 5% or
more of the outstanding common stock and their affiliates  beneficially owned as
of December 31, 2006, in the  aggregate,  approximately  25% of our  outstanding
common stock.  These stockholders will be able to exercise  significant  control
over all matters  requiring  stockholder  approval,  including  the  election of
directors and approval of significant corporate  transactions.  This could delay
or prevent an outside party from  acquiring or merging with us even if our other
stockholders wanted it to occur.

THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.

The market  price of our common  stock has been and will  likely  continue to be
highly  volatile,  as is the stock  market in  general,  and the  market for OTC
Bulletin  Board  quoted  stocks  in  particular.  Some of the  factors  that may
materially  affect the market  price of our common stock are beyond our control,
such as changes in  financial  estimates by industry  and  securities  analysts,
conditions or trends in the oil and gas  industries,  announcements  made by our
competitors or sales of our common stock. These factors may materially adversely
affect the market price of our common stock, regardless of our performance.

In addition, the public stock markets have experienced extreme price and trading
volume volatility.  This volatility has significantly affected the market prices
of  securities  of  many  companies  for  reasons  frequently  unrelated  to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of our common stock.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

Sales of a substantial number of shares of our common stock in the public market
could cause a decrease in the market price of our common stock.  At December 31,
2006, we had 166,834,354 shares of common stock  outstanding.  Substantially all
of our  outstanding  shares either are eligible for resale to the public without
restriction  pursuant  to Rule 144(k) or are  eligible  for resale to the public
pursuant to Rule 144. Warrants or other rights to purchase  12,646,380 shares of


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<PAGE>

our  common  stock  were  outstanding.  In  addition,  an  aggregate  $2,500,000
principal  amount  of  secured  convertible  debentures  are  outstanding.   The
outstanding   principal  amount  of  the  secured   convertible   debentures  is
convertible into shares of our common stock based on a conversion price equal to
the  lesser of $0.2708 or 80% of the  trading  price of our common  stock on the
date of conversion.  We may also issue additional shares of stock and securities
convertible into or exercisable for stock in connection with our business.  If a
significant  portion of these shares were sold in the public market,  the market
value of our common stock could be adversely affected.

IF WE FAIL TO REMAIN CURRENT IN 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  Exchange  Act,  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  SECURITIES  AND
EXCHANGE  COMMISSION 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:

1.       that a broker or dealer approve a person's  account for transactions in
         penny stocks; and

2.       the 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:

1.       obtain financial  information and investment  experience  objectives of
         the person; and

2.       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:

1.       sets forth the basis on which the broker or dealer made the suitability
         determination; and

2.       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.

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<PAGE>

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.  PROPERTIES

The  executive  offices of the Company are located at 9595 Wishire  Blvd.,  Ste.
900,  Beverly Hills,  CA  90212-2509.  The Company  currently  rents this shared
office facility on a month-to-month basis for $2,400 per month for all services.
This  arrangement  began on January 1, 2006.  On  December  1, 2006 the  company
entered  into a  Business  Identity  Plan  (BIP)  for $300 per month at the same
address. The telephone number at this address is (310) 300-4062.

DESCRIPTION OF PROPERTIES

COMANCHE POINT PROSPECT - CALIFORNIA -HEAVY OIL

On  March  16,  2004,  the  Company  entered  into  a  purchase   agreement  for
participation  and acquisition of an 80% working  interest in the Comanche Point
Producing  Company,  Tejon Lease on 400 acres for lands in Sections 28,29,32 and
33, R18W, S.B.B.M, Kern County, California.

Under the terms of the Agreement,  Fidelis paid $305,000 and a further  $200,000
thereafter to commence implementation of the pilot study. Following full payback
of the Company's investment, the Company' partner will increase to a 30% working
interest as the Company  decreases to a 70% interest.  Both partners are subject
only to a 12.5%  royalty to Tejon Ranch on the  production.  The Company,  along
with its working  partner  implemented a steam-flood  extraction  pilot study in
mid-September,  2004, to determine viability of extraction with this method. The
steam-flood  extraction pilot project of existing  production wells should allow
Fidelis to analyze the daily oil production  rates from each well. We anticipate
a  significant  increase  to  the  production  at  Comanche.   At  the  time  of
implementation the field was producing 12-15 barrels per day. As at December 31,
2004,  the field is  producing  an  estimated 45 to 50 barrels per day after the
fully completed steam flooding of 2 wells.  Accurate  projections of income from
the  effects  of the steam  flood  are  unavailable  until  the  pilot  study is
complete. Development of this property is continuing.

On  March 1 2006,  we  sold  our 80%  working  interest  in the  Comanche  Point
Property,  Tejon Lease of 400 acres for lands in Sections 28,29,32 and 33, R18W,
S.B.B.M, Kern County, California for $360,000.

The Company, along with the working partner implemented a steam-flood extraction
pilot study in 2005 to determine  viability of extraction  with this method.  At
the time of implementation the field was producing 12-15 barrels per day. Due to
higher than expected costs of production,  unanticipated  expenses regarding the
steam-flood  equipment and the resultant  lower than expected  daily  production
rates from the steam flooded  wells,  it was  determined  that the Company would
accept a purchase offer on the project and Comanche Point was subsequently  sold
to the operator.

HIDALGO PROSPECT- TEXAS-NATURAL GAS

On January 28,  2005,  the Company  executed a Lease  Purchase  and  Development
Agreement  and Joint  Operating  Agreement  with  Miramar  Petroleum,  Inc. on a
farm-in with Miramar on the "Southeast Hidalgo Prospect,  Hidalgo County Texas".
The Hidalgo  Field was  discovered  in 1946 by The Texas  Company's #1 El Texano
Land Company well. As gas markets became available,  numerous wells were drilled
to develop the field.  The Hidalgo Field  produces gas from depths of 6,200 feet
to 8,100 feet. Texaco was the major operator in the field until the late 1980's.
Presently  Miramar  Petroleum  Inc., PI Energy and Discorbis Oil Company are the
companies   active  in  the  field.   The  Hidalgo  Prospect  has  under  lease,
approximately 312 gross acres. Under the terms of the farm-in agreement, Fidelis
advanced  $260,000  to Miramar,  the  operator of the  project,  representing  a


                                       8
<PAGE>

two-thirds  share of the costs for the drilling to  completion of the 7,500 foot
"Lepovitz A" natural gas well.  Fidelis has  acquired a 50% working  interest in
the play. Miramar Petroleum is the operator of the project. The well was drilled
over a 15 day  period  and on March 12,  2005 was  tested  for  resistivity  and
pressure.  The target sands were not located in an up-dip  position as indicated
by 3-D seismic  logs and were  actually 16'  down-dip  from the  adjacent  well,
negating the target objectives from being viable sources of gas.

However,  an  interesting  spike  on  both  the  initial  mudlog  and  down-hole
electronic  tests performed by Sclumberger  turned up a 5 foot thick sand with a
bottomhole  pressure of 2,500 psi. Based on this find, the partners in the well,
including  Fidelis,  determined  to case the hole and  produce  the well.  It is
believed that the well should initially flow  approximately 500- 750Mcf per day.
Fields in the area tend to flow steady with shallow decline curves.

In May of 2005, Fidelis received notice from the operator of the Hidalgo project
of the intention to plug and abandon the well.  The Company  subsequently  wrote
off $270,962 in capitalized costs as a dry hole expense.  Following an extensive
completion  program,  the Frio  sands  that  initially  flowed on tests of up to
750mcf/day, appear to be depleted or water filled. Fidelis plans to execute this
plan  immediately  and will work with  Miramar  Petroleum on future plans in the
Hidalgo-MacAllen area of Texas.

NORTH FRANKLIN PROSPECT- CALIFORNIA-NATURAL GAS

On January 31, 2005, we updated shareholders as to the process of permitting the
North  Franklin  pipeline  project.  Fidelis  was  informed by the office of the
Congressional  Representative  from the Third District of California that he had
confirmation  from the office of the Secretary of the Interior and the U.S. Fish
and Wildlife  that the final  government  permit  covering the easement over the
last 177' of  pipeline  will be posted in the  Federal  Register  on February 2,
2005. On February 2, 2005, the easement  permit  required prior to tie-in of the
North  Franklin  Gas  Field was  posted to the  Federal  Register.  The  Federal
Register  states  that any public  comments  on the permit are to be received by
March 3, 2005. The Company was in regular contact with the Congressman's  office
of the 3rd district of California and with the Fish and Wildlife  service office
in Sacramento  since late December,  and hoped to be able to tie-in the pipeline
as soon as  possible.  The  previous  comment  period  at the  local  level  was
accomplished and ended December 26, 2004.

Fidelis  announced on March 7, 2005 that its long anticipated  government permit
allowing the completion of  construction  of the North Franklin gas pipeline had
been  received  from the U.S.  Fish and  Wildlife  Service.  The permit  covered
approval for a 177' underground boring to connect a 6 inch gas pipeline with the
North Franklin Gas Field.  The operator of the North Franklin  project  informed
the Company that the  installation  and final  construction  of the short tie-in
piece of  pipeline  would  begin  immediately.  On March 14,  2005,  the Company
reported  that the  tie-in  of the  North  Franklin  Gas Field was under way and
expected to be completed and flowing gas that week.  The Company was informed on
March 18, 2005, that the gas pipeline connecting the North Franklin Gas Field to
the buyers' delivery system pipeline had been completed.  After a lengthy delay,
the  Archer-Whitney  No. 1 well  was tied  into the  pipeline  for  initial  gas
production.

The Company announced on March 24, 2005, that the pipeline  connecting the North
Franklin  Gas Field to the gas  buyers'  delivery  system was flowing  gas.  The
operator of the project had choked down and metered the flow at an initial  rate
of 2.0MMcf.  The operator was increasing the flow in small  increments until the
pressures  from the  reservoir  stabilized,  in order to  prevent  damage to the
casing or productive  sand layer.  It was the expectation of the Company and its
partners that a final flow rate of 2MMcf to 3MMcf would be achieved.

On April 7, Fidelis  announced that it had executed an authority for expenditure
(A.F.E.) for the "Archer-Wildlands #1" gas well, the next well planned under the
overall development plan for the North Franklin project.  Fidelis advanced funds
in  full to the  operator  totalling  $133,000  for the  Company's  35%  working
interest  cost of the well to  completion.  The  "Archer-Wildlands  #1" well was
licensed,  permitted and the well site preparations ongoing for a tentative spud
date  upcoming  later in April.  A drill  contract was signed and a drilling rig
secured for the well. The third and fourth wells into the field were to be sited
and permitted upon receipt of information from the 2nd well that was expected to
yield trend data as to sand thickness,  porosity and permeability.  The operator
of the  Archer-Whitney  #1  indicated  that the  behind-pipe  pressure  has been
increasing  and is above the 2900 psi level and was expected to open up the flow


                                       9
<PAGE>

incrementally  within the next few days. The Company  previously  indicated that
the  development  of volume  flows  for the field is an often a lengthy  process
which must be undertaken with extreme caution to avoid damaging the reservoir or
well.  On April 22, the Company was informed  that the date has been set for the
spud of the  Archer-Wildlands  #1 well.  The drilling was planned to commence in
the first week of May.  The  Archer-Wildlands  #1 was said to be the second in a
series of  natural  gas  wells to be  drilled  during  2005  under  the  overall
development plan for the North Franklin gas reservoir.

On  April  25,   Fidelis   reported  on  the  success  at  the  North   Franklin
"Archer-Whitney  #1" well.  The  Company had  completed  its first full month of
production at the North Franklin Gas Field from its "Archer-Whitney #1" well and
the average daily gross earnings for the well amounted to roughly $11,000.00 per
day, or  $330,000 in total for all  partners.  The initial gas  production  flow
rates averaged 1.4 Mmcf per day over the month.

On May 25,  Fidelis  announced  that it had begun  discussions  with Silver Star
Energy,  Inc.  regarding the possible future  amalgamation of the two companies.
Fidelis and Silver Star currently  have common working  interests in various oil
and gas projects and the  amalgamation of these interests would provide a larger
and stronger entity for future growth.  The proposed  amalgamation would combine
all assets of both oil and gas companies into one entity,  which would then have
in the portfolio a combined  working  interest in 5 projects,  these being North
Franklin, Joarcam, Comanche Point, Evi and Verdigris Lake. The recent management
changes  of Fidelis  brought  new  strength  of both  corporate  and oil and gas
expertise and Fidelis approached Silver Star with this proposal.

On May 26,  2005,  Fidelis  announced  details of the deep gas  potential in the
Forbes (F-zone) at the Company's North Franklin gas reservoir,  Sacramento Basin
California.  North  Franklin  is situated in the  southern  Sacramento  Basin of
California  between the cities of  Sacramento  and Stockton that has produced in
excess of 9 Tcf of gas. The deep Forbes  F-zone has the  potential to contain 60
billion cubic feet of gas. Combined with the producing Winters formation,  North
Franklin now had the potential to contain in excess of 100 billion cubic feet of
gas.  The deep Forbes  F-zone lies  beneath  the younger  Winters  sand that was
currently  producing  from the  "Archer-Whitney  #1 well".  After an  aggressive
land-leasing  program by the  partners  over the last year,  the North  Franklin
project  under  lease,  3,465  gross  acres.  North  Franklin  deep  F-zone  had
approximately  1,200 acres of  structural  and  stratigraphic  closure  based on
mapping of the seismic anomaly.  It was defined by regional well control and 2-D
seismic data from three seismic lines. The strong AVO anomaly present  indicated
that gas may be present. The prospect potential is based on net pay averaging 50
feet over this closure and recovery  factor of 1,000 million cubic feet per acre
foot.  The prospect  reserves are estimated at 60 billion cubic feet of gas. Gas
quality is anticipated to be greater than 900 Btu. The nearest F-zone production
at the Clarksburg gas field, located with in five miles of the prospect,  is 930
Btu. Gas was expected to be contained in permeable, Upper Cretaceous, deep-water
F-zone  sandstones  that are of equivalent age to sandstones  that are the major
producing zones in the northern portion of the Sacramento  Valley.  An estimated
75 feet of net  reservoir  sandstones  were said to be expected to be present in
the upper and middle  F-zone  fans at the  proposed  test  location.  Equivalent
Forbes  sandstones  were reported as being the chief producing gas reservoirs in
the northern  Sacramento  Valley having  produced in excess of 2 trillion  cubic
feet of gas. Drill depth through the prospective  upper and middle fans at North
Franklin Deep is 11,000 feet. The well would offset the productive upper Winters
sand  discovered in 2004 and penetrate the both the upper and middle F-zone fans
at a  structural  favorable  position.  In the  event  that  the  F-zone  is was
productive  at this  location,  the well could be put into  production  from the
Winters  sands.  The 11,000  foot well was  estimated  to cost $1.5  million and
Fidelis would have a 35% working interest in the project.

On June 2, 2005,  the Company  announced that the  "Archer-Whitney  #1" well had
produced 98.5 Mmcf gas in 70 days at an average rate of 1.41 Mmcf per day. Total
production to-date had generated $591,000 to the partners.

On  June  20,   2005,   Fidelis   announced   its   preparations   to  spud  the
"Archer-Wildlands #1" well at the North Franklin Project in the Sacramento Basin
of  California.  On June 27  Fidelis  announced  "Archer-Wildlands  #1" well had
spudded at the North Franklin Project, Sacramento Basin of California.



                                       10
<PAGE>

On  July  5,  2005  Fidelis  announced  that  the  June  gas  production  at the
"Archer-Whitney  #1" well at had  totalled  44.859 Mmcf for the 30 days in June.
The average daily production was 1.50 Mmcf per day

On July 18, 2005 Fidelis  announced that the  "Archer-Wildlands  #1" gas well at
the Company's North Franklin Project reached a total depth of 7,736 feet on July
15. The operator had called for a completion rig.

On August 2, 2005 Fidelis  announced the progress of the  completion  program at
the "Archer-Wildlands #1" gas well.

On  August  3,  2005  Fidelis  reported  that  the July  gas  production  at the
"Archer-Whitney  #1" well  totalled  46.212  Mmcf  for the 31 days in July.  The
average daily production was 1.49 Mmcf per day.

On  August  8,  2005  Fidelis  announced  the  commencement  of  commercial  gas
production at the "Archer-Wildlands #1" well.

On August  10,  2005  Fidelis  announced  that the daily gas  production  at the
"Archer-Whitney #1" well had been stepped up to 1.8 Mmcf per day.

On August 24, 2005 Fidelis  announced that the daily gas production at the North
Franklin gas reservoir had surpassed 3.0 Mmcf per day from production at the two
wells.

On  September  22, 2005  Fidelis  reported on the first weeks of  September  gas
production from the North Franklin gas reservoir.

On December 6, 2005, Fidelis reported that average daily production rate for the
month of November  totalled  2.93 Mmcf per day, up from 2.83 in October and 2.56
Mmcf in September.

On January 5, 2006,  Fidelis  reported  that the December gas  production at the
North Franklin Project, Sacramento California. Production from the Company's two
gas wells, the  "Archer-Whitney  #1" and  "Archer-Wildlands  #1" totalled 92.443
Mmcf. The average daily production rate for the month of November totalled 2.982
Mmcf per day.

