UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


FORM
      10-KSB





(Mark
      One)


x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


For
      the
      fiscal year ended June 30, 2006


OR





o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


For
      the
      transition period from ____________ to ____________





Commission
      file number 000-50929





Ignis
                Petroleum Group, Inc.(Name
                of small business issuer in its charter)





Nevada
            
            16-1728419(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)




100
                Crescent Court 7thFloor Dallas, TX
            
            75201(Address
                of principal executive offices)
            
            (Zip
                Code)




214-459-8188(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
      Stock, $0.001 par value





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. Yes x No o .





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 registrant’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 o .





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





State
      issuer’s revenues for its most recent fiscal year: $519,535.





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days: $19,594,796 as of June 30,
      2006.





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: As of October 10, 2006 the registrant had
      issued and outstanding 50,288,589 shares of common stock.





DOCUMENTS
      INCORPORATED BY REFERENCE





None





Transitional
      Small Business Disclosure Format (check one): Yes o No x

















Unless
      the context clearly indicates otherwise, references in this annual report to
      “we,” “us,” “our” and “Ignis” refer to Ignis Petroleum Group, Inc. and its
      subsidiary on a consolidated basis. All information contained herein relating
      to
      shares and per share data has been adjusted to reflect a 5:1 stock dividend
      effected on June 15, 2005




FORWARD-LOOKING
      STATEMENTS





We
      are
      including the following cautionary statement in this Form 10-KSB for any
      forward-looking statements made by, or on behalf of, Ignis Petroleum Group,
      Inc.
      Forward-looking statements include statements concerning plans, objectives,
      goals, strategies, expectations, future events or performance and underlying
      assumptions and other statements which are other than statements of historical
      facts. Such statements contained herein are forward-looking statements and,
      accordingly, involve risks and uncertainties which could cause actual results
      or
      outcomes to differ materially from those expressed in the forward-looking
      statements. Our expectations, beliefs and projections are expressed in good
      faith, and we believe that they have a reasonable basis, including without
      limitations, management's examination of historical operating trends, data
      contained in our records and other data available from third parties, but we
      cannot assure you that management's expectations, beliefs or projections will
      result or be achieved or accomplished.




PART
      I





Item
                1.
            DESCRIPTION
                OF BUSINESS





**Our
      History**





Ignis
      Petroleum Corporation was incorporated in the State of Nevada on December 9,
      2004.





On
      May
      11, 2005, the stockholders of Ignis Petroleum Corporation entered into a stock
      exchange agreement with Sheer Ventures, Inc. pursuant to which Sheer Ventures,
      Inc. issued 9,600,000 shares of common stock in exchange for all of the issued
      and outstanding shares of common stock of Ignis Petroleum Corporation. As a
      result of this stock exchange, Ignis Petroleum Corporation became a wholly
      owned
      subsidiary of Sheer Ventures, Inc. The stock exchange was accounted for as
      a
      reverse acquisition in which Ignis Petroleum Corporation acquired Sheer
      Ventures, Inc. in accordance with Statement of Financial Accounting Standards
      No. 141, “Business Combinations”. Also on May 11, 2005, and in connection with
      the stock exchange, D.B. Management Ltd., a corporation owned and controlled
      by
      Doug Berry, who was then the President, Chief Executive Officer, Secretary,
      Treasurer and sole director of Sheer Ventures, Inc., agreed to sell an aggregate
      of 11,640,000 shares of Sheer Ventures, Inc.’s common stock to six individuals,
      including Philipp Buschmann, the President, Secretary, Treasurer and sole
      director of Ignis Petroleum Corporation, for $0.0167 per share for a total
      purchase price of $194,000. The stock exchange and the stock purchase were
      both
      consummated on May 16, 2005.





On
      July
      11, 2005, Sheer Ventures, Inc. changed its name to Ignis Petroleum Group, Inc.




2





**Our
      Operations**





We
      are
      engaged in the exploration, development, and production of crude oil and natural
      gas properties in the United States. We plan to explore for and develop crude
      oil and natural gas primarily in the onshore areas of the United States Gulf
      Coast. Our strategy is to build an energy portfolio that benefits from:





·
            the
                maturing of new petroleum technologies, such as seismic
                interpretation;


·
            the
                expected increase of oil and gas prices; and


·
            the
                availability of short “outsteps” in the same play as previously-discovered
                hydrocarbons.





We
      have
      acquired several prospects that benefit from state-of-the-art 3-D seismic data
      interpretation. In addition, we are actively seeking to acquire other prospects,
      although we currently do not have any contracts or commitments for other
      prospects. We employ and leverage industry technology, engineering, and
      operating talent. We may, from time to time, participate in high-value or
      fast-payback plays for short-term strategic reasons. We outsource lower value
      activities so that we can focus our efforts on the earliest part of the value
      chain while leveraging outstanding talent and strategic partnerships to execute
      our strategy. We believe this approach will allow us to grow our business
      through rapid identification, evaluation and acquisition of high-value
      prospects, while enabling it to use specialized industry talent and keep
      overhead costs to a minimum. We believe this strategy will result in significant
      growth in our reserves, production and financial strength.





**Our
      Properties**





As
      of
      June 30, 2006, we owned or had the right to acquire working interests in the
      following oil and gas prospects in the United States onshore Gulf Coast region.





*North
      Wright Field Prospect*





We
      have
      the right to earn 75% of the working interest, which is equal to a 52.5% net
      revenue interest, in oil and gas leases and proposed operations covering the
      North Wright Field Prospect, which is located in Acadia Parish, Louisiana.
      We
      will carry 100% of the costs to drill and test each well drilled on the
      prospect. Bayou City Exploration, Inc. will be the operator of the prospect.
      The
      remaining 25% of the working interest in the prospect will be held by Argyle
      Energy, Inc., who will hold 12.5% of the working interest, and three other
      parties, who collectively will hold 12.5% of the working interest in the
      prospect. We are required to commence drilling operations on the prospect on
      or
      before December 31, 2006, or our interests in the prospect will revert to
      Argyle. We have decided not to pursue the prospect and have taken a $2,000,000
      write down of the property as of June 30, 2006. The North Wright Field Prospect
      is currently unproved.





*Acom
      A-6 Property*





We
      have
      25% of the working interest, which is equal to an 18.75% net revenue interest,
      in the Acom A-6 Prospect, which is located in Chambers County, Texas. Kerr-McGee
      Oil & Gas Onshore LP, d/b/a KMOG Onshore LP is the operator of the prospect
      and holds the remainder of the working interest. Drilling of this prospect
      commenced production in August 2005 and was completed in October 2005. The
      Acom
      A-6 Prospect currently holds proved reserves and is producing oil and gas with
      revenues being earned by us. We have estimated proved reserves of 13,652 bbls
      of
      oil and 69,542 mcf of gas. We have realized a total of 5,602 bbls of oil at
      an
      average price of $58.54 and 19,540 mcf of gas at an average price of $7.94
      through June 30, 2006.





3







Our
      partner and operator, Kerr-McGee, recently performed a workover of the well
      to
      clean out paraffin buildup, which had progressively reduced the oil and gas
      production rates. Upon completion of the project, the downhole pressure
      increased to levels close to those encountered when production began in October
      2005, and average gross daily production rates increased to over 225 barrels
      of
      crude oil and 1.15 million cubic feet of natural gas.





*Crimson
      Bayou Prospect*





We
      have
      the right to earn 25% of the working interest, which is
      equal to a 17.88% net revenue interest, in the
      test well before payout and 20% of the working interest, which
      is
      equal to a 14.3% net revenue interest, after
      payout in the Crimson Bayou Prospect, which is located in Iberville Parish,
      Louisiana. Range
      Production I, L.P. is the operator of the prospect and will hold the remainder
      of the working interest. Drilling
      of the first test well on the prospect is expected to commence in 2007. The
      Crimson Bayou Prospect is currently unproved.




4





*Barnett
      Shale Property*





We
      hold
      12.5% of the working interest, which is equal to a 9.38% net revenue interest
      before payout and 10% of the working interest, which is equal to a 7.5% net
      revenue interest after payout, in three wells located in the Barnett Shale
      trend
      in Greater Fort Worth Basin, Texas. Rife Energy Operating, Inc. is the operator
      of the prospect and holds a majority of the remaining working interest. All
      three wells have been drilled. One well has been completed and is producing
      oil
      and gas.  The
      other
      two wells have been partially completed to test the geological
      formations and have some revenue production.  During the third
      calendar quarter of 2006, we anticipate that we will complete these two
      wells, which will bring them up to their full production potential. The
      Barnett Shale Prospect currently holds proved reserves and is producing oil
      and
      gas. We
      have
      estimated proved reserves of 2,072 bbl’s of oil and 13,085 mcf’s of gas. Between
      April 6, 2006 and June 30, 2006 the Barnett Shale wells produced 272 barrels
      of
      oil and .978 million cubic feet of gas, net to us.