KANSAS- GAS AND LIGHT OIL

On August 10, 2005,  Fidelis  announced  that it had  executed a  memorandum  of
understanding  (M.O.U.) to acquire a 25% working  interest in a very prospective
Kansas oil and gas play from a private  company.  Mr. William S.  Marshall,  the
President  of  Fidelis,  is a  director  of the  private  company  that sold the
interest to Fidelis. Fidelis and partners have now acquired participation rights
in a large data base that includes a geophysical  survey covering  approximately
one million  acres,  located in central  Kansas,  covering  parts of  Ellsworth,
Salina,   McPherson,   Reno,  Harvey,  Kingman,  and  Sedgwick  counties.  Total
cumulative  oil  production  through  1999 from these  counties is more than 978
million  barrels  of  oil.  The  geophysical  survey  utilized  proprietary  RAM
technology,  owned by Paramount Energy Corp., which is a geophysical methodology
used to  highlight  oil and gas  deposits.  (see exhibit 10.1 to the 8K filed on
October 3, 2005 for a copy of the contract for data sharing)  Unlike 2-D and 3-D
seismic methods,  which gather information based upon artificially induced sonic
responses recorded at surface,  RAM technology  identifies "unique bright spots"
using its  proprietary  software  to  process  certain  aspects  of the  earth's
magnetic  field.  Data is  collected  by a low  flying  aircraft  equipped  with
specialized  equipment  and the data is then  analyzed  by RAM  software.  These
"unique  bright spot"  anomalies can be correlated to  near-surface  alterations
caused  by the slow  geochemical  processes  that  occur  over  both oil and gas
deposits. The RAM technology is an indirect hydrocarbon indicator independent of
structure with the result that it is useful in situations  where seismic date is
either unavailable or unreliable.  Since RAM data is collected from an aircraft,
large  areas  may  be  surveyed  much  faster  and  more  cost-effectively  than
traditional modalities.  Several identified RAM anomalies interpreted within the
survey area are believed to have hydrocarbon  potential over  multi-sections  of
lands that have never been tested by drilling.



                                       11
<PAGE>

Most  nearby  production  within  this  region of the  Central  Kansas  Platform
produces from  Mississippian  age and older  limestone  rocks above the Arbuckle
dolomite   formation.   Some   of  the   accumulations   of   hydrocarbons   are
stratagraphically  trapped and  unrelated to structure  and therefore not easily
identifiable by traditional  seismic  testing and analysis.  The magnetic survey
and  interpretation  of the region  appears  to  management  to be of  excellent
quality.  Oil wells will be drilled to test the most promising  prospects to the
deepest known petroleum  formation,  the Arbuckle,  generally less than 4000' in
depth in the Central Kansas  Platform.  Drilling costs have been estimated to be
in the order of $200,000  for a cased and  completed  well.  The Central  Kansas
Platform  covered  by the survey and  interpretation  contains  some of the most
prolific production from shallow depths in that part of the United States. There
are many  established  oil fields within the  boundaries of the survey area. The
survey indicates "bright spots" that could be hydrocarbon  accumulations not yet
discovered  by  traditional  seismic or other  older  exploration  technologies.
Multiple  prospects  are expected to be  generated  after more  extensive  field
tests.  Fidelis  and  partners  are  proceeding  to  further  evaluate  the most
prospective oil and gas targets for drilling utilizing complimentary geochemical
and geophysical  methodologies  in their  field-testing.  The operator will then
recommend  leases for  acquisition  and the  exploration  program will commence.
Fidelis,  with a 25% working interest,  will be participating with other working
interest partners who include Silver Star Energy,  Inc. (20% working  interest),
and Cascade Energy, Inc. (25% working interest).

As of June 16th,  2006 the Data Sharing  Agreement was  terminated  with 1132508
Alberta Ltd. and the Company will no longer  participate in the Kansas  program.
The Company has determined that its resources are presently  better spent in the
additional development of the North Franklin natural gas field.

ITEM 3.  LEGAL PROCEEDINGS

We are not a party to any  legal  proceedings.  Management  is not  aware of any
legal proceedings  proposed to be initiated against the Company.  However,  from
time to time, the Company may become subject to claims and litigation  generally
associated with any business venture operating in the ordinary course.

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

None

PART II

ITEM 5.  MARKET FOR  REGISTRANT'S  EQUITY AND  RELATED  STOCKHOLDER  MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

The  Company's  common stock is traded on the  Over-the-Counter  Bulletin  Board
under the symbol  "FDEI".  The  following  table  sets  forth,  for the  periods
indicated,  the high and low bid prices of a share of common  stock for the last
two years.

------------------------------------------------ ----------- -----------
                                    HIGH LOW
2006
Quarter Ended March 31, 2006                     $0.30       $0.17
Quarter Ended June 30, 2006                      $0.23       $0.13
Quarter Ended September 30, 2006                 $0.17       $0.05
Quarter Ended December 31, 2006                  $0.05       $0.02
2005
Quarter Ended March 31, 2005                     $1.08       $0.52
Quarter Ended June 30, 2005                      $0.81       $0.31
Quarter Ended September 30, 2005                 $0.47       $0.32
Quarter Ended December 31, 2005                  $0.36       $0.13
------------------------------------------------ ----------- -----------




                                       12
<PAGE>

The above  quotations are taken from  information  provided by Yahoo Finance and
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions. Holders of Common Equity

At December 31, 2006, the Company had 104 shareholders of record, and an unknown
number of additional  holders whose stock is held in "street form". The transfer
agent of our common stock is Holladay Stock Transfer.

Dividends

The  Company  has never paid a cash  dividend  on its  Common  Stock nor does it
anticipate  paying cash dividends on its Common Stock in the near future.  It is
the present  policy of the Company not to pay cash dividends on the Common Stock
but to retain  earnings,  if any, to fund growth and  expansion.  Any payment of
cash  dividends  on the Common  Stock in the future will be  dependent  upon the
Company's financial  condition,  results of operations,  current and anticipated
cash  requirements,  plans for expansion,  as well as other factors the Board of
Directors deems relevant.

The Company issued a stock dividend on December 11th, 2004 to those shareholders
of record at the close of trading on  December  8, 2004.  The  dividend  was .66
shares for each share  owned and had the effect of a forward  split of the stock
of 1.66:1.  The  announcement  was made on the Company's Web site on the 28th of
November and was  disseminated  over  Business  Wire to provide for the broadest
public disclosure. The company took this action in an effort to maximize overall
long-term shareholder value.

Recent Sales of Unregistered Securities

On November 17, 2005,  the Company issued  54,000,000  common shares as Treasury
Stock that is being held as collateral as part of the convertible debenture with
Cornell  Capital  Partners,  LP  pending  clearance  of  the  SB-2  registration
statement, filed, January 27,2006.

On March 27,  2006,  the  Company  issued  750,000  common  shares to  Telperion
Business Consultants, Inc. as payment for consulting services.

Pursuant to consulting  agreements dated April 7, 2006, all of the directors and
several  affiliates of the Company were issued a total of  10,000,000  shares of
common  stock.  A Form S8 was filed in relation to each share  issuance on April
13, 2006. The shares issued on May 8, 2006, under the agreement and resold under
the Form S-8 will be subject to the volume restrictions contained in Rule 144(e)
promulgated under the Securities Act of 1933, as amended.

In October,  2006,  the Company  issued  1,562,500  restricted  common shares to
Cornell Capital as a payment on the note outstanding.

On November 29, 2006, the Company issued 5,937,500  restricted  common shares to
Cornell Capital as a payment on the note outstanding.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with the audited Consolidated Financial Statements and Notes thereto included in
Item 8,  with  "Item  6.  Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations"  and with other  financial  data included
elsewhere in this Form 10-KSB. The consolidated statement of operations data for
the year ended  December 31, 2006 and 2005, and the  consolidated  balance sheet
data as of December  31, 2006 and 2005 are  derived  from our audited  financial
statements included in Item 7 of this report, which have been audited by Robison
Hill & Co.



                                       13
<PAGE>

The independent  auditors' report  appearing  elsewhere in this document contain
disclosures  that the Company's  losses and negative cash flows from  operations
raise concern about our ability to continue as a going concern. The consolidated
financial  statements  and  the  selected  financial  data  do not  include  any
adjustments that might result from the outcome of that uncertainty.

Year Ended December 31
                                               2006                 2005

STATEMENT OF OPERATIONS DATA:

Revenue                                         $1,971,262        $  1,395,849
Cost of revenue                                    572,077             231,508
                                             -----------------------------------
Gross profit                                     1,399,185           1,164,341
Operating expenses                             (3,575,462)         (1,313,973)
Interest expense                                 (828,262)           (134,772)
Write off leasehold improvements                 (212,703)            (55,168)
Derivative valuation gain (loss)                   920,449         (2,503,507)
                                             -----------------------------------
Net loss                                     $ (2,296,793)      $  (2,843,079)
                                             =============      ==============
Basic and diluted loss per share              $     (0.01)        $     (0.03)
                                             -----------------------------------
Weighted average common shares outstanding     156,864,316         101,076,187
                                             =============      ==============

BALANCE SHEET DATA:

Cash and cash equivalents                           $5,919                   $
                                                                       232,758
Working capital (deficit)                      (4,331,608)             205,672
Total assets                                     2,629,136           3,232,102
Total liabilities                                6,547,381           6,567,304
Total stockholders' equity                     (3,918,245)         (3,335,202)
                                             -----------------------------------


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE  INFORMATION  CONTAINED  IN THIS  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL   CONDITION  AND  RESULTS  OF  OPERATION   CONTAINS  "FORWARD  LOOKING
STATEMENTS."  ACTUAL RESULTS MAY MATERIALLY  DIFFER FROM THOSE  PROJECTED IN THE
FORWARD-LOOKING  STATEMENTS AS A RESULT OF CERTAIN RISKS AND  UNCERTAINTIES  SET
FORTH IN THIS REPORT. ALTHOUGH MANAGEMENT BELIEVES THAT THE ASSUMPTIONS MADE AND
EXPECTATIONS  REFLECTED IN THE FORWARD LOOKING STATEMENTS ARE REASONABLE,  THERE
IS NO ASSURANCE  THAT THE  UNDERLYING  ASSUMPTIONS  WILL,  IN FACT,  PROVE TO BE
CORRECT OR THAT ACTUAL FUTURE RESULTS WILL NOT BE MATERIALLY  DIFFERENT FROM THE
EXPECTATIONS EXPRESSED IN THIS ANNUAL REPORT. THE FOLLOWING DISCUSSION SHOULD BE
READ IN  CONJUNCTION  WITH THE AUDITED  CONSOLIDATED  FINANCIAL  STATEMENTS  AND
RELATED  NOTES  THERETO  INCLUDED  IN ITEM 7, WITH "ITEM 5.  SELECTED  FINANCIAL
DATA,"  WITH THE RISK  FACTORS  SECTION  OF ITEM 1,  AND WITH THE  SPECIAL  NOTE
REGARDING FORWARD-LOOKING STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT.

Overview

The Company is  primarily  in the  business of  acquiring  and  operating,  as a
working interest  partner,  smaller oil and gas leases,  and exploratory oil and
gas wells. The Company maintains  relatively low overhead by contracting certain
operating and investigative  functions out to experienced,  licensed geologists,
geophysicists and private oil and gas operators.




                                       14
<PAGE>

Normally  only those  projects that are in close  proximity to delivery  systems
such as pipelines or refineries will be pursued. Whereas there are large oil and
gas fields that could be  aggressively  engaged,  the  management of the Company
believes  that the  production  required  to warrant  the  investment  into such
capital intensive infrastructures is of greater risk than the Company is willing
to bear at present, and the necessary capital for such is currently  unavailable
to the Company.  Hence,  in the near future,  the Company will only pursue those
projects  that  can be tied  into  pipelines  or  trucked  from  onsite  storage
facilities to proximate refineries with minimal costs involved.

CORPORATE EVENTS

On September 24, 2004,  Fidelis  announced the election of Mr. Dan Hodges to the
position of President  and CEO. Mr.  Hodges  replaced  Mr.  Frank  Anjakos,  who
remained on the Board of Directors of the Company.  The Board of Directors  also
appointed Mr. Hodges to the position of Board Chairman on the same date.

On September  27, 2004 Fidelis  announced  the  appointment  of the new CFO, Mr.
Sterling Klein. Mr. Klein is an accounting  professional with a proven record of
accomplishment in corporate financial analysis and administration. Mr. Klein has
extensive petroleum industry experience, working with "Shell," and "Chevron." As
an Inventory  Analyst with Shell,  Mr. Klein  travelled  extensively  to various
production   locations  in  order  to  conduct   physical   asset   inventories.
Subsequently, in his role as Production Accountant, Mr. Klein's responsibilities
included  financial  analysis,  assessment  of monthly  revenues / costs and the
generation of summary reports for management specific to production facilities.

Mr. Klein then moved to Chevron as a credit  analyst.  In this role, he assisted
in the  corporate  development  and  implementation  of several  new systems and
control procedures. Mr.Klein holds titles of Secretary, Treasurer and Director.

Effective  May 31, 2005,  Mr. Dan Hodges  resigned as President and Chairman and
Mr. Robert D. Hadley resigned from his position as Director.  On this same date,
Mr. William Marshall and Mr. Brian Wildes were welcomed to the Company.

Mr.  William  Marshall was appointed to the position of President of the Company
and  joined  the Board of  Directors  as its new  Chairman.  Mr.  Marshall  is a
financial consultant with over 15 years of venture capital experience in private
and  public  companies.  He has  served on various  public  company  boards as a
director,  with duties ranging from Chairman and President,  to Chief  Executive
Officer and Corporate Secretary.

Mr.  Brian  Wildes  joined  the  Fidelis  operational  team  as  Operations  and
Engineering  Consultant,  directly responsible for the overseeing of all oil and
gas operations at North Franklin,  Joarcam,  and Comanche Point as well as other
projects.  Mr.  Wildes  is an oil  and  gas  professional  with  over  40  years
experience. He possesses a Wharton MBA and was an oil and gas tax specialist for
Deloitte,  Haskins,  and Sells in Denver  from 1976  through  1980.  He has been
actively involved in the exploration for oil and gas in Oklahoma and Texas since
leaving  Deloitte in 1980.  From 1980 through  1986, he managed  Neitzel  Wildes
Investment  Company's (Dallas, TX) drilling activities and their capital markets
activities.  Recently,  he created Wildes Exploration in 2004 to explore for oil
in  Oklahoma  and  Kansas  utilizing  proprietary  and  new  state  of  the  art
technologies. His operating company is presently drilling 5 exploratory wells in
southwest Oklahoma.

Effective June 8, 2005, Jeff Paro, Julianne DeGrendele and Frank N. Anjakos, III
resigned from their positions as Directors of the Company.

On September 12, 2005,  Fidelis  announced that it had suspended the discussions
with  Silver  Star  Energy,  Inc.  that  began in May 2005 (in  relation  to the
possible  amalgamation  of the two companies) for a period of at least one year.
Fidelis and Silver Star Energy, Inc. will continue to separately develop,  along
a parallel path,  their own working  interests in the North Franklin Project and


                                       15
<PAGE>

the Kansas Play. Fidelis management feels that the recent increases in commodity
prices  and  the  increased  cash  flow  from  the  natural  gas  production  in
California,   have  positioned  the  Company   independently   to  move  forward
aggressively on its own to develop its interests in its projects.

PLAN OF OPERATION

COMANCHE POINT PROSPECT - CALIFORNIA HEAVY OIL PLAY

On March 1 2006, the Company sold its 80% working interest in the Comanche Point
Property for $360,000,  Tejon Lease of 400 acres for lands in Sections  28,29,32
and 33, R18W, S.B.B.M, Kern County, California.

The Company, along with the working partner implemented a steam-flood extraction
pilot study in 2005 to determine  viability of extraction  with this method.  At
the time of implementation the field was producing 12-15 barrels per day. Due to
higher than expected costs of production,  unanticipated  expenses regarding the
steam-flood  equipment and the resultant  lower than expected  daily  production
rates from the steam flooded  wells,  it was  determined  that the Company would
accept a purchase offer on the project and Comanche Point was subsequently  sold
to the operator. $360,000 was received for the sale of the asset.

NORTH FRANKLIN PROSPECT -- CALIFORNIA NATURAL GAS PLAY

 The North  Franklin  Project  is in the  Sacramento  Basin of  California.  The
project is situated along the "Eastside Winters  Stratigraphic  Trend" which has
produced in excess of 450 billion cubic feet gas. The North  Franklin is located
in Sacramento  County,  between the cities of Stockton and  Sacramento.  The gas
reservoir  target is situated in deep-water  basin Winters  Formation sands that
are permeable, upper Cretaceous sandstones.

The North Franklin Project and the underlying Winters gas reservoir contain four
(4) gas wells.  These wells are;  "Archer-Whitney  #1",  "Archer-Wildlands  #1",
"Archer-F1" and "Archer-Tsakopolus #1". A pipeline ties-in the four wells at the
North Franklin  Project and we sell to a gas purchaser at bid-week  PGE-Citygate
pricing. Fidelis has a 35% Working Interest in the play.

To date,  the North  Franklin  has  historically  produced in excess 1.9 Bcf gas
since the inception of production at "Archer-Whitney  #1" in 2005. The total gas
produced for the 2006 year at North Franklin was 1,325,916 Mcf, or 1.325 Bcf.





















                                       16
<PAGE>

The following  table outlines the monthly gas production from the North Franklin
wells in 2006:

<TABLE>
<CAPTION>
---------------- ---------------- ------------------- ------------------- ---------------- ---------------

NET REVENUE PROD'N                TOTAL PRODUCTION 2006 NORTH FRANKLIN
                                  ------------------------------------
      MCF
                     ARCHER             ARCHER              ARCHER            ARCHER
     2006           WHITNEY #1       WILDLANDS #1     ARCHER WHITNEY F-1   TSAKOPOLOUS #1      TOTAL
                 -  ----------       ------------     ------------------  ---------------      -----
<S>                 <C>              <C>              <C>                 <C>                <C>
JANUARY             54,821.98         40,196.99                                              95,018.98
FEBRUARY            46,501.00         35,619.29              0.00              0.00          82,120.29
MARCH               53,307.01         40,215.01              0.00              0.00          93,522.02
APRIL               51,592.00         38,919.99              0.00              0.00          90,511.99
MAY                 53,623.01         41,334.00           16,757.01            0.00          111,714.02
JUNE                52,541.00         40,322.00           29,324.99            0.00          122,187.99
JULY                54,568.99         41,878.00           30,456.99            0.00          126,903.98
AUGUST              51,600.00         44,049.01           30,204.99            0.00          125,853.99
SEPTEMBER           49,916.00         40,407.99           28,524.01            0.00          118,848.00
OCTOBER             50,993.99         42,286.98           31,094.01            0.00          124,374.98
NOVEMBER            49,087.99         40,706.99           29,931.00            0.00          119,725.98
DECEMBER            43,073.99         39,383.01           30,768.00          9,846.00        123,071.01
                 ---------------- ------------------- ------------------- ---------------- ---------------
    TOTALS         611,626.97         485,319.26          227,061.00         9,846.00       1,333,853.23
---------------- ---------------- ------------------- ------------------- ---------------- ---------------
</TABLE>


The following table represents Fidelis 35% working interest
<TABLE>
<CAPTION>
---------------- ---------------- ------------------- ------------------- ---------------- ---------------

NET REVENUE PROD'N                FIDELIS ENERGY PRODUCTION 2006  .281253 NET REVENUE INTEREST
                                  ------------------------------------------------------------
      MCF            ARCHER             ARCHER              ARCHER            ARCHER
                    WHITNEY #1       WILDLANDS #1     ARCHER WHITNEY F-1   TSAKOPOLOUS #1      TOTAL
     2006
<S>                 <C>              <C>              <C>                 <C>                <C>
JANUARY             15,418.85         11,305.53              0.00              0.00          26,724.37
FEBRUARY            13,078.55         10,018.03              0.00              0.00          23,096.58
MARCH               14,992.76         11,310.59              0.00              0.00          26,303.35
APRIL               14,510.41         10,946.36              0.00              0.00          25,456.77
MAY                 15,081.63         11,625.31            4,712.96            0.00          31,419.90
JUNE                14,777.32         11,340.68            8,247.74            0.00          34,365.74
JULY                15,347.69         11,778.31            8,566.12            0.00          35,692.13
AUGUST              14,512.65         12,388.92            8,495.24            0.00          35,396.81
SEPTEMBER           14,039.03         11,364.87            8,022.46            0.00          33,426.36
OCTOBER             14,342.21         11,893.34            8,745.28            0.00          34,980.84
NOVEMBER            13,806.14         11,448.96            8,418.18            0.00          33,673.29
DECEMBER            12,114.69         11,076.59            8,653.59          2,769.22        34,614.09
                 ---------------- ------------------- ------------------- ---------------- ---------------
    TOTALS         172,021.92         136,497.50          63,861.59          2,769.22        375,150.22
---------------- ---------------- ------------------- ------------------- ---------------- ---------------
</TABLE>


2006 EVENTS

Forbes F-1 Deep Drilling Test

In January 2006, we announced the  preparation for the drilling of the "Archer-F
1" deep  Forbes  test  (F-zone)  as the next gas well to be drilled at our North
Franklin gas reservoir,  Sacramento Basin California. The deep Forbes F-zone has
the  potential to contain 60 Bcf gas.  The  planning for the well has  commenced


                                       17
<PAGE>

with the  operator  sourcing a drilling  rig so that the  partners can drill and
complete the well before the wet season  begins in the area.  Drill depth of the
deep F-zone is 11,800 feet. The well would offset the  productive  upper Winters
sand discovered in 2004 and will test both the upper and middle F-zone fans at a
structurally favorable position.

In the event that the F-zone is not productive at this location,  the well could
be put into  production  from the  Winters  as the third  producing  well in the
reservoir.  The  11,800-foot  well is estimated to cost through  completion  and
tie-in,  approximately $2.4 million.  The Forbes F-zone lies beneath the younger
Winters  sand  that is  currently  producing  from  the  "Archer-Whitney  #1 and
Archer-Wildlands  #1 well at the North  Franklin  gas  reservoir  that has under
lease 3,465 gross acres  covering  both the Winters and Forbes  formations.  The
deep  F-zone has  approximately  1,200  acres of  structural  and  stratigraphic
closure based on mapping of the seismic anomaly.  It is defined by regional well
control and 2-D seismic data from three seismic lines. The strong AVO anomaly as
seen on the seismic indicates that gas may be present. The prospect potential is
based on net pay  averaging  50 feet over this  closure and  recovery  factor of
1,000 Mcf per acre-foot.  The prospect  reserves are estimated at 60 Bcf of gas.
Gas  quality is  anticipated  to be greater  than 900 Btu.  The  nearest  F-zone
production  at the  Clarksburg  gas  field,  located  within  five  miles of the
prospect, is 930 Btu. We have a 40% working interest in the project. On March 7,
we announced that the  "Archer-F-1"  gas well spudded March 5th and was drilling
at the North Franklin Project, Sacramento California.

A  preliminary  drilling  report on the  "Archer-F1"  was given as drilling past
9,000 feet after drilling through and logging the upper Winters  objective.  The
"Archer-F 1" well, as in the previous two wells,  drilled  Winters sand pay with
excellent  gas  shows  in the mud  log.  The  suite  of  Resistivity  and  Sonic
electronic logs showed clean sand pay with 100% gas fill-up within the pay zone.
The  intersected  sand  pay and  gas  shows  exceeds  in pay  thickness  what is
producing at the "Archer-Whitney" and "Archer-Wildlands" wells. The drilling rig
continues  towards the total depth of 12,000 feet with an  anticipated  T.D. for
the well in 5 to 7 days. The 12,000 foot  "Archer-F-1" well was designed to test
both the producing Winters sands as well as the Forbes; the primary objective of
this well.

Following  the T.D. a report on the well was given.  The  "Archer-F-1"  well was
designed to test both the  producing  Winters  sands as well as the Forbes;  the
primary objective of this well. The well reached a total depth of 10,567 feet.

As earlier reported,  the well cut Winters sand pay with excellent gas shows and
the suite of Resistivity  and Sonic  electronic logs showed clean sand with 100%
gas fill-up within the pay zone. The intersected  sand pay and gas shows exceeds
in thickness what is producing at the  "Archer-Whitney"  and  "Archer-Wildlands"
wells.  The Company now reports that this  Winters  portion of the well is to be
completed and put into production  immediately.  A significant section of Forbes
Sand was encountered  that contained  excellent gas shows.  However,  the Forbes
sands were directly  above other sand that  contained high pressure gas and salt
water.

During this operational  period,  the well lost circulation during the open hole
conditioning for electric logs. The hole broke down within 100 feet of the shoe,
took  drilling  fluid and allowed the well to flow gas and salt water,  from the
target  zones  into the well  bore.  The flow of gas and water  from the  Forbes
reduced the hydrostatic  column creating an unsafe condition to log or drill any
further.  Several days of conditioning the drilling fluid (increasing mud weight
up to 15.9 lbs per gal) and  numerous  attempts to maintain a static well failed
due to the salt water and gas cutting the mud weight  needed to  compensate  for
the higher  than  expected  formation  pressures.  The  Company  and its project
partners  made a decision  to plug the open hole below the casing  shoe that was
set at the bottom of the production  casing to protect the Winters pay interval.
The plugging  process  included  the setting of a cement  retainer and the drill
pipe was pulled out of the hole in preparation  for rig release.  By setting the
retainer and cementing, additional drilling operations can be attempted from the
cased upper hole. It is now possible to re-drill the lower hole and evaluate the
excellent gas shows encountered  within the Forbes sands above the high pressure
water  sands.  The  prospect  has not been  fully  evaluated  and  still has the
potential  for a  commercial  gas  discovery.  From  this  well  bore,  or a new
location,  it is possible to drill farther up- dip and there is the  possibility
the lower sands are gas filled in that up-dip location.


                                       18
<PAGE>

Winter Production From F-1 Well

On May 15 we  announced  that the  "Archer-F-1"  well has begun  commercial  gas
production at the North Franklin Project,  Sacramento  California.  The well was
successfully perforated,  completed and tied-in to the pipeline from the Winters
sands. During the completion  program,  the well was flow tested up to a rate of
2MMCF per day. The short  tie-in to the pipeline was finished  this past weekend
and the well has begun commercial  production at an I.P.R.  (initial  production
rate) of 1.0 MMCF per day.

May 18 we reported on a Winters  Formation  geological and geophysical study the
Company has received at the North Franklin Project,  Sacramento California.  The
comprehensive  overview of the Winters Formation  underlying the A.M.I. (area of
mutual  interest) and current lease holdings was  commissioned to identify other
potential sand channels that may hold exploration and gas potential.  The report
concluded  that there is a strong  indication of an additional  five (5) Winters
sand channels  that have  geological  and  geophysical  similarities  and may be
analogs to the current area in production from the Company's three gas wells.

North Franklin Exploration Potential Report

The five new target areas have been  developed  and ranked as to  potential  and
risk based on varying levels of data available at the present time.  Each of the
five  targets,  if proven,  would hold  multiple  well  locations and each could
contain  similar gas equivalent to the current  production  area. All of the new
targets  have been  geologically  mapped and have  received  varying  degrees of
geophysical  interpretation towards the goal of creating suitable site locations
for exploration wells.  Fidelis recently announced that the Company and partners
are  planning  to drill a minimum  of two more  wells in the near  future  after
reviewing this recently completed property-wide,  study. The two wells that have
been agreed on by the North Franklin  partners  include one development  well in
the current  producing field and one  exploration  well in the first of the five
newly  identified  channels.  Following  the  drilling  of these two wells  this
summer,  additional  geophysics  is planned to further  define  future well site
locations.  Silver Star and the operator are now  undertaking a cost estimate of
this geophysical program that will occur in conjunction with the drilling of the
wells.  Silver Star has executed  A.F.E.'s  (Authority for Expenditure) for well
licensing,  permitting  and site  preparation  on the  next  two  wells at North
Franklin.

Archer-Tsakopoulos #1

On August 16 we reported that the  "Archer-Tsakopoulos #1" well was successfully
drilled  to depth  and will now be  completed  as the  fourth  gas well at North
Franklin,  Sacramento California.  A suite of electronic logs confirmed 100% gas
filled sand in the producing Winters  Formation.  Casing was set and the well is
to be perforated,  completed and tied-in to the pipeline from the Winters sands.
We then updated the ongoing field operations at North Franklin.  Silver Star and
partners  are still  waiting for a completion  rig to  perforate  and tie-in the
fourth well, "Archer-Tsakopolous #1". Fidelis currently in line for a completion
rig and one should be available this month.  Rig  availability is currently very
tight in  California  and the Company and  operator  are keeping in contact with
drilling contractors regarding availability.

In addition,  it has been determined that the  "Archer-Wurster #1" well, drilled
on a different southerly sand channel,  will not be a commercial producer.  This
well was a higher risk  exploration  well and the  partners  are  reviewing  the
future  options in and around the well  location.  The  Company  feels that more
seismic will be required to fully understand this area. Fidelis has commissioned
a new reservoir engineering report that will incorporate all the latest drilling
results,  production  records  regarding  reservoir  parameters  and most recent
scoping  geological  study on the Winters  Formation.  On October 18 we reported
that the  "Archer-Tsakopoulos  #1" well was  successfully  completed and will be
tied in as the fourth well at North Franklin, Sacramento California.

The well was perforated in the Winters sands and, during the completion program,
was  tested  to a  stabilized  rate of 1.139  MMCF per day.  The  tie-in  to the
pipeline will occur after site  facilities  are installed at the well  location.
Gas samples confirm similar BTU quality to the other wells in the reservoir.



                                       19
<PAGE>

NORTH FRANKLIN RESERVOIR ENGINEERING

On September  1, 2006 we received a reservoir  engineering  reserve  report from
Chapman  Petroleum  Engineering,  Ltd. on the North Franklin  Project.  The four
producing  gas wells,  Archer-Whitney  #1,  Archer-Wildlands  #1,  Archer-F1 and
Archer-Tsakopolus  were used to assign the  following  net  reserves  to our 35%
working interest.  The reserves in the category of "Proved Developed  Producing"
total 1.634 Bcf with a net present  value,  at a 10%  discounted  cash flow,  of
$5,726,540.  These reserves  reflect the four producing  wells only.  Additional
"Probable"  reserves have been  estimated for  incremental  recovery on the four
existing wells and for one down dip location.  However,  under SEC  regulations,
probable reserves are not recognized and therefore are not reported.

On February  14th,  2007 we received an  "Evaluation of Oil and Gas Reserves" by
Cecil  Engineering,  Inc.,  Petroleum  Reservoir Engineer which valued remaining
Proved Developed Producing Reserves (PDP) in the "Whitney-Winters"  channel from
the four (4) gas wells  aforementioned.  Having  cumulatively to date produced a
total of  1,944,328  Mcf gas (1.94  Bcf),  the  remaining  reserves  to the 100%
Working  Interest were quoted at 2,694,781 Mcf or 2.69 Bcf gas. Net Gas Reserves
were  stated at  2,327,139  Mcf or 2.37  Bcf.  The four  producing  wells in the
reservoir  are  declining in pressure  both measured at the casing and tubing of
the wells.  Engineering  now  anticipates a predictable  gas production  decline
through the year 2014.

A Present Value Profile  Discount Rate of 10% or PV 10 was valued at $11,962,468
to the 100% interest. Fidelis's 35% Working Interest is thus currently valued at
$4,186,864 on a PV 10 for the Proved Developed Producing Reserves.

On March  15th,  2007 we  received  an  updated  version  of the  aforementioned
reservoir  engineering by Cecil Engineering,  Inc. with additional costs applied
for the required pipeline  compression,  additional costs of well operations and
maintenance  as well as a reduced gas pricing model of $6.00 per Mcf. This newly
rerun  economics  gave a value to the 100% interest of $9,226,619  and therefore
$3,229,316 to Fidelis's 35% working interest on a PV 10 for the Proved Developed
Producing Reserves.

KANSAS PROSPECT

In  August  2005  the  Company  and  partners   announced  the   acquisition  of
participation  rights to a large database  encompassing a geophysical  survey of
approximately  one million acres,  located in central Kansas,  covering parts of
Ellsworth,  Salina,  McPherson,  Reno, Harvey,  Kingman,  and Sedgwick counties.
After a  thorough  review of the data  purchased,  the  prospects  selected  for
exploration and discussions  with its consultants and operator,  the Company has
determined that it will no longer  participate in the Kansas  program.  Although
the project appears to have considerable  merit, the Company has determined that
its resources are presently  better spent in the  additional  development of the
North Franklin natural gas field.
On June 16th,  2007 the Company was terminated  from the agreement  dated August
15th, 2005 with respect to the "Data Sharing  Agreement" between 1132508 Alberta
Ltd.  on certain  lands in Central  Kansas as the  Company  was unable to, for a
variety  of  reasons,  meet  certain  cash  calls  required  in  fulfilling  its
obligation under the terms of the August 15th, 2005 agreement.

PRIMEGEN ACQUISITION

On August 24th,  2006 we announced  that we had executed a letter of intent with
PrimeGen  Energy,  Inc. to purchase the  Company's  35% Working  Interest in the
North Franklin Project.

The  consideration  for the purchase  would consist of a combination of cash and
PrimeGen common shares.  The cash consideration and number of PrimeGen shares to
be issued  will be  determined  by a  valuation  of the  interests  based upon a
geological  reserve report being  prepared.  The cash portion was to satisfy the
outstanding  secured debt obligations of Fidelis,  in order that their interests
can be transferred free and clear of all charges and security interests.



                                       20
<PAGE>

The balance of the purchase  will be paid in PrimeGen  shares,  to be issued pro
rata to Fidelis.  The intention was that the PrimeGen  shares would then be paid
as a dividend to the  Fidelis  shareholders.  The letter of intent and  proposed
purchase and sale was subject to the completion of due diligence reviews,  board
approvals,  shareholder approval of Fidelis, PrimeGen securing financing for the
cash portion of the purchase, the satisfaction/release of any security interests
held in the North Franklin Project  interests to be conveyed,  and the execution
of a definitive agreement and related formal documentation.

On October 3, the Company  announced  that  PrimeGen  Energy Corp.  would not be
acquiring  the 35%  working  interest  in the North  Franklin  Project  owned by
Company at this time. PrimeGen,  however, continues to maintain a right of first
refusal on the  acquisition  of the Company's  interest for a period of 24-weeks
from August 24, 2006.

TELEPERION

Fidelis  announced that is has entered into a renewable  12-month  contract with
Telperion Business Consultants,  LLC, an arm's-length entity,  pursuant to which
Telperion will provide consulting services, business introductions and resulting
arrangements  that may include small cap fund  managers,  buy-side stock brokers
and money managers.  Such services will include,  strategic  planning,  planning
meetings,  road shows and assisting the Company's  management in developing  and
implementing  the Company's  IR/PR  programs and plans.  Telperion  will be paid
$15,000 per month and will be issued  750,000  shares of restricted  stock which
will  be  released  to  Telperion  based  upon  certain  significant   strategic
milestones.