*Sherburne
      Prospect*





On
      May 5,
      2006 we entered into a participation agreement to drill the Sherburne Field
      Development prospect, located in Pointe Coupee Parish, Louisiana. Under the
      terms of the agreement, we will pay 15% of the drilling, testing and completion
      costs. Upon completion, we will earn a 15% working interest in the well before
      payout and an 11.25% working interest in the well after payout. Drilling
      operations commenced in August 2006 and was finished in September 2006. Multiple
      gas zones were detected. The commercial viability of the gas zones will be
      tested in October 2006. The Sherburne Prospect is currently
      unproved.


Oil
 
 **Month**
              
              **Revenue
                  ($)**
              
              **Production
                  (barrels)**
              
              **Average
                  Price per Barrel ($)**October
                  2005
              
              $
              14,357
              
              
              246.97
              
              $
              58.13November
                  2005
              
              
              69,375
              
              
              1,245.56
              
              
              55.70December
                  2005
              
              
              66,568
              
              
              1,199.51
              
              
              55.50January
                  2006
              
              
              52,368
              
              
              855.51
              
              
              61.21February
                  2006
              
              
              38,964
              
              
              668.97
              
              
              58.24March
                  2006
              
              
              37,106
              
              
              635.14
              
              
              58.42April
                  2006
              
              
              19,405
              
              
              299.24
              
              
              64.85May
                  2006
              
              
              6,475
              
              
              98.73
              
              
              65.58June
                  2006
              
              
              41,286
              
              
              624.30
              
              
              66.13**Total**
              
              **$**
              **345,904**
              
              
              **5,873.93**
              
              **$**
              **58.88**


Natural
        Gas
 
 **Month**
              
              **Revenue
                  ($)**
              
              **Production
                  (thousand cubic feet)**
              
              **Average
                  Price per thousand cubic feet ($)**October
                  2005
              
              $
              8,522
              
              
              805
              
              $
              10.58November
                  2005
              
              
              33,109
              
              
              4,339
              
              
              7.63December
                  2005
              
              
              24,074
              
              
              2,937
              
              
              8.19January
                  2006
              
              
              29,113
              
              
              3,299
              
              
              8.82February
                  2006
              
              
              19,778
              
              
              2,695
              
              
              7.33March
                  2006
              
              
              24,355
              
              
              3,290
              
              
              7.40April
                  2006
              
              
              8,012
              
              
              1,031
              
              
              7.77May
                  2006
              
              
              2,092
              
              
              287
              
              
              7.28June
                  2006
              
              
              12,847
              
              
              1,835
              
              
              7.00**Total**
              
              **$**
              **161,902**
              
              
              **20,518**
              
              **$**
              **7.89**


**Competitors**





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





**Governmental
      Regulations**




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




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





5





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




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




**Environmental**




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




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




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




The
      regulatory burden of environmental laws and regulations increases our cost
      and
      risk of doing business and consequently affects our profitability. The federal
      Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
      also known as the “Superfund” law, imposes liability, without regard to fault,
      on certain classes of persons with respect to the release of a “hazardous
      substance” into the environment. These persons include the current or prior
      owner or operator of the disposal site or sites where the release occurred
      and
      companies that transported, disposed or arranged for the transport or disposal
      of the hazardous substances found at the site. Persons who are or were
      responsible for releases of hazardous substances under CERCLA may be subject
      to
      joint and several liability for the costs of cleaning up the hazardous
      substances that have been released into the environment and for damages to
      natural resources, and it is not uncommon for the federal or state government
      to
      pursue such claims.




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





6





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





**Employees**





As
      of
      June 30, 2006, we had three full time employees, including our President, Chief
      Executive Officer and Treasurer, our Chief Operating Officer and Secretary
      and
      our Vice President of External Relations. The employment of our Chief Operating
      Officer and Secretary was terminated on September 22, 2006. We consider our
      relations with our employees to be good.




ITEM
                2.
            DESCRIPTION
                OF PROPERTY





We
      maintain our principal executive office at 100 Crescent Court, 7 th Floor,
      Dallas, Texas 75201. Our telephone number at that office is (214) 459-8188
      and
      our facsimile number is (214) 459-3101. Our current office space consists of
      approximately 463 square feet. The lease runs until May 31, 2007 at a cost
      of
      $9,516 per month. We believe that our current office space and facilities are
      sufficient to meet our present needs and do not anticipate any difficulty
      securing alternative or additional space, as needed, on terms acceptable to
      us.





See
      also
      our oil and gas properties described under the heading “Our Properties” in Item
      1 above.




ITEM
                3.
            LEGAL
                PROCEEDINGS





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





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




None.





7





PART
      II





ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS





MARKET
      INFORMATION





Prior
      to
      April 18, 2005, there was no trading market for our common stock. Our common
      stock was approved for trading on the National Association of Securities
      Dealers' Over-The-Counter Bulletin Board on April 18, 2005 under the symbol
      "SHRV". Our symbol was changed to "IGPG" effective July 14, 2005 to reflect
      our
      name change to Ignis Petroleum Group, Inc. The following table sets forth the
      quarterly high and low bid information for our common stock as reported by
      the
      National Association of Securities Dealers' Over-The-Counter Bulletin Board
      for
      the periods indicated below. The over-the-counter quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      represent actual transactions. The reported bid prices reflect the 5 for 1
      stock
      dividend that occurred on June 15, 2005.





**Fiscal
                Year 2005**
            
            **Fiscal
                Year 2006****High**
            
            **Low**
            
            **High**
            
            **Low**First
                Quarter
            
            
            n/a
            
            
            n/a
            
            $
            2.88
            
            $
            0.98Second
                Quarter
            
            
            n/a
            
            
            n/a
            
            $
            2.73
            
            $
            0.65Third
                Quarter
            
            
            n/a
            
            
            n/a
            
            $
            1.63
            
            $
            0.65Fourth
                Quarter
            
            $
            12.00
            
            $
            0.98
            
            $
            1.24
            
            $
            0.37





HOLDERS





As
      of
      October 10, 2006, we had approximately 50 holders of our common stock. The
      number of record holders was determined from the records of our transfer agent
      and does not include beneficial owners of common stock whose shares are held
      in
      the names of various security brokers, dealers, and registered clearing
      agencies. The transfer agent of our common stock is Empire Stock Transfer,
      Inc.,
      7251 West Lake Mead Blvd., Suite 300, Las Vegas, Nevada 89128.




DIVIDENDS





We
      have
      not paid cash dividends on our stock and we do not anticipate paying any cash
      dividends thereon in the foreseeable future.





On
      June
      1, 2005, we declared a stock dividend of five shares of common stock for each
      one share of common stock outstanding of record on June 13, 2005, which stock
      dividend was paid on June 15, 2005. By the terms of our agreements with Cornell
      Capital Partners, LP, we are required to obtain the prior written consent of
      Cornell Capital Partners, LP prior to paying dividends or redeeming shares
      of
      our stock while the secured convertible debentures owed to Cornell Capital
      Partners, LP are outstanding. Any future determination to pay cash dividends
      will be at the discretion of our Board of Directors and will be dependent upon
      our financial condition, results of operations, capital requirements, and such
      other factors as our Board of Directors deems relevant.




8




RECENT
        SALES OF UNREGISTERED SECURITIES


On
      April
      19, 2006, we sold 181,818 shares of common stock to Petrofinanz GmbH, at a
      price
      of $1.10 per share for a total of $200,000. The shares and warrants were issued
      in reliance on the exemption provided by Regulation S as an offer and sale
      that
      occurred outside the United States and/or Rule 506 and/or Section 4(2) of the
      Securities Act.





On
      May 30
      2006, we issued 120,000 shares of common stock to Eric Hanlon for services
      to us
      as a consultant. This issuance is considered exempt pursuant to Rule 506 and/or
      Section 4(2) of the Securities Act.




EQUITY
      COMPENSATION PLANS





See
      Item
      11 below for information about our equity compensation plans.





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





The
      following Management’s Discussion and Analysis or Plan of Operation is qualified
      by reference to and should be read in conjunction with, our Financial Statements
      and the Notes thereto as set forth beginning on page F-1.





FORWARD-LOOKING
      STATEMENTS





We
      are
      including the following cautionary statement in this Form 10-KSB for any
      forward-looking statements made by, or on behalf of, Ignis Petroleum Group,
      Inc.
      Forward-looking statements include statements concerning plans, objectives,
      goals, strategies, expectations, future events or performance and underlying
      assumptions and other statements which are other than statements of historical
      facts. Such statements contained herein are forward-looking statements and,
      accordingly, involve risks and uncertainties which could cause actual results
      or
      outcomes to differ materially from those expressed in the forward-looking
      statements. Our expectations, beliefs and projections are expressed in good
      faith, and we believe that they have a reasonable basis, including without
      limitations, management's examination of historical operating trends, data
      contained in our records and other data available from third parties, but we
      cannot assure you that management's expectations, beliefs or projections will
      result or be achieved or accomplished.