CORNELL FINANCING AND DEFAULT

On November 15, 2005 we entered into an Investor  Registration  Rights Agreement
with Cornell  Capital for  $2,500,000.  Under  Section 2(b) of the  Registration
Rights  Agreement,  Fidelis  was to have  the  Registration  Statement  declared
effective no later than June 26, 2006. As the initial Registration  Statement is
not yet  effective  Fidelis  has  triggered  a second  Event of Default  for its
violation of Section 2(b) of the Investor Registration Rights Agreement. Fidelis
has received a demand letter from Cornell Capital demanding repayment in full of
the outstanding principal balance ($2,500,000), accrued interest, and liquidated
damages of 2% for each 30 days period after the Scheduled Filing deadline or the
Scheduled Effective Date.

Fidelis is actively in the process of  negotiating  a  settlement  with  Cornell
Capital. This settlement may include the sale of the North Franklin asset to pay
off the debt with Cornell Capital


CORPORATE EVENTS:

DIRECTORS


On January 31, 2006, we appointed Glen Harder to our board of directors.

Mr.  Harder  is  a  senior   securities   and  corporate   finance  lawyer  with
approximately  20 years of experience  in, among other things,  structuring  and
capitalizing  early  stage  corporations,   acquisitions,   mergers,  takeovers,
arrangements,  corporate governance issues and public and private debt or equity
financing  transactions.  Mr. Harder's law practice is presently  focused on the
natural  resource sector - primarily oil and gas exploration and production.  He
currently represents reporting companies in both the United States and Canada.

Mr. Harder resigned from the Board on June 30, 2006.

On February 7, 2006, we appointed  Gordon Samson and Thomas Herdman to our board
of directors, and James Marshall resigned from our board of directors.

Mr. Samson is an accredited accountant with approximately 20 years of experience
in the  financial  arena  including  positions  with Canada  Customs and Revenue


                                       21
<PAGE>

Agency  (formerly  Revenue  Canada);  a major  Canadian  institution as a senior
banker; a regional,  full service  brokerage house;  chief financial officer and
chief executive  officer  positions in both the United States and Canada serving
as a director  of a number of public  corporations  as well as being a member of
various  audit  committees.  Mr.  Samson  has  further  served as a  consultant,
performing due diligence for acquisitions  and other corporate  transactions for
various  reporting  companies.  Mr. Samson's  background spans both resource and
technology firms.

Mr. Samson resigned from the Board on June 30, 2006

Mr. Herdman is a management  consultant and financial translator for Pacific Rim
companies.  Until recently,  he was based in Tokyo,  Japan, where he worked with
companies  in the Asian  Pacific area for 16 years and also held the position of
Lecturer at Chuo Law University in Tokyo, Japan.

Our board of directors now consists of Messrs. William Scott Marshall,  Sterling
Klein and Thomas Herdman.

SUBSEQUENT EVENTS:

On March 8, 2007 PrimeGen Energy, Inc. announced that it has renewed discussions
with us in respect to the Company's plans to acquire Fidelis Energy,  Inc.'s 35%
working  interest  in  the  North  Franklin  Gas  Field  located  in  Sacramento
California.  In this regard,  Fidelis has renewed PrimeGen's  negotiating period
for a further 6-months beginning February 15, 2007.

RESULTS OF OPERATIONS

Revenue

Revenue  increased to $1,971,262 in 2006 from  $1,395,849 in 2005. This increase
is a result of our property at the North Franklin  developing from two producing
wells at the beginning of 2006 to four producing wells at December 31, 2006.

Cost of Revenue

The Company  recorded cost of revenue of $572,077 during the year ended December
31, 2006 and $231,508  during the year ended December 31, 2005. This increase is
reflective of the increased activity and costs with producing wells. Other costs
of revenue for the year include  production  royalties  of  $147,845,  depletion
expenses of 320,746 and dry hole costs written-off of $87,857.

General and Administrative expenses

General and  administrative  expenses  consist  primarily of Accounting,  Legal,
depreciation and selling and marketing expenses.  The general and administrative
expenses for the year are  $314,631.  This  increase  over 2005 is reflective of
increased operations of our company.

Consulting  Salaries and Directors fees of $2,589,019 for 2006 consisted  mostly
of a non cash  amount of  $1,400,000  in stock  issuance  that  represented  the
majority of the increase over $127,354 for 2005.

 We expect to continue to incur general and  administrative  expenses to support
the business,  and there can be no  assurances  that the Company will be able to
generate  sufficient revenue to cover these expenses.  The Company will may rely
on equity financing to support its business.

Interest expense

Interest expense increased  materially for the year ended December 31, 2006 with
$828,262  compared to $134,772 for the year ended  December  31,  2005.  This is
reflective  of the Credit Line Note  payable and the  convertible  debenture  in
2005.  Interest expense for 2006 also includes $600,000 of liquidated damages on
the convertible debt.



                                       22
<PAGE>

Loss per share and net loss

The Company ended the year with a net loss of ($2,296,793) in 2006,  compared to
($2,843,079) in 2005. The net loss position for 2006 includes a non cash expense
of $1,400,000 in stock issued for expenses and a non cash  derivative  valuation
gain of $920,449, and reflects a ($0.01) per share loss compared to the 2005 per
share  loss of  ($0.03).  The net loss  position  for 2005  includes  a non cash
derivative valuation loss of $2,503,507.

Liquidity and capital resources

Cash and cash equivalents  from inception have been  insufficient to provide the
operating  capital  necessary to operate the Company.  The necessary  capital to
operate the Company was initially provided by the principals and founders of the
Company in the form of both debt and capital stock issuances as set forth in the
financial  statements  incorporated  herein.  The working  capital  necessary to
operate the Company and provide for  acquisition  capital came from the proceeds
of loans, a credit line and production revenue as previously disclosed.

In summary,  the Company now has sufficient  liquidity and capital  resources to
operate profitably due to the sale of gas from the tie-ins of the Archer-Whitney
#1,  Archer-Wildlands  #1, Archer F-1 and Archer  Tsakopolous gas wells in 2006.
However due to the current default with Cornell Capital the North Franklin asset
may have to be sold and this would impair the companies liquidity and ability to
operate profitably.

The Company recorded a net loss from operations of $2,296,793 for the year ended
December  31,  2006  compared  to a net loss of  $2,843,079  for the year  ended
December 31, 2005. Decrease in the net loss is attributable mainly to a non cash
derivative valuation gain of $920,448.

The  Company  had  cash and cash  equivalents  of  $5,919  and  working  capital
deficiency of  $(4,331,608) at December 31, 2006. This compares to cash and cash
equivalents of $232,758 and working capital of $205,672 at December 31, 2005.

During the year ended  December 31,  2006,  the Company used cash of $142,794 in
operating  activities  compared  to using  $823,995  in the  prior  year.  As at
December 31, 2006 the company had an outstanding receivable of $390,135.

Net cash used by investing  activities  was $538,313 for the year ended December
31, 2006 as compared to cash used of $820,575  for the year ended  December  31,
2005.  Cash used in investing  activities  includes cash used for acquisition of
fixed assets and cash used in acquiring and developing oil and gas properties.

Net cash provided by financing  activities was $454,268 in 2006,  which compares
to $1,877,328 in 2005.  During the year ended  December 31, 2005,  $1,250,000 in
convertible  debentures were granted by Cornell  Capital  Partners LLP and there
was an increase of the credit line of $568,167.

The auditors' report on the Company's  December 31, 2006 consolidated  financial
statements  contains an  explanatory  paragraph that states that the Company has
suffered losses and negative cash flows from  operations that raise  substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has no financial  instruments for trading purposes, or derivative or
other financial  instruments  with off balance sheet risk. The fair value of all
financial  instruments  at December 31, 2006 is not  materially  different  from
their carrying value.

To December 31, 2006,  substantially  all revenues are incurred In United States
dollars and cash costs have been realized in both United  States  dollars and as


                                       23
<PAGE>

such, are not subject to material foreign currency  exchange rate risk. To date,
the Company has not entered into  foreign  currency  contracts to hedge  against
foreign  currency  risks  between  other  foreign  currencies  and our reporting
currency, the United States dollar.

ITEM 8.  FINANCIAL STATEMENTS

Our  financial   statements  and  supplementary   data  are  included  beginning
immediately  preceding the signature page to this report. See Item 15 for a list
of the financial statements and financial statement schedules included.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

           None.

ITEM 9A.  CONTROLS AND PROCEDURES

The  Company's  Chief  Executive   Officer  and  Chief  Financial   Officer  are
responsible for establishing and maintaining  disclosure controls and procedures
for the Company.

         (a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including  the Company's  President,  of the  effectiveness  of the
design  and  operation  of the  Company's  disclosure  controls  and  procedures
pursuant to Rule 13a-15 under the  Securities  Exchange Act of 1934,  as amended
(the  "Exchange  Act").  Based  upon the  evaluation,  the  Company's  President
concluded that, as of the end of the period, the Company's  disclosure  controls
and  procedures  were effective in timely  alerting him to material  information
relating to the Company  required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.

         (b) Changes in Internal Controls

Based on his  evaluation  as of December  31,  2006,  there were no  significant
changes in the Company's  internal  controls over financial  reporting or in any
other areas that could  significantly  affect the  Company's  internal  controls
subsequent to the date of his most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

As of this date, given the small size of the Company and its limited  operations
and over the last year, the Company utilized a preliminary and basic standard of
internal  controls and  procedures  related to its  financial  reporting for the
period  covered by this report.  Management is in the process of developing  and
adopting new and more stringent  controls and procedures.  Management expects to
be in compliance  with the internal  control  requirements of Section 404 of the
Sarbanes-Oxley Act prior to the required compliance date in 2007.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

           The following table contains information regarding the members of the
           Board of Directors  and the Executive of the Company as of the Record
           Date:


                                       24
<PAGE>

Name                Age            Position(s)
------------------ --------------- ---------------------------------------------
William Marshall     47            President, CEO and Director
------------------ --------------- ---------------------------------------------
Sterling Klein       42            CFO/Secretary/Treasurer and Director
------------------ --------------- ---------------------------------------------
Gordon A. Samson     48            Director (Resigned June 30, 2006)
------------------ --------------- ---------------------------------------------
Glen Harder          47            Director  (Resigned June 30, 2006)
------------------ --------------- ---------------------------------------------
Thomas Herdman       46            Director
------------------ --------------- ---------------------------------------------

         All of the officers  identified  above serve at the  discretion  of the
         Board  and  have  consented  to act as  officers  of the  Company.  The
         biographies for the above individuals are presented below.

         MR. WILLIAM MARSHALL, PRESIDENT, CEO

         William  Marshall  was  appointed  to his  position on May 31, 2005 and
         devotes  approximately 30% of his time to the Company. Mr Marshall is a
         financial  consultant with over 15 years of venture capital  experience
         in private and public  companies.  With an extensive history in natural
         resource markets, Mr. Marshall brings a wealth of experience to Fidelis
         in the form of financings,  corporate filings,  management, and company
         structure from his duties with several public companies.  He has served
         on five public company  boards as a director,  with duties ranging from
         Chairman  and  President,  to Chief  Executive  Officer  and  Corporate
         Secretary.

         MR. STERLING KLEIN, CFO

         Sterling  Klein was appointed to his position on September 27, 2004 and
         devotes  approximately  40% of his  time to the  Company.  Mr  Sterling
         received  his  Bachelor  of  Business   Administration  &  Co-operative
         Education  Degrees from Simon Frasier  University  in Burnaby,  British
         Columbia in 1990. Mr. Klein began his career in the petroleum  industry
         with Shell  Canada Ltd.  as an  Inventory  Analyst and as a  Production
         Accountant  with  Shell  Canada,  Mr.  Klein  was  responsible  for the
         division and analysis of petroleum  products for a production  facility
         to book monthly  revenues and provides  summary reports for management.
         Mr. Klein went on to work with Chevron Canada Ltd. as a credit analyst.
         In this role,  Mr.  Klein was  involved  with a  development  team that
         implemented new systems and procedures  company-wide.  From 1997 to the
         present,  he has been a Consultant to both public and private companies
         providing services in financial management,  corporate  administration,
         accounting  and  reporting  and held the position of Portfolio  Manager
         with a mortgage investment corporation. He also holds certificates from
         the  Canadian  Securities  Institute  and  the  University  of  British
         Columbia Professional Programs (Real Estate Finance).

         MR. GORDON A. SAMSON, DIRECTOR

         Gordon  Samson was  appointed to his  positions on February 1, 2006 and
         devotes  approximately 20% of his time to the Company. Mr. Samson is an
         accredited  accountant with approximately 20 years of experience in the
         financial  arena  including  positions  with Canada Customs and Revenue
         Agency ("CRA") (formerly Revenue Canada); a major Canadian  institution
         as a senior banker; a regional,  full service  brokerage  house;  Chief
         Financial  Officer and Chief Executive Officer positions in both the US
         and Canada serving as a director of a number of public  corporations as
         well as being a member of  various  audit  committees.  Mr.  Samson has
         further   served  as  a  consultant,   performing   due  diligence  for
         acquisitions  and other corporate  transactions  for various  reporting
         companies.  Mr. Samson's  background spans both resource and technology
         firms. GORDON SAMSON RESIGNED FROM THE BOARD ON JUNE 30, 2006.




                                       25
<PAGE>

         MR. GLEN HARDER, DIRECTOR

         Mr.  Harder was  appointed  to his  position  on  February  1, 2006 and
         devotes  approximately 20% of his time to the Company.  Mr. Harder is a
         senior  securities and corporate  finance lawyer with  approximately 20
         years  of   experience   in,  among  other  things,   structuring   and
         capitalizing   early   stage   corporations,   acquisitions,   mergers,
         takeovers,  arrangements,  corporate  governance  issues and public and
         private  debt  or  equity  financing  transactions.  Mr.  Harder's  law
         practice  is  presently  focused  on  the  natural  resource  sector  -
         primarily  oil  and  gas  exploration  and  production.   He  currently
         represents  reporting  companies in both the United  States and Canada.
         GLEN HARDER RESIGNED FROM THE BOARD ON JUNE 30, 2006.

         MR. THOMAS HERDMAN, DIRECTOR

         Mr.  Herdman  was  appointed  to his  position  on February 1, 2006 and
         devotes approximately 30% of his time to the Company. Thomas Herdman is
         a  management  consultant  and  financial  translator  for  Pacific Rim
         companies.  Until  recently,  he was  based in Tokyo,  Japan,  where he
         worked with  companies in the Asian  Pacific area for 16 years and also
         held the position of Lecturer at Chuo Law University in Tokyo, Japan.

         There are no family  relationships  among the  directors  or  executive
         officers of the Company.

         No  director  or  executive  officer  of ours  has been a  director  or
         executive  officer  of any  business,  which  has  filed  a  bankruptcy
         petition, or had a bankruptcy petition filed against it. No director or
         executive  officer of ours has been convicted of a criminal  offence or
         is the  subject  of a  pending  criminal  proceeding.  No  director  or
         executive  officer of ours has been the subject of any order,  judgment
         or decree of any court permanently or temporarily  enjoining,  barring,
         suspending  or  otherwise  limiting  his  involvement  in any  type  of
         business, securities or banking activities.

         No  director  or  officer  of ours  has  been  found by a court to have
         violated a federal or state securities or commodities law.

         DIRECTOR COMPENSATION

         Directors currently do not receive cash compensation for their services
         as members of the Board of Directors,  although  members are reimbursed
         for  expenses  in  connection  with  attendance  at Board of  Directors
         meetings  and specific  business  meetings.  Directors  are eligible to
         participate  in our stock option plans.  Option grants to directors are
         at the discretion of the Board of Directors.  Compensation  received by
         officers,  directors,  and management personnel will be determined from
         time  to time by our  Board  of  Directors.  Officers,  directors,  and
         management personnel will be reimbursed for any out-of-pocket  expenses
         incurred on our behalf.

         Other than as described above, our directors have consulting agreements
         with the Company as filed on Form 8-K February  13, 2006.  The salaries
         shown in the following table are for the year ending December 31, 2005.

         COMMITTEES OF THE BOARD OF DIRECTORS

         It  is  intended   that  Messrs.   Samson(resigned   June  30,   2006),
         Harder(resigned  June 30, 2006) and Klein will serve on the Company's s
         audit committee.  The audit committee reports to the Board of Directors
         regarding the appointment of our independent  public  accountants,  the
         scope and results of our annual audit,  compliance  with our accounting
         and  financial  policies  and  management's   procedures  and  policies
         relative to the adequacy of our internal accounting controls.



                                       26
<PAGE>

         SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934  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 Securities and Exchange  Commission  (the
         "SEC") initial reports of ownership and reports of changes in ownership
         of common stock and other equity  securities of the Company.  Officers,
         directors and greater than ten percent stockholders are required by SEC
         regulation  to furnish  the Company  with  copies of all Section  16(a)
         forms they file.

         To the  Company's  knowledge,  based  solely on review of the copies of
         such reports furnished to the Company and representations that no other
         reports were  required  during the year ended  December  31, 2006,  and
         except as disclosed elsewhere in this document, the Company's officers,
         directors and greater than ten percent  beneficial owners have complied
         with all Section 16(a) filing requirements timely

         ITEM 11. EXECUTIVE COMPENSATION

         SUMMARY COMPENSATION TABLE.
         The following  summary  compensation  table shows certain  compensation
         information for services rendered in all capacities for the years ended
         December 31,  2006,  2005,  2004 and 2003.  The  following  information
         includes the dollar value of base salaries,  bonus awards, the value of
         restricted shares issued in lieu of cash compensation and certain other
         compensation, if any, whether paid or deferred:

<TABLE>
<CAPTION>
         Officers Compensation table for 2006
     ---------------- -------- --------- --------- --------- --------- ---------- ------------ ---------- --------------
          Name         Year     Salary    Bonus     Stock     Option     Non-      Change in      All         Total
           and                   ($)       ($)      Awards    Awards    Equity      Pension      Other         ($)
        Principal                                    ($)       ($)     Incentive   Value and    Compen-
        Position                                                         Plan      Nonquali-    sation
                                                   (S8
                                                    stock)              Compen-      fied         ($)
                                                                        sation     Deferred
                                                                          ($)      Compensa-
                                                                                     tion
                                                                                   Earnings
                                                                                      ($)
           (a)          (b)       (C)        (d)       (e)       (f)        (g)         (h)         (i)          (j)
     ---------------- -------- --------- --------- --------- --------- ---------- ------------ ---------- --------------
<S>                   <C>      <C>       <C>       <C>       <C>       <C>        <C>          <C>        <C>
     Scott Marshall      2006   226,000             350,000         0          0            0          0        576,000
     President, CEO      2005    47,000                                                                          47,000
     & Director          2004
                         2003
     ---------------- -------- --------- --------- --------- --------- ---------- ------------ ---------- --------------

     ---------------- -------- --------- --------- --------- --------- ---------- ------------ ---------- --------------
     Sterling Klein      2006   141,000             140,000         0          0            0          0        281,000
     Chief Financial     2005    76,000                                                                          76,000
     Officer &
     Director            2004
                         2003
     ---------------- -------- --------- --------- --------- --------- ---------- ------------ ---------- --------------
</TABLE>


                                       27
<PAGE>


<TABLE>
<CAPTION>
         Compensation table for Current Directors 2006
----------------- ---------- --------- --------- -------------- --------------- -------------- ---------
      Name          Fees      Stock     Option    Non-Equity      Change in       All other     Total
                                    Incentive
                   Earned     Awards    Awards       Plan          Pension      Compensation     ($)
                     or        ($)       ($)     Compensation     Value and          ($)
                   Paid in                            ($)        Nonqualified
                             (S8
                    Cash      Stock)                               Deferred
                     ($)                                         Compensation
                                                                   Earnings
      (a)            (b)        (C)        (d)          (e)            (f)             (g)         (h)
----------------- ---------- --------- --------- -------------- --------------- -------------- ---------
<S>               <C>        <C>       <C>       <C>            <C>             <C>            <C>
Tom Herdman          98,365   140,000                                                           238,365
Glen Harder                   280,000                                                           280,000
Gordon Samson        24,000   210,000                                                           234,000
----------------- ---------- --------- --------- -------------- --------------- -------------- ---------
</TABLE>


<TABLE>
<CAPTION>
         Compensation table for previous Directors, now resigned.
------------- --------------------------------------------- -----------------------------------------------------------
                          ANNUAL COMPENSATION                                 LONG-TERM COMPENSATION
                                                            RESTRICTED
                                   OTHER STOCK
                                                ACCRUED     AWARDS                             LTIP         ALL OTHER
NAME &          YEAR     SALARY     BONUS    COMPENSATION   IN SHARES           OPTIONS/SARS   PAYOUTS   COMPENSATION
PRINCIPAL
POSITION
<S>             <C>      <C>        <C>      <C>            <C>                 <C>            <C>       <C>
Dan Hodges        2005         --        --             --         --                     --         --             --
                  2004   110,056-        --             --         --                     --         --             --
                  2003         --        --             --         --                     --         --             --
Frank
Anjakos           2005         --        --             --         --                     --         --             --
                  2004     81,333                             250,000
                  2003     18,000        --             --                                --         --             --
James
Marshall          2005         --        --             --         --                     --         --             --
                  2004     29,000        --             --    250,000                     --         --             --
                  2003
Julianne
Degrendele        2005         --        --             --         --                     --         --             --
                  2004     53,167        --             --    250,000                     --         --             --
                  2003         --        --             --         --                     --         --             --
Jeff Paro         2005         --        --             --         --                     --         --             --
                  2004     28,000        --             --    250,000                     --         --             --
                  2003         --        --             --         --                     --         --             --
Robert
Hadley            2005         --        --             --         --                     --         --             --
                  2004     28,000        --             --    250,000                     --         --             --
                  2003         --        --             --         --                     --         --             --
------------- --------- ---------- --------- -------------- ---------- -------- ------------- ---------- --------------
</TABLE>

         OPTIONS/SAR GRANTS OR EXERCISES AND LONG TERM INCENTIVE PLAN

         There are no stock option  grants,  Stock  Appreciation  Rights (SAR's)
         grants,  options/SAR  exercises or Long Term  Incentive  Plans (LTIP's)
         awarded to the named  executive  officers  in the last three  financial
         years.

         DEFINED BENEFIT OF ACTUARIAL PLAN

         The Company does not have a defined benefit or actuarial plan in place.




                                       28
<PAGE>

         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table contains information about the beneficial ownership
         of our common stock as of December 31, 2006, for:

         (i)      each person who  beneficially  owns more than five  percent of
                  the common stock;

         (ii)     each of our directors;

         (iii)    the  named  executive  officers;  and (iv) all  directors  and
                  executive officers as a group.

<TABLE>
<CAPTION>
------------- ---------------------------------- ---------------------------- -------------
TITLE OF      NAME AND ADDRESS OF BENEFICIAL     AMOUNT AND NATURE OF         PERCENT OF
CLASS         OWNER                              BENEFICIAL OWNERSHIP         CLASS (1)
------------- ---------------------------------- ---------------------------- -------------
<S>           <C>                                <C>                          <C>
Common Stock  TMC Capital Trust       2720 -                      20,584,000        12.34%
              200 Granville St.  Vancouver,
              B.C. Canada Thomas Herdman, Trustee for William Marshall
------------- ---------------------------------- ---------------------------- -------------
Common Stock  SNK Capital Trust                                   20,584,000        12.34%
-------------                                    ---------------------------- -------------
              P.O. Box N-8198
-------------                                    ---------------------------- -------------
              Nassau, Bahamas
-------------                                    ---------------------------- -------------
              Gaye Knowles, Trustee
-------------                                    ---------------------------- -------------
              for Sak Narwal
------------- ---------------------------------- ---------------------------- -------------
Common Stock  Sterling Klein                                         716,667         0.43%
-------------                                    ---------------------------- -------------
              6421 Chaucer Place Burnaby,
              B.C.  Canada
------------- ---------------------------------- ---------------------------- -------------
Common Stock  All Officers and Directors as a                     21,300,667        12.77%
              group
------------- ---------------------------------- ---------------------------- -------------
Total                                                             41,884,667        25.11%
------------- ---------------------------------- ---------------------------- -------------
</TABLE>

(1) BASED UPON  166,834,354  SHARES OF COMMON STOCK  OUTSTANDING  AT THE DATE OF
THIS REPORT.


ITEM 13.  CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS

The Company has borrowed  money from a  shareholder  in order to pay general and
administrative  expenses.  For purposes of these financial statements,  interest
has been calculated at an imputed interest rate of 6 percent. As of December 31,
2006 and December 31,  2005,  the Company owed $6,309 and $3,130,  respectively,
relating to these notes.

On February 25, 2004, the Company purchased  17,430,000 of its common shares for
a loan  payable  of  $105,000.  These  shares  were  returned  to  treasury  and
cancelled.  Interest  at a rate of 4.22% has been  imputed  on the  loan.  As of
December 31, 2006 and 2005, the Company owes $63,340 and $114,147 on this loan.

The Company has a "working interest"  relationship with Silver Star Energy, Inc.
(SVSE:  OTC:  BB).  Both  companies  have an interest in the North  Franklin gas
project in Sacramento, California. The management of both companies work closely
together on projects  and have  contemplated,  or are  contemplating  additional
jointly operated projects in the future.  Also, the two companies share a common
origin  in  that  certain   beneficial   shareholders  of  both  companies  have
contributed to their formation.



                                       29
<PAGE>

On April 2, 2004, the Company borrowed  $305,000 from a related party for direct
payment on oil and gas properties. The loan had an original due date of April 2,
2005 and bears  interest  of 5%.  The note has been  extended  indefinitely.  At
December  31,  2006,   and  2005,   the  Company  owed  $288,655  and  $332,703,
respectively, on this loan.

On April 6, 2006, the Company borrowed $165,000 from a related party for general
working capital and project development  purposes.  The loan has a one year term
and bears  interest of 5%. At  December  31,  2006 and 2005,  the  Company  owed
$66,423 and $0, respectively, on this loan.

On June 30,  2006,  $300,000  was put  In-Trust  with the Company from a working
partner. The Company demanded and it was agreed that these funds be put In-Trust
to ensure that the North Franklin development program would continue as planned.
At December 31, 2006, $15,000 was due to the working partner.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The following  table sets forth the fees billed to the Company for  professional
services  rendered by the  Company's  principal  accountant,  for the year ended
December31, 2006 and December 31, 2005:

         SERVICES                 2006             2005
         Audit fees               30,719           29,880
         Audit related fees       -                -
         Tax fees                 -                200
         All other fees           -                -

         Total fees               30,719           30,080

AUDIT FEES.  Consist of fees billed for professional  services  rendered for the
audits  of  our  financial  statements,  reviews  of  our  interim  consolidated
financial  statements  included in  quarterly  reports,  services  performed  in
connection  with filings with the  Securities & Exchange  Commission and related
comfort letters and other services that are normally provided by Robison, Hill &
Company in connection with statutory and regulatory filings or engagements.

TAX FEES.  Consist of fees billed for professional  services for tax compliance,
tax  advice  and tax  planning.  These  services  include  assistance  regarding
federal,  state and local tax compliance  and  consultation  in connection  with
various transactions and acquisitions.

Audit  Committee  Pre-Approval of Audit and  Permissible  Non-Audit  Services of
Independent Auditors

The Audit Committee is to pre-approve all audit and non-audit  services provided
by  the  independent  auditors.  These  services  may  include  audit  services,
audit-related  services,  tax services  and other  services as allowed by law or
regulation.  Pre-approval  is  generally  provided  for up to one  year  and any
pre-approval  is detailed as to the  particular  service or category of services
and is generally  subject to a specifically  approved  amount.  The  independent
auditors  and  management  are  required  to  periodically  report  to the Audit
Committee regarding the extent of services provided by the independent  auditors
in accordance  with this  pre-approval  and the fees incurred to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.

The  Audit  Committee  pre-approved  100%  of the  Company's  2006  audit  fees,
audit-related  fees,  tax fees,  and all other fees to the  extent the  services
occurred  after May 6, 2004,  the effective  date of the Securities and Exchange
Commission's final pre-approval rules.




                                       30
<PAGE>

PART IV

Item 15. Exhibits and Reports on 8-K

The following  documents are filed herewith or have been included as exhibits to
previous  filings  with  the  Commission  and are  incorporated  herein  by this
reference:

1.   FINANCIAL STATEMENTS                                                   PAGE

Report of Robison, Hill & Co., Independent Registered Public Accountants.....F-1
Balance Sheets
     December 31, 2006, and 2005.............................................F-3
Statements of Operations
     For the Years Ended December 31, 2006, and 2005.........................F-5
Statement of Stockholders' Equity
     For the Years Ended December 31, 2006, and 2005.........................F-6
Statements of Cash Flows
     For the Years Ended December 31, 2006, and 2005.........................F-7
Notes to Financial Statements................................................F-9

(A)     Exhibits

Exhibit No.   Exhibit

3i       Articles of Incorporation (1)

3ii      Bylaws (1)

31.1     Certification  Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002.

31.2     Certification  Pursuant  to Section  302 of the  Sarbanes-Oxley  Act of
         2002.

32.1     Certification  Pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
         2002.

32.2     Certification  Pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
         2002.

         (1)  Incorporated  by  reference  to  the   Registrant's   registration
         statement on Form 10-SB filed on January 14, 2002.

(B) Reports on Form 8-K

         On January 12,  2006,  the Company  filed on Form 8-K,  under Item 3.02
Unregistered Sales of Equity Securities.

         On February 13, 2006,  the Company  filed on Form 8-K,  under Item 1.01
Entry Into a Material Definitive Agreement, and Item 5.02 Departure of Directors
or Principal Officers; Election of Directors; Appointment of Principal Officers.

         On March 6,  2006,  the  Company  filed on Form  8-K,  under  Item 3.02
Unregistered Sales of Equity Securities.

         On April 10, 2006, the Company filed on Form 8-K, under Item 1.01 Entry
Into a Material Definitive Agreement.

         On April 26,  2006,  the  Company  filed on Form 8-K,  under  Item 7.01
Regulation FD Disclosure.

         On June 27, 2006,  the Company filed on Form 8-K, under Item 1.01 Entry
Into a Material Definitive Agreement.

         On July 7,  2006,  the  Company  filed on Form  8-K,  under  Item  5.02
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, and under Item 7.01 Regulation FD Disclosure.



                                       31
<PAGE>

         On July 11,  2006,  the  Company  filed on Form  8-K,  under  Item 5.02
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, and under Item 7.01 Regulation FD Disclosure.

         On August 28,  2006,  the  Company  filed on Form 8-K,  under Item 7.01
Regulation FD Disclosure.

         On September 18, 2006,  the Company  filed on Form8-K,  under Item 5.02
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.


































                                       32
<PAGE>














                              FIDELIS ENERGY, INC.

                                       -:-

                    INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS'
                                     REPORT

                           DECEMBER 31, 2006 AND 2005



















<PAGE>






                                TABLE OF CONTENTS


                                                                        Page

Report of Independent Registered Public Accountants.......................F-1

Balance Sheets
   December 31, 2006 and 2005.............................................F-3

Statements of Operations
   For the Years Ended December 31, 2006 and 2005.........................F-5

Statement of Stockholders' Equity
   For the Years Ended December 31, 2006 and 2005 ........................F-6

Statements of Cash Flows
   For the Years Ended December 31, 2006 and 2005.........................F-7

Notes to the Financial Statements.........................................F-9

























<PAGE>









               REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders
Fidelis Energy, Inc.

         We have audited the accompanying balance sheets of Fidelis Energy, Inc.
as of December  31, 2006 and 2005,  and the related  statements  of  operations,
stockholders'  equity and cash flows for the years ended  December  31, 2006 and
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 audit.

         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 audit 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 audit 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 also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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 Fidelis Energy, Inc.
as of December 31, 2006 and 2005, and the results of its operations and its cash
flows  for the  years  ended  December  31,  2006  and 2005 in  conformity  with
accounting principles generally accepted in the United States of America.












                                      F - 1

<PAGE>



         The accompanying  financial statements have been prepared assuming that
the Company  will  continue as a going  concern.  As  discussed in Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital  deficiency that raise substantial doubt about its ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.




                                                     /s/ Robison, Hill & Co.
                                                    Certified Public Accountants
Salt Lake City, Utah
March 29, 2007


































                                      F - 2

<PAGE>



                              FIDELIS ENERGY, INC.
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                     December 31,
ASSETS                                                          2006               2005
                                                         ------------------  -----------------
Current Assets
<S>                                                      <C>                 <C>
  Cash                                                   $            5,919  $         232,758
  Accounts receivable                                               390,135            457,865
  Other receivable                                                  176,661            246,667
                                                         ------------------  -----------------

     Total Current Assets                                           572,715            937,290
                                                         ------------------  -----------------

Oil and Gas Properties, Using Successful Efforts Method
  Oil and Gas Leases                                                      -            812,723
  Oil and Gas Exploration Costs                                   2,445,408          1,549,150
   Less: Depletion                                                 (444,883)          (124,137)
                                                         ------------------  -----------------

     Total Oil and Gas Properties                                 2,000,525          2,237,736
                                                         ------------------  -----------------

Other Assets
   Prepaid                                                            5,173              5,173
   Property and Equipment - net                                      50,723             51,924
                                                         ------------------  -----------------

     Total Other Assets                                              55,896             57,097
                                                         ------------------  -----------------

     Total Assets                                        $        2,629,136  $       3,232,102
                                                         ==================  =================
</TABLE>


















                                      F - 3

<PAGE>



                               FIDELIS ENERGY, INC
                                 BALANCE SHEETS
                                   (Continued)


<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                   2006                 2005
                                                                            -------------------  ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
<S>                                                                         <C>                  <C>
  Accounts Payable                                                          $           109,396  $           21,756
  Accrued Liabilities                                                                    35,146             136,063
  Notes Payable                                                                         352,884             424,390
  Related Party Note                                                                    433,418             146,279
 Shareholder Loan                                                                         6,309               3,130
 Credit Line Note Payable - current portion                                             868,006                   -
 Convertible Debenture - current portion                                              3,099,164                   -
                                                                            -------------------  ------------------

     Total Current Liabilities                                                        4,904,323             731,618
                                                                            -------------------  ------------------

Long-Term Liabilities
  Asset Retirement Obligation                                                            60,000             285,000
  Credit Line Note Payable                                                                    -           1,790,501
  Convertible Debenture                                                                       -           1,256,678
  Derivative Liability                                                                1,583,058           2,503,507
                                                                            -------------------  ------------------

     Total Long-Term Liabilities                                                      1,643,058           5,835,686
                                                                            -------------------  ------------------

      Total Liabilities                                                               6,547,381           6,567,304
                                                                            -------------------  ------------------


Stockholders' Equity
  Common Stock (Par Value  $.001),  100,000,000  shares  authorized.  issued and
    166,834,354  shares  outstanding at December 31, 2006 and 148,584,354 issued
    and outstanding
    at  December 31, 2005                                                               166,834             148,584
 Treasury Stock issued 54,000,000 at December 31, 2006
    and December 31, 2005                                                           (10,800,000)        (10,800,000)
  Paid in Capital in Excess of Par Value                                             12,802,084          11,106,584
  Retained Deficit                                                                   (6,087,163)         (3,790,370)
                                                                            -------------------  ------------------

     Total Stockholders' Equity                                                      (3,918,245)         (3,335,202)
                                                                            -------------------  ------------------

     Total Liabilities and Stockholders' Equity                             $         2,629,136  $        3,232,102
                                                                            ===================  ==================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F - 4

<PAGE>



                              FIDELIS ENERGY, INC.
                            STATEMENTS OF OPERATIONS


                                                   For the Years Ended
                                                      December 31,
                                                 2006               2005
                                          ------------------  -----------------
Production Income                         $        1,971,262  $       1,395,849
Cost of Operations                                   572,077            231,508
                                          ------------------  -----------------
   Gross Profit                                    1,399,185          1,164,341

Expenses
  Exploration costs, including dry holes              87,857            270,962
  Corporate Finance Fees                             250,000            257,500
  Consulting                                       2,589,019            127,354
  Depletion and amortization                          18,256            124,137
  General and Administrative                         314,631            278,159
  Legal and Professional                             181,543            136,063
  Salaries and Directors fees                              -            119,798
  Selling and Marketing                              134,156                  -
                                          ------------------  -----------------
     Total Expenses                                3,575,462          1,313,973
                                          ------------------  -----------------

Other Income ( Expense)
   Derivative Valuation Gain (Loss)                  920,449         (2,503,507)
   Interest Expense                                 (828,262)          (134,772)
   Gain/Loss on sale of assets                      (212,703)           (55,168)
                                          ------------------  -----------------
      Total Other Income (Expense)                  (120,516)        (2,693,447)
                                          ------------------  -----------------

Net Income (Loss)                         $       (2,296,793) $      (2,843,079)
                                          ==================  =================

Income (Loss) per Share
  Loss from Operations                    $           (0.01)  $          (0.03)
                                          ==================  =================

Weighted Average Shares Outstanding              156,864,316        101,076,187
                                          ==================  =================




   The accompanying notes are an integral part of these financial statements.