PLAN
      OF
      OPERATION





Our
      strategy is to identify and acquire prospects with attractive return potential
      and significant in-field development and expansion opportunities. We hope to
      accomplish this through a disciplined approach and a rigorous process of
      screening and evaluating projects. We seek to apply the most advanced
      technologies and methods with staff, consultants, and operating partners having
      proven track records. Our strategy emphasizes the following core
      elements:





·
            Focused
                geography;


·
            Experienced
                team;


·
            Prospects
                with attractive risk to reward
                balance;


·
            Control
                over value-added activities; and


·
            Conservative
                financial and cost structure.





*Focused
      Geography*





We
      intend
      to focus on specific geographic areas primarily along the onshore United States
      Gulf Coast. We believe that substantial undiscovered reserves remain in this
      region. Because of significant existing 3-D seismic data, numerous industry
      participants are currently engaged in the reprocessing and review of this data
      to identify prospective acreage. In addition, many of the major and large
      independent oil companies are focusing less on such areas as they are engaged
      in
      seeking “elephant” fields in the offshore and international areas. At present we
      own several prospects and we intend to initially focus our resources primarily
      to develop those opportunities. In the future, we intend to generate prospects
      both internally and in partnership with others to take advantage of
      area-specific expertise gained by exploration specialists over the past few
      decades.





9





*Experienced
      team*





We
      have
      assembled a highly talented team of professionals with executive, exploration,
      engineering and financial experience. We intend to employ personnel with
      specialized geological, geophysical and other technical expertise to carry
      out
      the most crucial value-added functions. We seek to attract and retain a
      high-quality workforce by offering an entrepreneurial team-oriented environment,
      equity ownership and performance-based compensation programs. Please see
“Directors and Executive Officers” in Item 9 below for a complete discussion of
      the members of our management team.




*Prospects
      with attractive risk to reward balance*





We
      plan
      to grow reserves through drilling a balanced portfolio of prospects. We will
      retain the majority of the interests in those prospects that we believe will
      have a highly attractive risk to reward balance and where we have high
      confidence in its success. Such prospects will have a high expected net present
      value relative to capital investment. Additionally, we will sell a portion
      of
      our interests in prospects that involve higher costs and greater risks, to
      industry partners. This will mitigate our exploration risk and fund the
      anticipated capital requirements and will enable us to gain access, through
      trades of property interest, to our partners’ prospects in order to diversify
      our exploratory program.





*Control
      over value-added activities*





In
      our
      participation agreements with industry partners, we seek to exercise control
      over what we believe are the most critical functions in the exploration process.
      These functions include:





·
            Identification,
                evaluation and acquisition of
                prospects;


·
            Creation
                of development plans and design of drill
                sites;


·
            Management
                of portfolio risk; and


·
            Direction
                of critical reservoir management and production operations
                activities.





Our
      approach is to perform the day to day field operations activities by contracting
      experienced operators with proven track records.





*Conservative
      financial and cost structure*





We
      believe that a conservative financial structure is crucial to consistent,
      positive financial results. This has benefits for the management of cyclical
      swings in the industry and enables us to move quickly to take advantage of
      acquisition and drilling opportunities. In order to maximize our financial
      flexibility while improving overall stockholder returns, we plan to maintain
      a
      conservative debt-to-capital ratio. We seek to fund most of our ongoing capital
      expenditures from operating cash flow, reserving our debt capacity for potential
      investment opportunities that will profitably add to our program. Part of a
      sound financial structure is constant attention to costs, both operating and
      overhead. We will work to control our operating and overhead costs, and
      institute a formal, disciplined capital budgeting process. We will, wherever
      practicable, use partnerships to leverage our resources and enhance our ability
      to meet objectives.





10





*Planned
      Projects*





The
      table
      below outlines specific oil and gas projects that we have planned through June
      30, 2007 and the estimated time to for us to drill the test well to casing
      point
      or complete the test well and begin production on each of our prospects. We
      anticipate raising an additional $5 million during the fiscal year ending June
      30, 2007 to conduct our planned operations. We currently do not have any
      contracts, plans or commitments for any additional financing. There is no
      guarantee that we will be successful in raising additional funds on terms that
      are acceptable to us, if at all. If we are unable to raise additional funds,
      we
      will be forced to reduce or eliminate the drilling activities outlined below.




**Prospect**
            **Activity
                planned through June 30, 2007**
            **Expected
                Date to Reach Casing Point for Test Well on Prospect****or
                Complete and Begin Production**Barnett
                Shale
            Finish
                completion of two wells and continue production on one
                well.
            April
                2006 completed first well that is in production and two additional
                wells
                expected to be finished drilling by December 2006Crimson
                Bayou
            Complete
                drilling one test well, analyze log and consider completing the well
                and
                beginning production.
            2007Sherburne
                Prospect
            Complete
                drilling one test well, analyze log and consider completing the well
                and
                beginning production.
            December 2006





RESULTS
      OF OPERATIONS:





Results
      of operations for period December 9, 2004 (Inception) to June 30,
      2005





We
      did
      not earn any revenues during the period December 9, 2004 (Inception) to June
      30,
      2005. We were an
      exploration stage
      company.





We
      incurred operating expenses in the amount of $253,555 for the period December
      9,
      2004 (Inception) to June 30, 2005. These operating expenses were mainly
      comprised of payroll expenditures of $100,000, professional fees of $54,122,
      other office and related expenses of $67,637, travel expenses of $18,139, rent
      expense of $7,055 and advertising of $6,602.





We
      incurred interest expense of $22,685 on our convertible promissory notes
      payable.




Results
      of operations for the year ended June 30, 2006




Revenues
      for the year ended June 30, 2006 were $519,535. Revenue was a result of
      production of crude oil and natural gas at the Acom A-6 Prospect, located in
      Chambers County, Texas and the Barnett Shale prospect, located in Montague
      and
      Cooke counties, Texas.




We
      incurred operating expenses in the amount of $8,541,732 for the year ended
      June
      30, 2006.




Depletion
      expense was $494,493 for the year ended June 30, 2006. Depletion expense is
      related to the Acom A-6 prospect and the Barnett Shale prospect.




The
      Wefel
      Family Trust 19-1 #1 well (Barnett Crossroads Prospect), located in
      Escambia County, Alabama, commenced drilling operations on March 20, 2006 and
      reached a total depth of 14,600 feet on April 25, 2006. We found shows of oil
      and gas in three separate dolomite stringers within the 400-foot target
      Smackover formation. The amount of recoverable reserves; however, was deemed
      to
      be less than necessary to warrant a commercial completion and we decided to
      plug
      and abandon the well. A total of $2,813,268 was expensed in connection with
      this
      transaction. In addition, we recorded a $2,000,000 impairment expense related
      to
      its North Wright Field investments.





11





General
      and administrative expenses of $4,233,971 were mainly comprised of payroll
      expenditures of $1,635,075 (of which $259,075 was in cash and $1,376,000 was
      a
      non-cash issuance of our common stock), professional fees of $1,882,705 (of
      which $766,223 was in cash and $1,116,482 was a non-cash issuance of our common
      stock), advertising of $224,000, rent expense of $63,935, travel expenses of
      $89,385, amortization of debt fees of $133,280 (non-cash) and other office
      and
      related expenses of $126,591. The total cash expended for general and
      administrative expenses were $1,529,209.




We
      incurred interest expense of $2,102,681 of which $1,931,886 represented
      amortization of the discount associated with the convertible debentures. In
      addition, we incurred a charge of $1,299,201 in connection with valuing our
      derivative liability to actual at June 30, 2006. Both the amortization of the
      discount and the charge related to the derivative liability are non-cash
      charges.





LIQUIDITY
      AND CAPITAL RESOURCES





As
      of
      June 30, 2006, we had a working capital deficit of $72,542. For the year ended
      June 30, 2006, we generated a net cash flow deficit from operating activities
      of
      $3,854,163. Cash used in investing activities totaled $1,757,739, which was
      utilized for the purchase of oil and gas properties. Cash provided by financing
      activities totaled $6,339,410, of which $2,000,000 was from the sale of shares
      of common stock and warrants and $4,260,000 was from the sale of convertible
      debentures.





We
      expect
      continued capital expenditures through the end of calendar year 2006, contingent
      upon raising capital. These anticipated expenditures are for seismic data
      acquisitions, land and drilling rights acquisitions, drilling programs, overhead
      and working capital purposes. We have sufficient funds to conduct our operations
      for approximately four months under our current drilling plan without additional
      external capital or improved operating income. We anticipate that we will need
      approximately $5 million to continue our planned operations for the next 12
      months, depending on revenues from operations. Additional financing may not
      be
      available in amounts or on terms acceptable to us, if at all. If we are unable
      to secure additional capital, we will be forced to slow or stop our drilling
      activities.





By
      reducing our drilling activity to a level consistent with our current capital
      resources, we believe we could continue to operate our business for at least
      12
      months. However, if during that period or thereafter, we are not successful
      in
      generating sufficient liquidity from operations or in raising sufficient capital
      resources, on terms acceptable to us, this could have a material adverse effect
      on our business, results of operations liquidity and financial
      condition.