                                      F - 5

<PAGE>



                              FIDELIS ENERGY, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                                  Paid in
                                                                                 Capital in
                                                  Common Stock                   Excess of            Treasury           Retained
                                           --------------------------------
                                           Shares              Amount            Par Value             Stock              Deficit
                                           ------------   -----------------  ------------------  ---------------  -----------------
<S>                                        <C>            <C>                <C>                 <C>              <C>
Balance at December 31, 2004                 95,584,354   $          94,584  $          360,584  $             -  $        (947,291)

November 17, 2005 - Treasury
  Stock @ $0.20                              54,000,000              54,000          10,746,000      (10,800,000)                 -

Net Income (Loss)                                     -                   -                   -                -         (2,843,079)
                                           ------------   -----------------  ------------------  ---------------  -----------------

Balance at December 31, 2005                148,584,354             148,584          11,106,584      (10,800,000)        (3,790,370)

March 2006 - Shares issued for
   Consulting services                          750,000                 750             168,000                -                  -
April 2006 - Shares issued for services of
   Officers and directors                    10,000,000              10,000           1,390,000                -                  -
October 2006 - Shares issued for
   Convertible debt                           1,562,500               1,563              48,437                -                  -
November 2006 - Shares issued for
   Convertible debt                           5,937,500               5,937              89,063                -                  -

Net Income (Loss)                                     -                   -                   -                -         (2,296,793)
                                           ------------   -----------------  ------------------  ---------------  -----------------

Balance at December 31, 2006                166,834,354   $         166,834  $       12,802,084  $   (10,800,000) $      (6,087,163)
                                           ============   =================  ==================  ===============  =================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F - 6

<PAGE>



                              FIDELIS ENERGY, INC.
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                            For the Years Ended
                                                                 December 31,
                                                          2006                 2005
                                                    ------------------  ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                 <C>                 <C>
Net Loss                                            $       (2,296,793) $     (2,843,079)
Adjustments used to reconcile net loss to net
  cash provided by (used in) operating activities:
   Depreciation, Amortization and Depletion                    339,002           144,298
   Common stock issued for expenses                          1,568,750                 -
   (Gain) loss on disposal of assets                           212,702            55,168
   Derivative valuation gain (loss)                           (920,449)        2,503,507
   Accredited to convertible debenture
   Asset retirement obligation                                       -
(Increase) decrease in accounts receivable                     137,736          (704,532)
(Increase) decrease in other receivable                              -
Increase (decrease) in accounts payable                         87,639           (60,547)
Increase (decrease) in accrued liabilities                    (100,917)           74,512
Increase (decrease) in accrued interest                        829,536             6,678
                                                    ------------------  ----------------
Net cash used in operating activities                         (142,794)         (823,995)
                                                    ------------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/Sale of equipment, net                             (17,055)          (28,894)
Proceeds from sale of oil & gas property                       360,000                 -
Oil & Gas exploration costs                                   (881,258)         (791,681)
                                                    ------------------  ----------------
Net cash used by investing activities                         (538,313)         (820,575)
                                                    ------------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debentures                         1,250,000         1,250,000
Proceeds from credit line                                            -           568,167
Proceeds from note payable                                     430,000            59,101
Proceeds from related party loan                                     -                 -
Proceeds from shareholder loan                                   3,000               142
Overdrawn cash                                                       -               (82)
Payment on credit line                                        (980,000)                -
Payment on related party loan                                 (144,732)                -
Payment on notes payable                                      (104,000)                -
                                                    ------------------  ----------------
Net Cash Provided by Financing  Activities                     454,268         1,877,328
                                                    ------------------  ----------------
</TABLE>




                                      F - 7

<PAGE>


                              FIDELIS ENERGY, INC.
                            STATEMENTS OF CASH FLOWS
                                   (continued)




                                              For the Year Ended
                                                 December 31,
                                          2006                   2005
                                     ------------------  -----------------

Net Increase (Decrease) in
   Cash  and Cash Equivalents                  (226,839)           232,758
Cash and Cash Equivalents at
   Beginning of the Period                      232,758                  -
                                     ------------------  -----------------
Cash and Cash Equivalents at
   End of the Period                 $            5,919  $         232,758
                                     ==================  =================

SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
Interest                             $                   $               -
Income Taxes                         $              800  $               -

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:

         On October 25,  2006,  the Company  issued  1,562,500  shares of common
stock in exchange for convertible debt of $50,000.

         On November 29, 2006,  the Company  issued  5,937,500  shares of common
stock in exchange for convertible debt of $95,000.












                    The  accompanying  notes  are  an  integral  part  of  these
financial statements.

                                      F - 8

<PAGE>


                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.       NATURE OF OPERATIONS AND GOING CONCERN

         The accompanying  financial  statements have been prepared on the basis
         of accounting principles applicable to a "going concern",  which assume
         that the Company will  continue in operation  for at least one year and
         will be able to realize its assets and discharge its liabilities in the
         normal course of operations.

         Several conditions and events cast doubt about the Company's ability to
         continue as a "going  concern".  The Company has a retained  deficit of
         approximately  $6,000,000,  and is in default of the  November  18,2005
         terms of its  convertible  debenture.  As of  December  31,  2006,  the
         Company  does not have  sufficient  cash  flow to  repay  the  original
         offering  amount  in cash.  Liquidated  damages  of 2% per month of the
         amount of the  debentures  is currently  being  accrued.  These factors
         raise  substantial  doubt about the Company's  ability to continue as a
         going  concern.  The Company is  evaluating  alternatives  to repay the
         convertible debenture.

         As of December 31, 2006,  the Company's  cash flow from  operations did
         not  exceed  its  general  and  administrative  and  other  operational
         expenses.  In order to ensure  sufficient  capital was  available,  the
         Company  arranged  several  small  interim  loans.  The Company is also
         actively  looking at competitive  finance  sources that could assist in
         accelerating  the  continuing  exploration  program  and  oil  and  gas
         operations.

         The  Company's  future  capital  requirements  will  depend on numerous
         factors including,  but not limited to, acquiring  interests in various
         exploration and production  opportunities  and the continued success of
         its current oil and gas operations.

         These  financial  statements do not reflect  adjustments  that would be
         necessary if the Company were unable to continue as a "going  concern".
         While  management  believes that the actions  already taken or planned,
         will mitigate the adverse conditions and events which raise doubt about
         the validity of the "going concern"  assumption used in preparing these
         financial statements, there can be no assurance that these actions will
         be successful.

         Organization and Basis of Presentation

         The Company was  incorporated  under the laws of the State of Nevada on
         November  6, 2000.  Since  November  6, 2000,  the  Company  was in the
         development stage, and had not commenced planned principal  operations.
         On June 10,  2003,  the Company  changed its name to Eagle Star Energy,
         Inc. to reflect the current  direction of the company.  On February 24,
         2004, the Company changed its name to Fidelis Energy,  Inc. The Company
         operated as a  development  stage  company  until the first  quarter of
         2004,  when it began  exploration  for oil and gas.  During  the second
         quarter  of 2004,  the  Company  acquired  a proven  well field and was
         setting up the  extraction  process with some  revenue  generated as at
         December 31, 2004.

         Nature of Business

         The Company is  presently  in the  production  stage of the oil and gas
         industry.  The Company's primary objective is to identify,  acquire and
         develop working interest percentages in smaller, underdeveloped oil and
         gas projects in California and Canada that do not meet the requirements
         of the larger producers and developers.  The Company intends to acquire
         additional smaller, underdeveloped producers generally under control of
         small family-owned operators who are interested in selling out.



                                     F - 9
<PAGE>


                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.         SIGNIFICANT ACCOUNTING POLICIES

         This summary of accounting  policies for Fidelis Energy is presented to
         assist  in  understanding  the  Company's  financial  statements.   The
         accounting policies conform to generally accepted accounting principles
         and have been consistently  applied in the preparation of the financial
         statements.

          (A)     ACCOUNTING ESTIMATES

                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles requires management
                  to make  estimates  and  assumptions  that affect the reported
                  amount of assets and  liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported  amount of revenues  and expenses  during the
                  period. Actual results may differ from those estimates.

         (B)      CASH EQUIVALENTS

                  For purposes of the  statement of cash flows cash  equivalents
                  usually consist of highly liquid investments which are readily
                  convertible  into cash with  maturity of three  months or less
                  when purchased.

         (C)      RECLASSIFICATION

                  Certain reclassifications have been made in the 2005 financial
                  statements to conform with the 2006 presentation.

         (D)      CONCENTRATION OF CREDIT RISK

                  The    Company    has   no    significant    off-balance-sheet
                  concentrations   of  credit  risk  such  as  foreign  exchange
                  contracts,   options   contracts  or  other  foreign   hedging
                  arrangements.  The Company  maintains the majority of its cash
                  balances with one financial institution, in the form of demand
                  deposits.

         (E)      FIXED ASSETS

                  Property and Equipment are stated at cost.  Depreciation  and
                  amortization is calculated on a  straight-line  basis over the
                  estimated useful lives of the assets as follows:

                                          Asset                 Rate
                      Computer hardware                     3 - 5 years
                      Office Equipment                      3 - 5 years
                      Office furniture and equipment        5 - 7 years
                      Leasehold improvements                Term of Lease

                  Maintenance and repairs are charged to operations; betterments
                  are  capitalized.  The  cost of  property  sold  or  otherwise
                  disposed  of  and  the  accumulated  depreciation  thereon  is
                  eliminated   from  the   property   and  related   accumulated
                  depreciation  accounts,  and  any  resulting  gain  or loss is
                  credited or charged to income.

                  Depreciation  expense for the year ended December 31, 2006 and
                  2005 was $18,256 and $20,161, respectively.



                                     F - 10
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         (F)      OIL  AND  GAS  ACTIVITIES  -  SUCCESSFUL   EFFORTS  METHOD  OF
                  ACCOUNTING  On April 4,  2005,  the FASB  adopted  FASB  Staff
                  Position  FSP FAS 19-1  that  amends  Statement  of  Financial
                  Accounting Standards No. 19 (FAS 19), Financial Accounting and
                  Reporting by Oil and Gas  Producing  Companies,  to permit the
                  continued  capitalization of exploratory well costs beyond one
                  year if (a) the well found a  sufficient  quantity of reserves
                  to justify  its  completion  as a  producing  well and (b) the
                  entity is making  sufficient  progress  assessing the reserves
                  and the economic and operating viability of the project

                  The Company accounts for its crude oil exploration and natural
                  gas development  activities  utilizing the successful  efforts
                  method of accounting.  Under this method,  costs of productive
                  exploratory wells,  development dry holes and productive wells
                  and  undeveloped  leases  are  capitalized.  Oil and gas lease
                  acquisition  costs are also  capitalized.  Exploration  costs,
                  including personnel costs,  certain geological and geophysical
                  expenses and delay rentals for oil and gas leases, are charged
                  to  expense  as  incurred.   Exploratory  drilling  costs  are
                  initially capitalized,  but charged to expense if and when the
                  well is  determined  not to have found  reserves in commercial
                  quantities.  The  sale  of a  partial  interest  in  a  proved
                  property is  accounted  for as a cost  recovery and no gain or
                  loss  is  recognized  as  long  as  this  treatment  does  not
                  significantly affect the unit-of-production amortization rate.
                  A gain or loss is recognized  for all other sales of producing
                  properties.

                  The application of the successful efforts method of accounting
                  requires   managerial   judgment  to  determine   that  proper
                  classification   of  wells   designated  as  developmental  or
                  exploratory   which  will  ultimately   determine  the  proper
                  accounting treatment of the costs incurred. The results from a
                  drilling  operation can take  considerable time to analyze and
                  the   determination   that   commercial   reserves  have  been
                  discovered  requires  both  judgment and industry  experience.
                  Wells may be completed  that are assumed to be productive  and
                  actually deliver oil and gas in quantities  insufficient to be
                  economic,  which may result in the abandonment of the wells at
                  a later date.  Wells are drilled that have  targeted  geologic
                  structures  that are both  developmental  and  exploratory  in
                  nature and an  allocation  of costs is  required  to  properly
                  account  for the  results.  Delineation  seismic  incurred  to
                  select  development  locations  within an oil and gas field is
                  typically  considered a development cost and capitalized,  but
                  often these  seismic  programs  extend beyond the reserve area
                  considered  proved and management must estimate the portion of
                  the seismic  costs to expense.  The  evaluation of oil and gas
                  leasehold  acquisition costs requires  managerial  judgment to
                  estimate  the fair  value of these  costs  with  reference  to
                  drilling activity in a given area.  Drilling  activities in an
                  area by other companies may also effectively condemn leasehold
                  positions.

                  The  successful  efforts  method  of  accounting  can  have  a
                  significant  impact on the operational  results  reported when
                  the  Company is  entering a new  exploratory  area in hopes of
                  finding  an oil and gas field that will be the focus of future
                  development  drilling activity.  The initial exploratory wells
                  may be unsuccessful and will be expensed. Seismic costs can be
                  substantial  which  will  result  in  additional   exploration
                  expenses when incurred.



                                     F - 11
<PAGE>


                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

                  RESERVE ESTIMATES

                  Estimates  of  oil  and  gas  reserves,   by  necessity,   are
                  projections  based on geologic and engineering  data and there
                  are uncertainties  inherent in the interpretation of such data
                  as well as the  projection of future rates of  production  and
                  the timing of development expenditures. Reserve engineering is
                  a subjective process of estimating  underground  accumulations
                  of oil and gas that are difficult to measure.  The accuracy of
                  any reserve estimate is a function of the quality of available
                  data, engineering and geological interpretations and judgment.
                  Estimates of economically recoverable oil and gas reserves and
                  future  net cash  flows  necessarily  depend  upon a number of
                  variable   factors  and   assumptions,   such  as   historical
                  production  from the area compared with  production from other
                  producing   areas,  the  assumed  effects  of  regulations  by
                  governmental agencies and assumptions governing future oil and
                  gas  prices,   future   operating   costs,   severance  taxes,
                  development  costs and workover gas costs, all of which may in
                  fact  vary  considerably  from  actual  results.   The  future
                  drilling  costs  associated  with reserves  assigned to proved
                  undeveloped  locations may  ultimately  increase to the extent
                  that these reserves may be later  determined to be uneconomic.
                  For these reasons,  estimates of the economically  recoverable
                  quantities of oil and gas attributable to any particular group
                  of properties,  classifications of such reserves based on risk
                  of  recovery,  and  estimates  of the  future  net cash  flows
                  expected  therefrom may vary  substantially.  Any  significant
                  variance  in  the  assumptions  could  materially  affect  the
                  estimated  quantity  and value of the  reserves,  which  could
                  affect the carrying value of our oil and gas properties and/or
                  the rate of  depletion of the oil and gas  properties.  Actual
                  production,  revenues  and  expenditures  with  respect to our
                  reserves will likely vary from  estimates,  and such variances
                  may be material.

                  Total  depletion  expense for the year ended December 31, 2006
                  and 2005 was $320,746 and $124,137, respectively.