We
      presently do not have any available credit, bank financing or other external
      sources of liquidity. Due to our brief history and historical operating losses,
      our operations have not been a source of liquidity. We will need to obtain
      additional capital in order to expand operations and become profitable. In
      order
      to obtain capital, we may need to sell additional shares of our common stock
      or
      borrow funds from private lenders. We cannot assure you that we will be
      successful in obtaining additional funding.





We
      will
      still need additional investments in order to continue operations to cash flow
      break even. Additional investments are being sought, but we cannot guarantee
      that we will be able to obtain such investments. Financing transactions may
      include the issuance of equity or debt securities, obtaining credit facilities,
      or other financing mechanisms. However, the trading price of our common stock
      and a downturn in the U.S. stock and debt markets could make it more difficult
      to obtain financing through the issuance of equity or debt securities. Even
      if
      we are able to raise the funds required, it is possible that we could incur
      unexpected costs and expenses, fail to collect significant amounts owed to
      us,
      or experience unexpected cash requirements that would force us to seek
      alternative financing. Further, if we issue additional equity or debt
      securities, stockholders may experience additional dilution or the new equity
      securities may have rights, preferences or privileges senior to those of
      existing holders of our common stock. If additional financing is not available
      or is not available on acceptable terms, we will have to curtail our
      operations.





12





To
      obtain
      funding for our ongoing operations, we entered into a securities purchase
      agreement with Cornell Capital Partners, LP, an accredited investor, on January
      5, 2006 and amended and restated on February 9, 2006 and April 28, 2006, for
      the
      sale of $5,000,000 in secured convertible debentures and 12,000,000 warrants..
      The investors provided us with an aggregate of $5,000,000 as follows:




●
            $2,500,000
                was disbursed on January 5, 2006;




●
            $1,500,000
                was disbursed on February 9, 2006;
                and




●
            $1,000,000
                was disbursed on April 28, 2006.




Out
      of
      the $5 million in gross proceeds we received from Cornell Capital upon issuance
      of the secured convertible debentures, the following fees payable in cash have
      been deducted in connection with the transaction:




·
            $400,000
                fee payable to Yorkville Advisors LLC, the general partner of Cornell
                Capital;


·
            $15,000
                structuring fee payable to Yorkville Advisors LLC, the general partner
                of
                Cornell Capital;


·
            $5,000
                due diligence fee payable to Cornell Capital;
                and


·
            $250,000
                placement agent fee payable to Stonegate Securities, Inc.


·
            $65,000
                other professional fees paid at
                closing





Thus,
      we
      received net proceeds of $4,265,000 from the issuance of secured convertible
      debentures to Cornell Capital, prior to any other expenses we have or will
      incur
      in connection with the transaction. In connection with the issuance of secured
      convertible debentures to Cornell Capital, we were required under our placement
      agency agreement with Stonegate Securities, Inc. to issue to affiliates of
      Stonegate 75,000 shares of our common stock and 5-year warrants to purchase
      400,000 shares of our common stock at an exercise price of $1.25.




The
      secured convertible debentures bear interest at 7%, mature three years from
      the
      date of issuance, and are convertible into our common stock, at the selling
      stockholder’s option, at the lower of (i) $0.93 or (ii) 94% of the lowest volume
      weighted average prices of our common stock, as quoted by Bloomberg, LP, during
      the 30 trading days immediately preceding the date of conversion. Accordingly,
      there is no limit on the number of shares into which the secured convertible
      debentures may be converted. As of July 19, 2006, the lowest intraday trading
      price for our common stock during the preceding 30 trading days as quoted by
      Bloomberg, LP was $0.37 and, therefore, the conversion price for the secured
      convertible debentures was $0.3478. Based on this conversion price, the
      $5,000,000 in secured convertible debentures, excluding interest, were
      convertible into 14,376,079 shares of our common stock. The conversion price
      of
      the secured convertible debentures will be adjusted in the following
      circumstances:




·
            If
                we pay a stock dividend, engage in a stock split, reclassify our
                shares of
                common stock or engage in a similar transaction, the conversion price
                of
                the secured convertible debentures will be adjusted proportionately;


·
            If
                we issue rights, options or warrants to all holders of our common
                stock
                (and not to Cornell Capital) entitling them to subscribe for or purchase
                shares of common stock at a price per share less than $0.93 per share,
                other than issuances specifically permitted by the securities purchase
                agreement, as amended and restated, then the conversion price of
                the
                secured convertible debentures will be adjusted on a weighted-average
                basis;





13





·
            If
                we issue shares, other than issuances specifically permitted by the
                securities purchase agreement, as amended and restated, of our common
                stock or rights, warrants, options or other securities or debt that
                are
                convertible into or exchangeable for shares of our common stock,
                at a
                price per share less than $0.93 per share, then the conversion price
                will
                be adjusted to such lower price on a full-ratchet
                basis;


·
            If
                we distribute to all holders of our common stock (and not to Cornell
                Capital) evidences of indebtedness or assets or rights or warrants
                to
                subscribe for or purchase any security, then the conversion price
                of the
                secured convertible debenture will be adjusted based upon the value
                of the
                distribution as a percentage of the market value of our common stock
                on
                the record date for such
                distribution;


·
            If
                we reclassify our common stock or engage in a compulsory share exchange
                pursuant to which our common stock is converted into other securities,
                cash or property, Cornell Capital will have the option to either
                (i)
                convert the secured convertible debentures into the shares of stock
                and
                other securities, cash and property receivable by holders of our
                common
                stock following such transaction, or (ii) demand that we prepay the
                secured convertible debentures; and


·
            If
                we engage in a merger, consolidation or sale of more than one-half
                of our
                assets, then Cornell Capital will have the right to (i) demand that
                we
                prepay the secured convertible debentures, (ii) convert the secured
                convertible debentures into the shares of stock and other securities,
                cash
                and property receivable by holders of our common stock following
                such
                transaction, or (iii) in the case of a merger or consolidation, require
                the surviving entity to issue a convertible debenture with similar
                terms.




In
      connection with the securities purchase agreement, as amended and restated,
      we
      issued Cornell Capital warrants to purchase 6,000,000 shares of our common
      stock
      exercisable for a period of five years at an exercise price of $0.81 and
      warrants to purchase 6,000,000 shares of our common stock, exercisable for
      a
      period of five years at an exercise price of $0.93. Six million of the warrants
      were issued upon closing on January 5, 2006 and the other six million were
      issued on April 28, 2006 in connection with amending and restating our
      securities purchase agreement. We have the option to force the holder to
      exercise the warrants, as long as the shares underlying the warrants are
      registered pursuant to an effective registration statement, if our closing
      bid
      price trades above certain levels. If the closing bid price of our common stock
      is greater than or equal to $1.10 for a period of 15 consecutive trading days
      prior to the forced conversion, we can force the warrant holder to exercise
      the
      warrants exercisable at a price of $0.81. If the closing bid price of our common
      stock is greater than or equal to $1.23 for a period of 15 consecutive trading
      days prior to the forced conversion, we can force the warrant holder to exercise
      the warrants exercisable at a price of $0.93.




In
      connection with the exercise of any of the warrants issued to Cornell Capital,
      we are required under our placement agency agreement with Stonegate Securities,
      Inc. to pay a fee to Stonegate equal to five percent (5%) of the gross proceeds
      of any such exercise.




The
      investor has contractually
      agreed to restrict its ability to convert the secured convertible debentures
      or
      exercise the warrants and receive shares of our common stock such that the
      number of shares of common stock held by it and its affiliates after such
      conversion does not exceed 4.99% of the then issued and outstanding shares
      of
      common stock. **** If
      the
      conversion price is less than $0.93, the investor may not convert more than
      $425,000 of secured convertible debentures in any month, unless we waive such
      restriction. In the event that the conversion price is equal to or greater
      than
      $0.93, there is no restriction on the amount that the investor can convert
      in
      any month.




We
      have
      the right, at our option, with three business days advance written notice,
      to
      redeem a portion or all amounts outstanding under the secured convertible
      debentures prior to the maturity date if the closing bid price of our common
      stock, is less than $0.93 at the time of the redemption. In the event of a
      redemption, we are obligated to pay an amount equal to the principal amount
      being redeemed plus a 15% redemption premium, and accrued interest.




14





In
      connection with the second amended and restated securities purchase agreement,
      we also entered into a second amended and restated registration rights agreement
      providing for the filing, within five days of April 28, 2006, of a registration
      statement with the Securities and Exchange Commission registering the common
      stock issuable upon conversion of the secured convertible debentures and
      warrants. We are obligated to use our best efforts to cause the registration
      statement to be declared effective no later than 130 days after filing and
      to
      insure that the registration statement remains in effect until the earlier
      of
      (i) all of the shares of common stock issuable upon conversion of the secured
      convertible debentures have been sold or (ii) January 5, 2008. In the event
      of a
      default of our obligations under the registration rights agreement, including
      our agreement to file the registration statement no later than May 3, 2006,
      or
      if the registration statement is not declared effective by September 5, 2006,
      we
      are required pay to Cornell Capital, as liquidated damages, for each month
      that
      the registration statement has not been filed or declared effective, as the
      case
      may be, either a cash amount or shares of our common stock equal to 2% of the
      liquidated value of the secured convertible debentures.




In
      connection with the securities purchase agreement, we executed a security
      agreement in favor of the investor granting them a first priority security
      interest in all of our goods, inventory, contractual rights and general
      intangibles, receivables, documents, instruments, chattel paper, and
      intellectual property. The security agreement states that if an event of default
      occurs under the secured convertible debentures or security agreements, the
      investor has the right to take possession of the collateral, to operate our
      business using the collateral, and have the right to assign, sell, lease or
      otherwise dispose of and deliver all or any part of the collateral, at public
      or
      private sale or otherwise to satisfy our obligations under these
      agreements.




We
      also
      pledged 18,750,000 shares of common stock to secure the obligations incurred
      pursuant to the securities purchase agreement, as amended and restated.




CRITICAL
      ACCOUNTING POLICIES





Our
      accounting policies are fully described in Note 2 of the Notes to the Financial
      Statements. As discussed in Note 2, the preparation of financial statements
      in
      conformity with accounting principles generally accepted in the United States
      requires management to make estimates and assumptions about future events that
      affect the amounts reported in the financial statements and accompanying notes.
      Future events and their effects cannot be determined with absolute certainty.
      Therefore, the determination of estimates requires the exercise of judgment.
      Actual results inevitably will differ from those estimates, and such difference
      may be material to our financial statements. We believe that the following
      discussion addresses our Critical Accounting Policies.





Depreciation,
      depletion and amortization, based on cost less estimated salvage value of the
      asset, are primarily determined under either the unit-of-production method
      or
      the straight-line method, which is based on estimated asset service life taking
      obsolescence into consideration. Maintenance and repairs, including planned
      major maintenance, are expensed as incurred. Major renewals and improvements
      are
      capitalized and the assets replaced are retired.




The
      accounting for our business is subject to special accounting rules that are
      unique to the oil and gas industry. There are two allowable methods of
      accounting for oil and gas business activities: the successful-efforts method
      and the full-cost method. There are several significant differences between
      these methods. Under the successful-efforts method, costs such as geological
      and
      geophysical (G&G), exploratory dry holes and delay rentals are expensed as
      incurred, where under the full-cost method these types of charges would be
      capitalized to their respective full-cost pool.





We
      use
      the “successful efforts” method to account for our exploration and production
      activities. Under this method, costs are accumulated on a field-by-field basis
      with exploratory dry holes being expensed as incurred. To date, we have incurred
      $2,813,268 in dry hole costs that have been expensed as such. We have yet to
      determine any other dry holes that we are drilling or plan to drill. Costs
      of
      productive wells and development dry holes are capitalized and amortized on
      the
      unit-of-production method for each field.





15





Acquisition
      costs of proved properties are amortized using a unit-of-production method,
      computed on the basis of total proved oil and gas reserves. Significant unproved
      properties are assessed for impairment individually and valuation allowances
      against the capitalized costs are recorded based on the estimated economic
      chance of success and the length of time that we expect to hold the properties.
      The valuation allowances are reviewed at least annually. Other exploratory
      expenditures, including geological, geophysical and 3-D seismic survey costs
      are
      expensed as incurred.





Production
      costs are expensed as incurred.





In
      the
      absence of a determination as to whether the reserves that have been found
      can
      be classified as proved we will not carry the costs of drilling such an
      exploratory well as an asset for more than one year following completion of
      drilling. If, after that year has passed, a determination that proved reserves
      have been found cannot be made, we will assume the well is impaired and charge
      its costs to expense.





Proved
      oil and gas properties held and used by us are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amounts may not
      be
      recoverable.





Liabilities
      for environmental costs are recorded when it is probable that obligations have
      been incurred and the amounts can be reasonably estimated. These liabilities
      are
      not reduced by possible recoveries from third parties, and projected cash
      expenditures are not discounted. To date we have not had any environmental
      cost
      liabilities.





We
      accrue
      for contingencies in accordance with Statement of Accounting Standards ("SFAS")
      No. 5, "Accounting for Contingencies," when it is probable that a liability
      or
      loss has been incurred and the amount can be reasonably estimated. Contingencies
      by their nature relate to uncertainties that require our exercise of judgment
      both in assessing whether or not a liability or loss has been incurred and
      estimating the amount of probable loss. To date we have not had any significant
      contingency accruals.





We
      account for income taxes in accordance with SFAS No.109. Since we are in the
      early stages of our development, our deferred tax assets are not expected to
      be
      utilized in the future. We have provided a full valuation allowance against
      the
      assets.





We
      adopted Statement of Financial Accounting Standards No. 133, "Accounting for
      Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes
      accounting and reporting standards for derivative instruments and for hedging
      activities. SFAS 133 requires that an entity recognize derivatives as either
      assets or liabilities on the balance sheet and measure those instruments at
      fair
      value. The accounting for changes in the fair value of a derivative depends
      on
      the intended use of the derivative and the resulting designation.





In
      February 2006, the FASB issued FASB Statement No. 155 (SFAS 155), “Accounting
      for Certain Hybrid Financial Instruments: an amendment of FAS 133 and 140.” FAS
      155 nullifies the guidance from the FASB’s Derivatives Implementation Group
      (DIG) in Issue D1, Application of Statement 133 to Beneficial Interests in
      Securitized Financial Assets, which deferred the application of the bifurcation
      requirements of SFAS 133 for certain beneficial interests. FAS 155 provides
      a
      fair value measurement option for certain hybrid financial instruments that
      contain an embedded derivative that would otherwise require bifurcation and
      requires that beneficial interests in securitized financial assets be analyzed
      to determine whether they are freestanding derivatives or whether they are
      hybrid instruments that contain embedded derivatives requiring bifurcation.
      FAS
      155 also provides clarification on specific points related to derivative
      accounting. FAS 155 is effective for fiscal years beginning after September
      15,
      2006.





In
      June
      2001, the FASB issued SFAS No.143 “Accounting for Asset Retirement Obligations.”
SFAS No. 143 requires that an asset retirement obligation associated with the
      retirement of a tangible long-lived asset be recognized as a liability in the
      period in which a legal obligation is incurred and becomes determinable, with
      an
      offsetting increase in the carrying amount of the associated asset. The cost
      of
      the tangible asset, including the initially recognized asset retirement
      obligation, is depleted such that the cost of the asset retirement obligation is
      recognized over the life of the asset.





16





ITEM
                7.
            FINANCIAL
                STATEMENTS





The
      financial statements required in this Form 10-KSB are set forth beginning on
      page F-1.




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





None.





ITEM
                8A.
            CONTROLS
                AND PROCEDURES





Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures as of June 30, 2006. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended, or the Exchange Act, means controls and other procedures
      of a
      company that are designed to ensure that information required to be disclosed
      by
      a company in the reports that it files or submits under the Exchange Act is
      recorded, processed, summarized and reported, within the time periods specified
      in the SEC’s rules and forms. Disclosure controls and procedures include
      controls and procedures designed to ensure that information required to be
      disclosed by a company in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the company’s management,
      including its principal executive and principal financial officers, as
      appropriate to allow timely decisions regarding required
      disclosure.





Management
      recognizes that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving their objectives
      and management necessarily applies its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures. Based on the evaluation of
      our
      disclosure controls and procedures as of June 30, 2006, our chief executive
      officer and chief financial officer concluded that, as of such date, our
      disclosure controls and procedures were effective at a reasonable assurance
      level.





We
      maintain certain internal controls over financial reporting that are
      appropriate, in management’s judgment with similar cost-benefit considerations,
      to provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. No change in our internal control
      over financial reporting occurred during the fiscal quarter ended June 30,
      2006
      that has materially affected, or is reasonably likely to affect, the Company’s
      internal control over financial reporting.





17





ITEM
                8B.
            OTHER
                INFORMATION




On
      April
      19, 2006, we sold 181,818 shares of common stock to Petrofinanz GmbH, at a
      price
      of $1.10 per share for a total of $200,000. The shares and warrants were issued
      in reliance on the exemption provided by Regulation S as an offer and sale
      that
      occurred outside the United States and/or Rule 506 and/or Section 4(2) of the
      Securities Act.




PART
      III




ITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                SECTION
                16(a) OF THE EXCHANGE ACT




**DIRECTORS
      AND EXECUTIVE OFFICERS**





**Names:**
            **Ages**
            **Titles:**
            **Board
                of Directors**Michael
                P. Piazza
            49
            President,
                Chief Executive Officer and Treasurer
            Director*
                Philipp Buschmann
            30
            Chief
                Operating Officer and Secretary
            DirectorPatty
                Dickerson
            60
            Vice
                President of External RelationsTimothy
                Hart
            47
            Chief
                Financial OfficerGeoffrey
                Evett
            66
            
            DirectorRoger
                Leopard
            63
            
            Director





*
      Mr.
      Buchmann’s employment as an officer of the Company terminated September 22,
      2006.