         (G)      ASSET RETIREMENT OBLIGATIONS

                  In the fourth quarter 2005, we adopted FASB Interpretation No.
                  47,  "Accounting for Contingent Asset Retirement  Obligations"
                  ("FIN  47"),  an  interpretation  of FASB  Statement  No. 143,
                  "Asset Retirement  Obligations" ("SFAS 143"). FIN 47 clarifies
                  that the term  "conditional  asset  retirement  obligation" as
                  used in SFAS 143  refers to a legal  obligation  to perform an
                  asset retirement  activity in which the timing and (or) method
                  of settlement  are  conditional  on a future event that may or
                  may not be within  the  control  of the  entity.  An entity is
                  required  to  recognize  a  liability  for the fair value of a
                  conditional  asset retirement  obligation if the fair value of
                  the liability can be reasonably estimated, even if conditional
                  on a future event.  For existing  contingent  asset retirement
                  obligations which are determined to be recognizable  under FIN
                  47, at  December  31,  2005,  the company  had  recognized  an
                  estimated  obligation  of  $285,000  for  potential  plugging,
                  abandonment  and/or remedial costs of our  operations.  In the
                  second quarter of 2006, the Company  reduced the obligation by
                  $240,000,  which was  applicable  to the sale of the  Comanche
                  Point property. During the fourth quarter of 2006, the Company
                  recognized an additional  $15,000 in its estimated  obligation
                  due to the opening of a fourth gas well at the North  Franklin
                  property.  At  December  31,  2006 and 2005,  the total  asset
                  retirement  obligation  recognized  was  $285,000 and $60,000,
                  respectively.




                                     F - 12
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         (H)      STOCK-BASED COMPENSATION

                  In December 2002,  the Financial  Accounting  Standards  Board
                  issued Financial  Accounting Standard No. 148, "ACCOUNTING FOR
                  STOCK-BASED  COMPENSATION - TRANSITION AND DISCLOSURE"  ("SFAS
                  No. 148"), an amendment of Financial  Accounting  Standard No.
                  123  "ACCOUNTING  FOR  STOCK-BASED  COMPENSATION"  ("SFAS  No.
                  123").  The  purpose  of  SFAS  No.  148  is to:  (1)  provide
                  alternative   methods  of   transition   for  an  entity  that
                  voluntarily   changes  to  the  fair  value  based  method  of
                  accounting for stock-based  employee  compensation,  (2) amend
                  the  disclosure  provisions  to require  prominent  disclosure
                  about the  effects  on  reported  net  income  of an  entity's
                  accounting   policy  decisions  with  respect  to  stock-based
                  employee compensation,  and (3) to require disclosure of those
                  effects  in  interim  financial  information.  The  disclosure
                  provisions  of SFAS No.  148 were  effective  for the  Company
                  commencing December 31, 2002.

                  The Company has  elected to account for  stock-based  employee
                  compensation arrangements in accordance with the provisions of
                  Accounting  Principles  Board Opinion No. 25,  "ACCOUNTING FOR
                  STOCK ISSUED TO EMPLOYEES", ("APB No. 25") and comply with the
                  disclosure  provisions  of SFAS No. 123 as amended by SFAS No.
                  148 as described above. Under APB No. 25, compensation expense
                  is recognized based on the difference,  if any, on the date of
                  grant between the estimated fair value of the Company's  stock
                  and the  amount an  employee  must pay to  acquire  the stock.
                  Compensation  expense  is  recognized   immediately  for  past
                  services   and   pro-rata   for  future   services   over  the
                  option-vesting period.

                  The Company accounts for equity instruments issued in exchange
                  for the receipt of goods or services from other than employees
                  in accordance with SFAS No. 123 and the conclusions reached by
                  the Emerging Issues Task Force in Issue No. 96-18, "ACCOUNTING
                  FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES
                  FOR  ACQUIRING  OR  IN  CONJUNCTION   WITH  SELLING  GOODS  OR
                  SERVICES" ("EITF 96-18").  Costs are measured at the estimated
                  fair  market  value  of  the  consideration  received  or  the
                  estimated  fair  value  of  the  equity  instruments   issued,
                  whichever  is more  reliably  measurable.  The value of equity
                  instruments  issued  for  consideration  other  than  employee
                  services  is  determined  on  the  earlier  of  a  performance
                  commitment  or completion  of  performance  by the provider of
                  goods or services as defined by EITF 96-18.

                  The Company has also adopted the  provisions  of the Financial
                  Accounting Standards Board Interpretation  No.44,  "ACCOUNTING
                  FOR CERTAIN  TRANSACTIONS  INVOLVING  STOCK  COMPENSATION - AN
                  INTERPRETATION  OF APB  OPINION  NO.  25"  ("FIN  44"),  which
                  provides guidance as to certain applications of APB 25. FIN 44
                  is  generally  effective  July 1, 2000 with the  exception  of
                  certain events occurring after December 15, 1998.

                  In  December  2004,   FASB  issued   Statement  No.  123  (R),
                  SHARE-BASED  PAYMENT,  which establishes  accounting standards
                  for transactions in which an entity receives employee services
                  in exchange  for (a) equity  instruments  of the entity or (b)
                  liabilities  that are based on the fair value of the  entity's
                  equity  instruments  or that may be settled by the issuance of
                  equity  instruments.  Effective  for periods  beginning  after
                  December  15,  2005,  SFAS 123(R) will require us to recognize
                  the  grant-date  fair value of stock  options and equity based
                  compensation   issued  to  employees   in  the   statement  of
                  operations. The statement also requires that such transactions
                  be accounted for using the  fair-value-based  method,  thereby
                  eliminating use of the intrinsic value method of accounting in
                  APB No. 25,  ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES,  which
                  was permitted  under Statement 123, as originally  issued.  We
                  currently  are  evaluating  the impact of Statement 123 (R) on
                  our financial condition and results of operations.


                                     F - 13
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

2.        SIGNIFICANT ACCOUNTING POLICIES (continued)

         (I)      LOSS PER SHARE

                  Basic loss per share has been  computed by  dividing  the loss
                  for the year  applicable  to the  common  stockholders  by the
                  weighted  average number of common shares  outstanding  during
                  the  years.  Convertible  equity  instruments  such  as  stock
                  options,  warrants,  convertible  debentures and notes payable
                  are excluded from the  computation  of diluted loss per share,
                  as the effect of the assumed exercises would be anti-dilutive.

         (J)      REVENUE RECOGNITION

                  The Company  recognizes oil and gas revenue from its interests
                  in  producing  wells as oil and gas is produced  and sold from
                  those wells. Oil and gas sold is not  significantly  different
                  from the  Company's  share of  production.  Revenues  from the
                  purchase,   sale  and   transportation   of  natural  gas  are
                  recognized  upon  completion of the sale and when  transported
                  volumes  are   delivered.   Shipping  and  handling  costs  in
                  connection  with such  deliveries  are included in  production
                  costs.  Revenue under carried interest  agreements is recorded
                  in  the  period  when  the  net  proceeds  become  receivable,
                  measureable and collection is reasonably assured. The time the
                  net revenues  become  receivable  and collection is reasonably
                  assured  depends on the terms and  conditions  of the relevant
                  agreements  and the practices  followed by the operator.  As a
                  result,  net revenues may lag the  production  month by one or
                  more months.

         (K)      FAIR VALUE OF FINANCIAL INSTRUMENTS

                  In  accordance  with the  requirements  of SFAS No.  107,  the
                  Company has  determined  the estimated fair value of financial
                  instruments using available market information and appropriate
                  valuation   methodologies.   The  fair   value  of   financial
                  instruments   classified  as  current  assets  or  liabilities
                  approximate  carrying value due to the short-term  maturity of
                  the instruments.

3.       CONCENTRATIONS

                  At December  31,  2006,  approximately  100% of the  Company's
                  revenues come from four gas wells in  California.  The loss of
                  these wells,  or a disruption in production  from these wells,
                  would adversely effect the operations of the Company.

4.        INCOME TAXES

         As of December 31,  2006,  the Company had a net  operating  loss carry
         forward for income tax reporting  purposes of approximately  $4,284,001
         that may be offset against future taxable income through 2026.  Current
         tax laws limit the amount of loss available to be offset against future
         taxable  income  when  a  substantial   change  in  ownership   occurs.
         Therefore,  the amount available to offset future taxable income may be
         limited. No tax benefit has been reported in the financial  statements,
         because  the  Company  believes  there is a 50% or  greater  chance the
         carry-forwards  will expire  unused.  Accordingly,  the  potential  tax
         benefits of the loss carry-forwards are offset by a valuation allowance
         of the same amount.

                                             2006                2005
                                      ------------------- -------------------
               Net Operating Losses   $         642,600   $         160,014
               Valuation Allowance
                                               (642,600)           (160,014)
                                      ------------------- -------------------
                                      $                -  $               -
                                      =================== ===================



                                     F - 14
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

4.       INCOME TAXES (continued)

         The provision for income taxes differs from the amount  computed  using
         the federal US statutory income tax rate as follows:

<TABLE>
<CAPTION>
                                                                         2006                2005
                                                                  ------------------- -------------------
<S>                                                               <C>                 <C>
              Provision (Benefit) at US Statutory Rate            $         482,586   $         59,125
              Increase (Decrease) in Valuation Allowance
                                                                           (482,586)           (59,125)
                                                                  ------------------- -------------------
                                                                  $               -   $              -
                                                                  =================== ===================
</TABLE>

         The Company  evaluates its valuation  allowance  requirements  based on
         projected future  operations.  When  circumstances  change and causes a
         change in management's  judgment about the  recoverability  of deferred
         tax assets,  the impact of the change on the  valuation is reflected in
         current income.

5.        NOTES PAYABLE

         On November 17, 2003, the Company repurchased  25,232,000 shares of its
         common stock from the previous president and treasurer.  In connection,
         with this  purchase  the Company  agreed to pay $150,000 for the common
         stock and the  outstanding  shareholder  loan of $52,638  payable on or
         before March 15, 2004, at an interest rate of 6%. The loan due date has
         been extended and principal and interest are due on demand. At December
         31, 2006,  and December 31, 2005,  the Company owed $96,959 and $91,687
         on this loan.

         Pursuant to a promissory note dated July 10, 2006, the Company borrowed
         $250,000  from a third  party  for a one year term at 5%  interest.  At
         December 31, 2006, and December 31, 2005, the Company owed $255,925 and
         $0, respectively, on this loan.

6.       SHAREHOLDER LOAN

         The  Company  has  borrowed  money from a  shareholder  in order to pay
         general and  administrative  expenses.  For purposes of these financial
         statements, interest has been calculated at an imputed interest rate of
         6 percent.  At December  31, 2006,  and December 31, 2005,  the Company
         owed $6,309 and $3,130, respectively, relating to these notes.

7.       CREDIT LINE NOTE PAYABLE

         During  the  year  ended  December  31,  2004,  the  Company   received
         $1,122,250 for a stock  subscription  of 1,122,250  common  shares.  On
         October 25, 2004, the Company renegotiated this transaction in the form
         of a  Convertible  Debenture  Credit Line of up to $5 million.  In 2004
         this  amount  was  reclassified  from  Common  Stock to be  Issued to a
         Current Liability.  The Credit Line bares interest annual rate of Libor
         plus 2% percent  and shall be payable 2 years  from the  issuance.  The
         principal  amount shall be  convertible,  in part for $1 per  Preferred
         Series A Shares,  at the  option of the  Company  within  the first six
         months and  thereafter  by the lender  until the loan is  satisfied  or
         liquidated.  The Preferred  Shares shall be convertible to Common Stock
         on a basis  equivalent  to 20% of  Common  Stock  of the  Company  then
         outstanding.  As of  December  31,  2004,  the total  amount due on the
         Convertible Debenture Credit Line was $1,222,335.



                                     F - 15
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

7.       CREDIT LINE NOTE PAYABLE (continued)

         On November 15, 2005, we entered into a replacement  promissory note in
         the amount of $2,050,000 with Chunuk  Financial  Corp.,  which replaces
         the variable  rate  convertible  credit line  agreement we entered into
         with  Chunuk  on  October  24,  2004 in the  principal  amount of up to
         $5,000,000.  This note is due November 15, 2007.  At December 31, 2006,
         and December  31, 2005,  $868,006  and  $1,790,501,  respectively,  was
         outstanding including accrued interest amounts.

8.       CONVERTIBLE DEBENTURE

         On November 18, 2005, we entered into a securities  purchase  agreement
         with Cornell Capital for an aggregate purchase price of $2,500,000,  of
         which we have issued (i) a $1,250,000  secured  convertible  debenture,
         due on November 18, 2008,  convertible into shares of our common stock,
         par value  $0.001,  and (ii) a warrant  to  purchase  an  aggregate  of
         9,000,000 additional shares of our common stock at an exercise price of
         $0.2708 per share  exercisable  until  November 18, 2010. An additional
         $1,250,000  secured  convertible  debenture  was issued on January  19,
         2006, due January 19, 2009,  just prior to the filing of a registration
         statement.  At December 31, 2006, and 2005,  $3,099,164 and $1,256,678,
         respectively,  was the debenture  loan  outstanding  including  accrued
         interest.

         Under Section 2(b) of the Registration Rights Agreement, Fidelis was to
         have the registration  statement  declared effective no later than June
         26, 2006.  As the initial  registration  statement is not yet effective
         Fidelis has  triggered a second  Event of Default for its  violation of
         Section 2(b) of the Investor Registration Rights Agreement. Fidelis has
         received a demand letter from Cornell  Capital  demanding  repayment in
         full  of  the  outstanding  principal  balance  ($2,500,000),   accrued
         interest,  and  liquidated  damages of 2% for each 30 days period after
         the Scheduled Filing deadline or the Scheduled  Effective Date. Fidelis
         is actively in the process of  negotiating  a  settlement  with Cornell
         Capital.  This  settlement  may include the sale of the North  Franklin
         asset to pay off the debt with Cornell Capital

         The secured  convertible  debenture is  convertible  into shares of our
         common stock at any time by dividing the dollar amount being  converted
         by the lower of $0.2708 or 80% of the lowest  volume  weighted  average
         trading  price per share of our  common  stock  for five  trading  days
         immediately  preceding the conversion date.  During the fourth quarter,
         $145,000 of the  convertible  debenture  was converted to common stock.
         The  interest  on  the  convertible   debenture  shall  accrue  on  the
         outstanding  principal  balance at a rate of 5% per annum.  At December
         31, 2006, and 2005, $137,486 and $6,678,  respectively,  was charged as
         an interest expense. At December 31, 2006, $600,000 had been accrued as
         liquidated   damages   on  the   convertible   debentures,   since  the
         registration statement has not been made effective.  Liquidated damages
         accrue at 2% per  month on the  outstanding  amount of the  convertible
         debenture.

         The Warrant's to purchase  9,000,000 of the Company's common stock will
         expire on  November  21,  2010.  The  exercise  price of the warrant is
         $0.2708 and an exercise period of five years.  The Company accounts for
         the fair value of these  outstanding  warrants to purchase common stock
         and the conversion  feature of its convertible notes in accordance with
         SFAS  No.  133  "Accounting  For  Derivative  Instruments  And  Hedging
         Activities"  and  EITF  Issue  No.  00-19  "Accounting  For  Derivative
         Financial Instruments Indexed To And Potentially Settled In A Company's
         Own Stock;"  which  requires  the Company to bifurcate  and  separately
         account for the conversion feature and warrants as embedded derivatives
         contained in the Company's convertible notes.



                                     F - 16
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

8.       CONVERTIBLE DEBENTURE (continued)

         Pursuant to SFAS No. 133, the Company  bifurcated the fair value of the
         conversion  feature from the  convertible  notes,  since the conversion
         feature were  determined  to not be clearly and closely  related to the
         debt  host.  In  addition,  since  the  effective  registration  of the
         securities  underlying the conversion  feature and warrants is an event
         outside  of the  control  of the  Company,  pursuant  to EITF Issue No.
         00-19,  the Company  recorded the fair value of the conversion  feature
         and  warrants  as  long-term  liabilities  as it was  assumed  that the
         Company would be required to net-cash settle the underlying securities.

         The  Company is required to carry  these  embedded  derivatives  on its
         balance  sheet at fair  value and  unrealized  changes in the values of
         these embedded derivatives are reflected in the consolidated  statement
         of operation as "derivative valuation gain (loss)".

         In addition  1,823,190  warrants have been issued to H.C Wainwright and
         First SB Inc.  respectively,  each exercisable at $0.30 with terms of 5
         years from November 28, 2005.

         For  2005,  the  value  of the  conversion  feature  and  warrants  was
         calculated using the Black-Scholes method as of December 31, 2005 based
         on the  following  assumptions:  an average  risk free rate of 3.25;  a
         dividend  yield of  0.00%;  and an  average  volatility  factor  of the
         expected market price of the Company's common stock of 976%. The market
         value of the common stock at December  31, 2005 was $.14 per share.  At
         December 31, 2005, the derivative liability was $2,503,507 and the loss
         on derivative valuation was $2,503,507.

         For  2006,  the  value  of the  conversion  feature  and  warrants  was
         calculated using the Black-Scholes method as of December 31, 2006 based
         on the  following  assumptions:  an average  risk free rate of 4.85;  a
         dividend  yield of  0.00%;  and an  average  volatility  factor  of the
         expected  market price of the  Company's  common  stock of 120.4%.  The
         market  value of the common  stock at  December  31,  2006 was $.02 per
         share.  At December 31, 2006, the  derivative  liability was $1,583,058
         and the gain on derivative valuation was $920,448.

9.       COMMITMENTS

         On January 1, 2006, the Company relocated its executive offices to 9595
         Wishire  Blvd.,  Ste. 900,  Beverly Hills,  CA 90212-2509.  The Company
         rents this shared office facility on a month-to-month  basis for $2,400
         per month for all services.  On December 1, 2006,  the Company  entered
         into a  Business  Identity  Plan  (BIP)  for $300 per month at the same
         address. This agreement replaces the previous month-to-month lease.

10.      RELATED PARTY TRANSACTIONS

         Silver Star Energy,  Inc.  ("Silver  Star") is a partner in many of the
         Company's  projects.  On March 12, 2004, Fidelis entered into a Farmout
         Proposal on the North Franklin Prospect in California,  under the terms
         of which Fidelis invested  $250,000 and received a 20% Working Interest
         in the Prospect.  In April, 2004, Fidelis entered into a second Farmout
         Proposal, on the same prospect,  and acquired an additional 15% Working
         Interest  for an  additional  $250,000  contribution,  for an aggregate
         total interest of 35%.

         On February 25, 2004,  the Company  purchased  17,430,000 of its common
         shares for a loan  payable of $105,000.  These shares were  returned to
         treasury  and  cancelled.  Interest at a rate of 6% has been imputed on
         the loan. At December 31, 2006 and 2005, respectively, the Company owes
         $63,340 and $114,147 on this loan.




                                     F - 17
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

10.      RELATED PARTY TRANSACTIONS (continued)

         On April 2, 2004,  the Company  borrowed  $305,000 from a related party
         for direct payment on oil and gas properties.  The loan had an original
         due date of April 2, 2005 and bears  interest  of 5%. The note has been
         extended indefinitely. At December 31, 2006, and 2005, the Company owed
         $288,655 and $332,703, respectively, on this loan.

         On April 6, 2006,  the Company  borrowed  $165,000 from a related party
         for general working capital and project development purposes.  The loan
         has a one year term and bears  interest of 5%. At December 31, 2006 and
         2005, the Company owed $66,423 and $0, respectively, on this loan.

         On June 30, 2006,  $300,000  was put  In-Trust  with the Company from a
         working  partner.  The  Company  demanded  and it was agreed that these
         funds be put  In-Trust  to ensure that the North  Franklin  development
         program would  continue as planned.  At December 31, 2006,  $15,000 was
         due to the working partner.

11.      COMMON STOCK

         On November 17, 2003, the Company  approved a 38:1 forward stock split.
         On March 26, 2004, the Company  approved a 10:1 forward stock split. On
         December 10, 2004,  the Company  approved a 1.66:1 forward stock split.
         All references to common stock in the financial  statements reflect the
         effects of these stock splits.

         On November 17, 2005,  the Company issued  54,000,000  common shares as
         treasury  stock held as collateral on the  convertible  debenture.  The
         shares were  recorded  at the market  value of the stock on the date of
         issuance, which was $0.20 per share.

         On March 27, 2006,  the Company  issued  750,000 shares of common stock
         for consulting services. The shares were valued at $.225 per share.

         Pursuant to this stock  issuance,  the Company  recognized  $168,750 in
         consulting  expense.  Pursuant to consulting  agreements dated April 7,
         2006,  all of the directors and several  affiliates of the Company were
         issued a total of  10,000,000  shares  of common  stock.  A Form S8 was
         filed in relation to each share  issuance on April 13, 2006. The shares
         issued on May 8, 2006,  under the  agreement  and resold under the Form
         S-8 will be subject to the volume restrictions contained in Rule 144(e)
         promulgated  under the Securities  Act of 1933, as amended.  The shares
         were  valued at $.14 per share.  Pursuant to this stock  issuance,  the
         Company recognized expense of $1,400,000.

         On October 25,  2006,  the Company  issued  1,562,500  shares of common
         stock in exchange for  convertible  debentures  of $50,000.  The shares
         were  valued at $.032 per share  pursuant  to the debt  agreements.  On
         November 29, 2006, the Company issued  5,937,500 shares of common stock
         in exchange  for  convertible  debentures  of $95,000.  The shares were
         valued at $.016 per share pursuant to the debt agreements.


                                     F - 18
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

12.       STOCK OPTIONS

         Pursuant to a 2004 Stock Option and Compensation Plan, grants of shares
         can  be  made  to  employees,  officers,  directors,   consultants  and
         independent  contractors of non-qualified  stock options as well as for
         the grant of stock options to employees that qualify as incentive stock
         options  under  Section 422 of the Internal  Revenue Code of 1986 or as
         non-qualified stock options. The Plan is administered by the

         Board  of  Directors   ("Board"),   which  has,  subject  to  specified
         limitations,  the full  authority to grant  options and  establish  the
         terms and conditions for vesting and exercise thereof.

         In order to exercise an option  granted  under the Plan,  the  optionee
         must pay the full exercise price of the shares being purchased. Payment
         may be made  either:  (i) in  cash;  or (ii) at the  discretion  of the
         Board,  by  delivering  shares of  common  stock  already  owned by the
         optionee that have a fair market value equal to the applicable exercise
         price;  or (iii) with the approval of the Board,  with monies  borrowed
         from us.

         Subject to the  foregoing,  the Board has broad  discretion to describe
         the terms and conditions  applicable to options granted under the Plan.
         The Board may at any time  discontinue  granting options under the Plan
         or otherwise  suspend,  amend or terminate  the Plan and may,  with the
         consent  of an  optionee,  make  such  modification  of the  terms  and
         conditions of such optionee's option as the Board shall deem advisable.

         On March 17, 2004, the Board of Directors  approved a stock option plan
         whereby  8,000,000  common  shares  have been set aside for  employees,
         officers, directors and third party service providers to be distributed
         at the  discretion  of the  Board  of  Directors.  On March  17,  2004,
         1,250,000  options were granted to the five  officers/directors  of the
         Company for an exercise price of $0.10 per share,  increasing  annually
         at 6% per annum from the grant date of March 17, 2004.  The term of the
         options is 10 years.

         On April 1, 2004,  the option grant was  cancelled and replaced with an
         award for services of restricted stock.

         The following table sets forth the options and warrants  outstanding as
         of December 31, 2006 and 2005 :

<TABLE>
<CAPTION>
                                                                   December 31,           December 31,
                                                                      2006                   2005
                                                               -------------------     ------------------
<S>                                                            <C>                     <C>
         Options Outstanding, Beginning of period                               -                      -
                  Granted                                                       -                      -
                  Expired                                                       -                      -
                  Exercised                                                     -                      -
                                                               -------------------     ------------------
         Options Outstanding, End of period                                     -                      -
                                                               ===================     ==================
         Exercise price for options outstanding, end of period $                -      $               -
                                                               ===================     ==================
</TABLE>



                                     F - 19
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

13.       OIL AND GAS ACTIVITIES

         As of December  31, 2006 and 2005,  the Company had revenues of $47,033
         and $135,373  from the Comanche  Point  property.  The Company sold the
         Comanche Point Property on March 1, 2006.

         In March of 2005,  the Company  received final approval to complete the
         tie in of the  pipeline  for  the  first  North  Franklin  Gas  Well in
         California.  The Well has been in production  since June, 2005. Also, a
         second well at the North  Franklin,  the  Archer-Wildlands  #1 well was
         completed  and has been in production  since  August,  2005. On May 15,
         2006, the Company's third gas well, the "Archer F-1", was  successfully
         perforated,  completed  and  tied-in to the  pipeline  from the Winters
         sands and began  commercial gas production at North  Franklin.  For the
         years ended  December  31, 2006 and 2005,  the Company had  revenues of
         $1,924,229 and $1,260,476 from the North Franklin property.

         The following tables summarize the amount of revenues and depletion for
         the years ended  December 31, 2006,  2005 and 2004,  and also the total
         capitalized  costs for each  property at December  31,  2006,  2005 and
         2004.

<TABLE>
<CAPTION>
--------------------------------- ------------ ------------- -------------------------- --------------- --------------------
Property                          Reserve                             Revenue                                Depletion
--------------------------------- ------------ ------------- -------------------------- --------------- --------------------
                                                   2006         2005          2004           2006           2005      2004
<S>                                                 <C>         <C>            <C>             <C>           <C>      <C>
Comanche PT                       Proved            $47,033     $135,373       $15,013         $     -       $     -  $
                                                                                                                      -
North Franklin                    Proved       $1,924,229     $1,260,476             -        $320,746      $124,137      -
Kansas                            Unproved                                           -               -                    -
                                               -             -                                          -
Hidalgo                           Expensed                             -             -               -             -      -
                                               -
--------------------------------- ------------ ------------- ------------ ------------- --------------- ------------- ------
Totals                                         $1,971,262    $1,395,849   $15,013       $320,746        $124,137      $0
--------------------------------- ------------ ------------- ------------ ------------- --------------- ------------- ------
Property                          Reserve                        Capitalized Costs                      Dry Hole
--------------------------------- ------------ ------------- -------------------------- --------------- ------------- ------
                                                   2006         2005          2004           2006           2005      2004
Comanche PT                       Proved                        $812,703      $516,526        $         $
                                               $                                              -         -
                                               -                                                                       $  -
North Franklin                    Proved       $2,445,408     $1,481,293      $768,645               -             -
Kansas                            Unproved          $20,000      $67,857                     ($87,857)             -
                                                                          -
Hidalgo                           Expensed                             -            -               -     ($270,962)
                                               -                                                                      -
--------------------------------- ------------ ------------- ------------ ------------- --------------- ------------- ------
Totals                                           $2,445,408   $2,361,853    $1,285,171       ($87,857)    ($270,962)     $0
--------------------------------- ------------ ------------- ------------ ------------- --------------- ------------- ------
</TABLE>

         The reserve information presented below is based on reports prepared by
         independent  petroleum engineers,  Chapman Petroleum  Engineering Ltd.,
         for the proved property, North Franklin.

         The information is presented in accordance with regulations  prescribed
         by  the  Securities  and  Exchange  Commission  and  based  on  Reserve
         definitions  found in Rule 4-10(a) of Regulation S-X. Reserve estimates
         are inherently imprecise.

         Proved oil and gas reserves are the estimated  quantities of crude oil,
         natural gas and gas  liquids  which  geological  and  engineering  data
         demonstrate with reasonable certainty to be recoverable in future years
         from known reservoirs under existing economic and operating conditions,
         ie.,  prices  and  costs as of the date the  estimate  is made.  Prices
         include  consideration  of changes in existing  prices provided only by
         contractual  arrangements,  but not on  escalations  based upon  future
         conditions.

         Reservoirs are considered proved if economic  producibilty is supported
         by either actual production or conclusive formation test. The area of a
         reservoir  considered  proved  includes (A) that portion  delineated by
         drilling and defined by gas-oil and/or oil-water contacts,  if any; and
         (B) the immediately  adjoining portions not yet drilled,  but which can
         be  reasonably  judged  as  economically  productive  on the  basis  of
         available   geological  and   engineering   data.  In  the  absence  of
         information on fluid contacts,  the lowest known structural  occurrence
         of hydrocarbons controls the lower proved limit of the reservoir.



                                     F - 20
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

13.      OIL AND GAS ACTIVITIES (continued)

<TABLE>
<CAPTION>
                     Summary of Company Reserves (Unaudited)
------------------------- --------------------------- ------------- ----------------------------- ----- ---------------------------
                                     OIL                                     SALES GAS                             NGL
Proved Developed                     MSTB                                      MMscf                              Mbbls
------------------------- --------------------------- ------------- ----------------------------- ----- ---------------------------
                             Gross          Net                         Gross           Net                Gross          Net
------------------------- ------------- ------------- ------------- -------------- -------------- ----- ------------- -------------
<S>                       <C>           <C>           <C>           <C>            <C>            <C>   <C>           <C>
North Franklin                 -             -                           855            688                  -             -
------------------------- ------------- ------------- ------------- -------------- -------------- ----- ------------- -------------
</TABLE>

         The standardized  measure of discounted future net cash flows,  related
         to the above oil and gas reserves, is calculated in accordance with the
         requirements  of  SFAS  No  69.  Estimated  future  cash  inflows  from
         production are computed by applying  year-end prices for oil and gas to
         year-end  quantities of estimated proved  reserves.  Adjustment in this
         calculation  for future price  changes is limited to those  required by
         contractual  arrangements  in  existence  at the end of each  reporting
         period.  Future  development  and production  costs are those estimated
         future  expenditures  necessary to develop and produce  year-end proved
         reserves based on year-end cost indices,  assuming continuation of year
         end economic  conditions.  Estimated future income taxes are calculated
         by  applying  appropriate  year-end  statutory  tax rates.  These rates
         reflect  allowable  deductions  and  tax  credits  and are  applied  to
         estimated  future  pre-tax  cash  flows,  less the tax bases of related
         assets.  Discounted  future net cash flows have been calculated using a
         10% discount factor.  Discounting  requires a year-by-year  estimate of
         when future  expenditures  will be incurred and when  reserves  will be
         produced.

         The  information  provided  in tables set out below does not  represent
         management's estimate of the Company's expected future cash flows or of
         the value  Company's  proved oil and gas reserves.  Estimates of proved
         reserves  quantities  are  imprecise  and  change  over  time,  as  new
         information   becomes  available.   Moreover,   probable  and  possible
         reserves,  which may become proved in the future, are excluded from the
         calculations.  The  arbitrary  valuation  prescribed  under  SFAS No.69
         requires  assumptions  as to  the  timing  and  the  amount  of  future
         development and production costs. The calculations should not be relied
         upon as an  indication  of the  Company's  future  cash flows or of the
         value of its oil and gas reserves.

                                 (Unaudited)     2006                2005

Future Cash inflows                           2,475,490           2,280,000
Future production and development costs       (201,446)           (192,000)
Future income tax expenses                            -                   -
Future net cash flows                         2,274,044           2,088,000
Less effect of a 10% discount factor          (227,404)           (208,800)
Discounted future net cash flows              2,046,640           1,879,200

 Principal sources of changes in standardized measure of discounted future net
                                   cash flows

<TABLE>
<CAPTION>
                                                                   (Unaudited)             (Unaudited)
                                                                       2006                    2005
<S>                                                                  <C>                      <C>
Discounted present value as at beginning of year                     $2,286,000               2,039,606
Sales and transfers of oil and gas, net of production costs         (1,410,000)             (1,200,000)
Changes in future development costs                                      52,000                  44,000
Extensions and discoveries and revisions, net of future production      523,440                 481,454
and development costs
Net change in price and production costs                                441,000                 396,550
Change in estimated net profit payments                                 130,000                  96,000
Accretion of discount                                                    24,200                  21,590
Standardized measure, end of period                                   2,046,640               1,879,200
</TABLE>




                                     F - 21
<PAGE>

                              FIDELIS ENERGY, INC.
                          NOTES TO FINANCIAL STATEMENTS

13.      OIL AND GAS ACTIVITIES (continued)

-------------------------------------------------------------------------------
Costs incurred in Oil and Gas Acquisition, Exploration and Development
-------------------------------------------------------------------------------
                                 (Unaudited)     (Unaudited)       (Unaudited)
------------------------------ -------------- --------------- -----------------
                                        2006            2005              2004
Development costs                 $1,217,463      $1,008,824          $211,526
Exploration costs                          -         270,962                -
Acquisition costs
           Proved                                          -           768,645
                               -
           Unproved                   20,000          67,857           305,000
------------------------------ -------------- --------------- -----------------
Total                             $1,237,463      $1,347,643        $1,285,171
------------------------------ -------------- --------------- -----------------


14.       NON-CASH ACTIVITIES

         During the fiscal  year  2005,  the  Company  recognized  a  beneficial
         conversion  expense of $2,503,507  related to a  convertible  debenture
         issued to Cornell  Capital  Partners,  LP and the  associated  warrants
         issued.

         On July 5, 2006, and September 18, 2006, the Company  reported that Mr.
         Gordon  Samson and Mr. Glen Harder,  respectively,  had  resigned  from
         there positions as a directors for personal reasons. The effective date
         of the resignations was June 30, 2006.

         On August 24, 2006, the Company announced that it had executed a letter
         of intent for  PrimeGen  Energy Corp.  (OTCBB:  PGNE,  formerly  Maysia
         Resources  Corporation OTCBB: MYAR) ("PrimeGen"),  PrimeGen to purchase
         the  interests  in the 35% working  interest  the Company  holds in the
         North  Franklin  Project.  The  consideration  for the  purchase was to
         consist of a combination of cash and PrimeGen  common shares.  The cash
         consideration  and number of  PrimeGen  shares to be issued  were to be
         determined  by a valuation  of the  interests  based upon a  geological
         reserve  report  being  prepared.  The  letter of intent  and  proposed
         purchase  and  sale  is  subject  to the  completion  of due  diligence
         reviews, board approvals and shareholder approval.

         On October 3 2006,  the Company  announced  that PrimeGen  Energy Corp.
         would not be acquiring the 35% working  interest in the North  Franklin
         Project owned by Company at this time. PrimeGen,  however, continues to
         maintain a right of first refusal on the  acquisition  of the Company's
         interest for a period of 24-weeks from August 24, 2006.














                                     F - 22
<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
         Registrant  caused  this  report  to be  signed  on its  behalf  by the
         undersigned, thereunto duly authorized.

                                             FIDELIS ENERGY INC.

         Dated:   April 2, 2007        Per:     /s/ William Marshall
                                       ------------------------------------
                                       William Marshall, CEO and Director

         In accordance  with the Exchange Act, this report has been signed below
         by  the  following  person  on  behalf  of  the  Registrant  and in the
         capacities and on the dates indicated.

             /s/ William Marshall
         ------------------------------------
         William Marshall, CEO and Director



         /s/ Sterling Klein
         ------------------------------------
         Sterling Klein, CFO and Director



         /s/ Tom Herdman
         ------------------------------------
         Tom Herdman
         Director




                                       33
<PAGE>