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





**Michael
      P. Piazza** joined
      our board of directors effective June 5, 2005. Since May 25, 2005, Mr. Piazza
      has been our President, Chief Executive Officer and Treasurer. From May 25,
      2005
      until October 5, 2005, Mr. Piazza was also our Chief Financial Officer. From
      March 2005 to April 2005, Mr. Piazza was unemployed. From August 2003 to
      February 2005 Mr. Piazza was Senior Vice President and Chief Financial Officer
      of Ranger Enterprises, Inc., a petroleum corporation located in Rockford,
      Illinois. From May 2001 to July 2003, Mr. Piazza was a principal with Elan
      Capital, LLC, a management and financial consulting firm located in Houston,
      Texas. From February 1996 to April 2001, Mr. Piazza was a senior manager with
      McKinsey & Company, Inc., a management consulting firm located in Houston,
      Texas. Mr. Piazza received a Bachelor of Science degree in engineering from
      the
      Massachusetts Institute of Technology; a Master of Science degree in engineering
      from the University of California at Berkeley; and a Master of Business
      Administration degree from the Stern School at New York University. Mr. Piazza
      also is a Certified Management Accountant.





**Philipp
      Buschmann** joined
      our board of directors effective June 5, 2005. From May 25, 2005, to September
      22, 2006, Mr. Buschmann was our Chief Operating Officer and Secretary. Since
      December 2004, Mr. Buschmann has been Chief Executive Officer of Ignis Petroleum
      Corporation, an oil and gas corporation located in Dallas, Texas, which became
      a
      subsidiary of Ignis Petroleum Group, Inc. on May 16, 2005. From November 2004
      to
      April 2005, Mr. Buschmann was engaged in start-up activities for Ignis Petroleum
      Corporation. From September 2003 to November 2004, Mr. Buschmann was a
      management consultant with Booz Allen Hamilton located in London, United
      Kingdom. From July 2003 to September 2003, Mr. Buschmann was unemployed. From
      September 2001 to July 2003 he was a student at a London Business School where
      he received a Master of Business Administration degree. From May 2002 to August
      2002, Mr. Buschmann was a management consultant with Booz Allen Hamilton located
      in London, United Kingdom. From February 2001 to September 2001, Mr. Buschmann
      was unemployed. From August 1998 to February 2001 he was project manager for
      Razorfish, a corporation engaged in the business of IT consulting, located
      in
      Boston, Massachusetts.





18




**Patty
      Dickerson** became
      our Vice President of External Relations on June 19, 2006. Patty Dickerson,
      Vice President of External Relations, will direct Ignis’ corporate
      communications, investor relations and financial and trade communications
      efforts. Ms. Dickerson has directed investor relations initiatives within
      publicly traded companies for more than twenty years. She has been instrumental
      in the design and implementation of investor communications programs as well
      as
      serving as liaison with analysts, brokers, stock exchanges and regulatory
      agencies, shareholders, institutional investors and the financial news media.
      Ms. Dickerson served as company spokesperson for Box Energy Corporation, a
      NASDAQ company, from 1970 until 1997. She created annual reports, presentations,
      newsletters and other material to enhance corporate visibility. Additionally,
      she served as corporate secretary for the company and several of its
      subsidiaries. Most recently, Ms. Dickerson was Principal of Energy Direct
      Communications, L.L.C. where she developed programs for a select client base
      of
      small and mid-cap energy companies, including Cotton Valley Resources, Aspen
      Energy, Teras Energy and Queen Sand Resources Corporation. Ms. Dickerson has
      a
      bachelor’s degree in government affairs from Texas Woman's University in Denton,
      Texas and holds a law degree from Texas Tech University in Lubbock, Texas.
      She
      has volunteered her communications services to various organizations, while
      serving as a Board Member for the National Audubon Society, the League of Women
      Voters and the March of Dimes.




**Timothy
      Hart** became
      our Chief Financial Officer on October 5, 2005. Since 1996, Mr. Hart has been
      in
      private practice with the accounting firm Ullman & Hart CPAs located in Fort
      Lauderdale, Florida. In his capacity with this firm he has performed accounting
      and consulting services for clients in a number of different industries, often
      fulfilling the internal accounting function. Between December 2005 and April
      2006, Mr. Hart served as the Chief Financial Officer for Extraordinary Vacations
      Group, Inc. In addition, from January 2004 to May of 2005 Mr. Hart served as
      Chief Financial Officer of Taylor Madison Corp., a public company specializing
      in licensing agreements for various fragrance-related products. From 2000 to
      2003 Mr. Hart served as a director of American Group, Inc., a public company
      specializing in custom soil mixes in Homestead, Florida in addition to
      fulfilling the internal accounting function. Mr. Hart, through Ullman & Hart
      CPAs, has provided consulting services as Chief Financial Officer to Ignis
      Petroleum Group, Inc. from February 2005 to the present.





**Geoffrey
      Evett** joined
      our board of directors on August 30, 2005. Mr. Evett is a former banker with
      33
      years of experience. During the past five years, Mr. Evett has acted as a
      finance consultant to a major property development in the Czech Republic. He
      has
      also been involved with the development of a mixed commercial development in
      Prague. Mr. Evett serves as Chairman of Themis MN Fund Limited, a hedge fund
      listed on the Dublin Stock Exchange and serves as a partner in Capital
      Management Solution, a fund management company. He is also an agent for Banque
      SCS Alliance, a Swiss bank based in Geneva.




**Roger
      Leopard** joined
      our board of directors on January 24, 2006. Mr. Leopard has been the President
      and Chief Executive Officer of Calcitech Ltd., a Switzerland-based manufacturer
      of synthetic calcium carbonate since February 2000 and a director since June
      2001. Mr.
      Leopard has, among other positions, worked as an accountant for Deloitte Touche,
      Assistant Treasurer for The Great Universal Stores and Vice President of Finance
      of the CIG Group, a computer leasing and related product marketing and service
      operation with diversified European operations. Mr. Leopard is a Chartered
      Accountant.





In
      addition, we have an advisory board that provides consulting services to us.
      Typically, our advisors work up to five days a month, depending on our activity.
      Members of our advisory board are:





**Joseph
      Gittelman** is the
      Exploration Advisor on our advisory board. Mr. Gittelman is an industry
      professional with over 35 years of international experience in oil and gas
      exploration, development and operations. Mr. Gittelman enjoyed a 27-year career
      with Shell Oil Company, serving in a variety of senior technical, operational
      and management capacities. His leadership positions within the Shell
      organization included: General Manager of Geophysics, General Manager of
      Exploration and General Manager of Exploration Research. Mr. Gittelman also
      served as General Manager of Shell Western Exploration & Production from
      1988 to 1994, where he was responsible for managing Shell's domestic lower
      48
      onshore and Alaska exploration programs. Since 1995, Mr. Gittelman has served
      as
      President of U.S.-based Danlier, Inc., a specialized consulting firm which
      provides services to exploration companies and institutional investors,
      including screening of exploration projects for technical quality, risk and
      hydrocarbon potential. Mr. Gittelman holds a B.S. degree in Engineering from
      the
      University of Pennsylvania, an M.S. degree in Engineering from New York
      University and a Ph.D. in Engineering from the University of Michigan. Mr.
      Gittelman receives a monthly retainer of $1,500 and is paid for his advisory
      services at a prorated rate of $750 per day. In addition, Mr. Gittelman received
      43,750 shares of common stock upon joining the advisory board and will receive
      the same number of shares approximately every six months thereafter.
      Additionally, Mr. Gittelman is entitled to receive 7,500 stock options at an
      exercise price of $1.00 for every one million dollars we raise in which Mr.
      Gittelman assisted in the financing, subject to certain conditions.





19





**Frederick
      Stein** is the
      Operations Advisor on our advisory board. Mr. Stein is an accomplished petroleum
      engineer and operations manager with over 35 years experience in senior level
      management within Shell Oil Company and Pennzoil/Devon Energy. He developed
      and
      ran oil and gas fields both onshore and offshore in both domestic and
      international arenas. Over a 25 year career with Shell, his responsibilities
      ranged from production, reservoir, drilling and petro-physical engineering
      to
      direct management of drilling and field operations. During a 10 year tenure
      with
      Pennzoil/Devon Energy, Mr. Stein had both technical and operations management
      responsibilities over a variety of international projects in over a dozen
      countries with the largest being the Chirag/Azeri field in Azerbaijan. Mr.
      Stein's diverse areas of expertise include drilling and production operations
      management, oil and gas transportation design and negotiations. In addition,
      his
      experience encompasses reserves evaluation, reservoir performance management,
      well planning, facility design, and safety. Mr. Stein graduated with honors
      with
      an engineering degree from the University of Wisconsin. Mr. Stein receives
      a
      monthly retainer of $1,500 and is paid for his advisory services at a prorated
      rate of $750 per day. In addition, Mr. Stein received 25,000 shares of common
      stock upon joining the advisory board and will receive the same number of shares
      approximately every six months thereafter. Additionally, Mr. Stein is entitled
      to receive 3,000 stock options at an exercise price of $1.00 for every one
      million dollars we raise in which Mr. Stein assisted in the financing, subject
      to certain conditions.





**Alexander
      A. Kulpecz** was the
      initial member of our advisory board. Mr. Kulpecz is highly respected in the
      energy sector and has over 30 years experience gained at the highest levels
      within some of the world's major companies. Mr. Kulpecz began his career during
      the drilling boom of the 1970's with Shell Oil in their Onshore Production
      Division where he selected and drilled wells in the Texas, Louisiana,
      Mississippi, and Alabama Gulf Coast areas finding significant quantities of
      oil
      and gas. Mr. Kulpecz held the position of Executive VP and Director of Shell
      International Gas, Power and Coal, and he led the reorganization of the
      company's global E&P business. As a member of the Shell International Gas
& Power Executive Committee, he was responsible for almost half of Shell's
      global gas and power business, actively negotiating multi-billion dollar
      projects (LNG, corporate acquisition, pipelines) at the Presidential, PM and
      Energy Ministerial levels. From 1998 to early 2000, Mr. Kulpecz held the
      position of President of Azurix International and Executive Director of Azurix
      Corporation. He is currently President of the Omega Group, a consultancy group
      of senior executives providing advisory and managerial support to private
      equity, banking and energy clients in the oil and gas industries. Mr. Kulpecz
      receives a monthly retainer of $1,500 and is paid for his advisory services
      at a
      prorated rate of $750 per day. In addition, Mr. Kulpecz received 59,375 shares
      of common stock upon joining the advisory board and will receive the same number
      of shares approximately every six months thereafter. Additionally, Mr. Kulpecz
      is entitled to receive 15,000 stock options at an exercise price of $1.00 for
      every one million dollars we raise in which Mr. Kulpecz assisted in the
      financing, subject to certain conditions.





**Eric
      Hanlon** is the
      mergers and acquisitions Advisor on our advisory board. He has over 15 years
      energy experience gained in various capacities as an executive and consultant
      to
      Fortune 100 companies. Mr. Hanlon was recently Vice President and General
      Manager of Strategy and Markets Analysis for Royal Dutch Shell in London. Prior
      to that, Mr. Hanlon served as a Principal with McKinsey & Company, Inc.
      where he led senior executives, in various sectors of the energy industry,
      on
      issues critical to their businesses. During his career Mr. Hanlon has led
      organizations on the understanding of their key markets and development of
      integrated corporate strategies. He has advised major oil companies on M&A
      activity including an assessment of the value of large integrated oil companies
      for the purpose of acquisition. He has also worked with private equity companies
      to evaluate acquisitions of and investments in energy companies and programs.
      Mr. Hanlon served for five years in the United States Navy as a Lieutenant
      aboard a nuclear-powered submarine. He holds a BA in Physics from the University
      of California, Berkeley and an MBA from the University of Texas at Austin where
      he graduated at the top of his class. Mr. Hanlon receives monthly compensation
      of $10,000. In addition, Mr. Hanlon received 120,000 shares of common stock
      in
      April 2006.





20





SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE




Compliance
      with Section 16(a) of the Securities Exchange Act of 1934 Act, as amended,
      requires our officers and directors, and persons who own more than ten percent
      of our common stock to file reports of ownership and changes in ownership with
      the Securities and Exchange Commission, or SEC. Officers, directors and greater
      than ten percent stockholders are required by SEC regulations to furnish us
      with
      copies of all Section 16(a) forms they file. Based solely on a review of the
      copies of such forms furnished to us during, and with respect to, the fiscal
      year ending June 30, 2006, we believe that during such fiscal year all Section
      16(a) filing requirements applicable to our officers, directors and greater
      than
      ten percent beneficial owners were in compliance with Section 16(a), except
      that,


·
            Michael
                P. Piazza was late to file a Form
                4;


·
            Timothy
                Hart was late to file a Form 4;


·
            Geoffrey
                Evett was late to file a Form 3 and a Form
                4;


·
            Roger
                A. Leopard was late to file a Form 3, which Form 3 also reported
                a
                transaction that was not timely reported on a Form 4;


·
            Doug
                Berry, a former director, was late to file a Form 4;
                and


·
            Petrofinanz
                GmbH was late to file Forms 4 to report three transactions in which
                it
                purchased from us shares of our common stock and warrants to purchase
                our
                common stock.




CODE
      OF
      ETHICS





We
      have
      not yet adopted a code of ethics that applies to our principal executive
      officers, principal financial officer, principal accounting officer or
      controller, or persons performing similar functions, since we have been focusing
      our efforts on obtaining financing for the company.





ITEM
                10.
            EXECUTIVE
                COMPENSATION




The
      following table set forth certain information regarding our CEO and each of
      our
      most highly-compensated executive officers for the fiscal years ending June
      30,
      2006, 2005 and 2004:





**SUMMARY
                COMPENSATION TABLE**Long-Term
                CompensationAnnual
                Compensation
            Awards
            PayoutsName
                and Principal Position
            Fiscal
                Year
            Annual
                Salary
              ($)
            Annual
              Bonus
              ($)
            Other
              Annual
                Compensation
              ($)
            Restricted
                Stock Awards
              ($)
            Securities
                Underlying Options/SARs
              (#)
            LTIP
              Payouts
              ($)
            All
                Other Compensation
              ($)Michael
                P. Piazza, President , Chief Executive Officer and
                Treasurer
            2006
            126,666
                (1)
            0
            0
            0
            0
            0
            02005
            20,000
                (1)
            0
            0
            221,333
                (1)
            0
            0
            02004
            0
            0
            0
            0
            0
            0
            0Philipp
                Buschmann, Chief Operating Officer and Secretary
            2006
            120,000
                (2)
            0
            0
            0
            0
            0
            02005
            70,000
                (2)
            0
            0
            0
            0
            0
            02004
            0
            0
            0
            0
            0
            0
            0





(1) We
      entered into a written employment agreement on April 21, 2005, with Mr. Piazza
      which provided for an annual base salary of $120,000 per year, which salary
      was
      increased to $160,000 on June 1, 2006, and the issuance of up to 1,000,000
      shares of our common stock per year for four (4) years, for an aggregate of
      up
      to 4,000,000 shares. The shares issuable to Mr. Piazza under the agreement
      are
      subject to vesting based upon the following schedule:





21





•
            150,000
                shares vested and were issued after three (3) months of
                service;


•
            350,000
                shares vested and were issued after six (6) months of service upon
                Mr.
                Piazza achieving the following performance criteria: (i) securing
                commitments to finance at least 50% of our initial drilling operations
                and
                developing a plan to finance the remaining 50%, (ii) securing commitments
                to drill our initial wells, and (iii) identifying additional drilling
                opportunities;


•
            500,000
                shares vested and were issued after twelve (12) months of service;
                and


•
            500,000
                shares will vest every six (6) months thereafter until the forty-eighth
                (48th) month of service.




The
      amount shown as the value of Mr. Piazza’s restricted stock award in the table
      above is based upon the fair market value of 4,000,000 shares of Ignis Petroleum
      Group, Inc. stock on April 21, 2005. Such 4,000,000 shares would be worth
      $2,120,000 if valued as of June 30, 2006. If we declare any dividends on our
      common stock, Mr. Piazza would only be entitled to receive dividends on the
      vested portion of the restricted common stock described above.




(2) Although
      we have no written agreement with Mr. Buschmann, we paid him an annual salary
      of
      $120,000 in his capacity of Chief Operating Officer until his employment was
      terminated on September 22, 2006.




**Option/SAR
      Grants in Last Fiscal Year**




None.




**Stock
      Option Plans**





On
      January 30, 2006, our board of directors and holders of a majority of our
      outstanding shares of common stock approved our 2006 Incentive Stock Plan and
      authorized 5,000,000 shares of Common Stock for issuance of stock awards and
      stock options thereunder. The plan has been adopted by our board of directors
      who initially reserved 5,000,000 shares of our common stock for issuance under
      the plan. Under the plan, options may be granted which are intended to qualify
      as Incentive Stock Options under Section 422 of the Internal Revenue Code of
      1986 which are not intended to qualify as Incentive Stock Options thereunder.
      The primary purpose of the plan is to attract and retain the best available
      personnel for us by granting stock awards and stock options in order to promote
      the success of our business and to facilitate the ownership of our stock by
      our
      employees. Under the plan, stock awards and options may be granted to our key
      employees, officers, directors or consultants. To date, no awards have been
      granted under the plan.





**Employment
      Agreements**





*Michael
      P. Piazza*





We
      have
      entered into an employment agreement with Michael P. Piazza to serve as our
      Chief Executive Officer. The agreement can be terminated by either party with
      one month prior written notice. Pursuant to the agreement, Mr. Piazza receives
      an annual salary of $160,000. In addition, Mr. Piazza is entitled to receive
      1,000,000 shares of our common stock per year for four (4) years, for an
      aggregate of up to 4,000,000 shares. The shares issuable to Mr. Piazza under
      the
      agreement are subject to vesting based upon the following schedule:





22





•
            150,000
                shares vested and were issued after three (3) months of
                service;


•
            350,000
                shares vested and were issued after six (6) months of service upon
                Mr.
                Piazza achieving the following performance criteria: (i) securing
                commitments to finance at least 50% of our initial drilling operations
                and
                developing a plan to finance the remaining 50%, (ii) securing commitments
                to drill our initial wells, and (iii) identifying additional drilling
                opportunities;


•
            500,000
                shares vested and were issued after twelve (12) months of service;
                and


•
            500,000
                shares will vest every six (6) months thereafter until the forty-eighth
                (48th) month of service.




**Director
      Compensation**





On
      August
      15, 2005, we granted 240,000 shares of our common stock to D.B. Management,
      LTD., a company owned and controlled by Mr. Berry, as compensation for Mr.
      Berry’s service as one of our directors.





We
      have
      entered into agreements with Geoff Evett and Roger A. Leopard in which we agreed
      to pay each of the directors $1,500 per month and to issue 180,000 shares of
      our
      common stock to each of them over a three year period beginning January 20,
      2006. As of June 30, 2006, 30,000 of the 180,000 shares of our common stock
      have
      vested and been delivered to each of Mr. Evett and Mr. Leopard. The remaining
      150,000 shares will vest and be delivered to each of them, subject in each
      case
      to their continued service as a director, according to the following schedule:
      25,000 shares on July 20, 2006 and 25,000 shares each six months
      thereafter.





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





EQUITY
      COMPENSATION PLANS





*2006
      Incentive Stock Plan*





On
      January 30, 2006, our board of directors and holders of a majority of our
      outstanding shares of common stock approved our 2006 Incentive Stock Plan and
      authorized 5,000,000 shares of Common Stock for issuance of stock awards and
      stock options thereunder. The plan has been adopted by our board of directors
      who initially reserved 5,000,000 shares of our common stock for issuance under
      the plan. Under the plan, options may be granted which are intended to qualify
      as Incentive Stock Options under Section 422 of the Internal Revenue Code of
      1986 or which are not intended to qualify as Incentive Stock Options thereunder.
      The primary purpose of the plan is to attract and retain the best available
      personnel for us by granting stock awards and stock options in order to promote
      the success of our business and to facilitate the ownership of our stock by
      our
      employees. Under the plan, stock awards and options may be granted to our key
      employees, officers, directors or consultants. To date, no awards have been
      granted under the plan.





*Employment
      Agreements*





Michael
      P. Piazza’s employment agreement, as amended, is described in Item 10 above.
      Such employment agreement was not approved by our stockholders.





*Agreements
      with Advisors*





We
      have
      entered into consulting agreements with each of the members of our board of
      advisors pursuant to which such advisors may earn shares of our common stock
      upon the vesting schedule set forth below. Such agreements were not approved
      by
      our stockholders.




23




**Name
                  of Advisor**
              **Maximum
                  Number of Shares**
              **Vesting
                  Schedule**Alexander
                  Kulpecz
              475,000
              ·59,375
                  shares vested upon execution of consulting agreement;
                ·29,688
                  shares vested upon our successful private placement of $5 million;
                ·29,687
                  shares will vest upon our successful private placement of an additional
                  $5
                  million; and
                ·59,375
                  shares have vested or will vest every six months beginning February
                  9,
                  2006 and ending August 9, 2008.Frederick
                  C. Stein
              200,000
              ·25,000
                  shares vested upon execution of consulting agreement;
                ·12,500
                  shares vested upon our successful private placement of $5 million;
                ·12,500
                  shares will vest upon our successful private placement of an additional
                  $5
                  million; and
                ·25,000
                  shares have vested or will vest every six months beginning February
                  9,
                  2006 and ending August 9, 2008.Joseph
                  Gittelman
              350,000
              ·43,750
                  shares vested upon execution of consulting agreement;
                ·21,875
                  shares vested upon our successful private placement of $5 million;
                ·21,875
                  shares will vest upon our successful private placement of an additional
                  $5
                  million; and
                ·43,750
                  shares have vested or will vest every six months beginning February
                  9,
                  2006 and ending August 9, 2008.Eric
                  Hanlon
              240,000
                  *
              ·90,000
                  shares vested on April 30, 2006; and
                ·30,000
                  shares vest each month thereafterTOTAL
 
 *
        Pursuant to a consulting agreement dated January 24, 2006, Mr. Hanlon earned
        90,000 shares of our common stock as compensation for services through April
        30,
        2006. We have orally agreed to extend the consulting agreement with Mr. Hanlon
        on a month-to-month basis at a rate of 30,000 shares of our common stock
        per
        month. Mr. Hanlon has earned an additional 150,000 shares of our common stock
        through this arrangement since the end of the consulting agreement’s initial
        term through September 30, 2006.




Members
      of our board of advisors will be entitled to receive options to purchase up
      to
      425,000 shares of our common stock at an exercise price of $1.00 if they
      successfully assist us in raising additional capital as set forth in the table
      below. To date, none of the members of our board of advisors have earned any
      such options.





**Name
                of Advisor**
            **Maximum
                Number of Shares underlying Options**
            **Vesting
                Schedule**Alexander
                Kulpecz
            250,000
                shares
            15,000
                shares for each $1,000,000 raisedFrederick
                C. Stein
            50,000
                shares
            3,000
                shares for each $1,000,000 raisedJoseph
                Gittelman
            125,000
                shares
            7,500
                shares for each $1,000,000 raisedTOTAL
            425,000
                shares





*Agreements
      with Directors* .





See
      description of agreements with Geoff Evett and Roger Leopard involving equity
      compensation in Item 10 above. Such agreements were not approved by our
      stockholders.




SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of October 10, 2006.





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


·
            by
                each of our officers and directors; and


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





The
      number of shares beneficially owned by each director or executive officer is
      determined under rules of the SEC, and the information is not necessarily
      indicative of beneficial ownership for any other purpose. Under the SEC rules,
      beneficial ownership includes any shares as to which the individual has the
      sole
      or shared voting power or investment power. In addition, beneficial ownership
      includes any shares that the individual has the right to acquire within 60
      days.
      Unless otherwise indicated, each person listed below has sole investment and
      voting power (or shares such powers with his or her spouse). In certain
      instances, the number of shares listed includes (in addition to shares owned
      directly), shares held by the spouse or children of the person, or by a trust
      or
      estate of which the person is a trustee or an executor or in which the person
      may have a beneficial interest.




24





**Name
                and Address of Owner**
            **Title
                of Class**
            **Number
                of Shares Owned (1)**
            **Percent
                of Class (2)**Michael
                P. Piazza
              100
                Crescent Court, 7thFloor
              Dallas,
                Texas 75201
            Common
                Stock
            1,500,000
                (3)
            2.95%Philipp
                Buschmann
              100
                Crescent Court, 7thFloor
              Dallas,
                Texas 75201
            Common
                Stock
            4,584,000
            9.12%Timothy
                Hart
              100
                Crescent Court, 7thFloor
              Dallas,
                Texas 75201
            Common
                Stock
            10,000
            *Geoffrey
                Evett
              100
                Crescent Court, 7thFloor
              Dallas,
                Texas 75201
            Common
                Stock
            55,000
            *Roger
                A. Leopard
              100
                Crescent Court, 7thFloor
              Dallas,
                Texas 75201
            Common
                Stock
            55,000
            *All
                Officers and Directors as a Group (5 persons)
            Common
                Stock
            6,204,000
                (3)
            12.22%Newton
                Properties, Inc. (4)
              Trust
                Company Complex
              Ajeltake
                Road, Ajeltake Island
              Majuro,
                Marshall Islands MH96960
            Common
                Stock
            3,500,000
            6.96%Petrofinanz
                GMBH (4)
              Trust
                Company Complex
              Ajeltake
                Road, Ajeltake Island
              Majuro,
                Marshall Islands MH96960
            Common
                Stock
            7,008,484
                (5)
            13.10%





*
      Less
      than 1%.





(1)
      Beneficial Ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or investment
      power with respect to securities. Shares of common stock subject to options
      or
      warrants currently exercisable or convertible, or exercisable or convertible
      within 60 days of October 6, 2006 are deemed outstanding for computing the
      percentage of the person holding such option or warrant but are not deemed
      outstanding for computing the percentage of any other person.





(2)
      Based
      upon 50,288,589 shares issued and outstanding on October 6, 2006.





(3)
      Includes 500,000 shares of common stock scheduled to vest and become issuable
      to
      Mr. Piazza on October 21, 2006, under the terms of his employment
      agreement.





(4)
      Voting authority for the shares of common stock owned is vested in the entity’s
      board of directors.





(5)
      Includes 3,213,333 shares of common stock issuable upon exercise of warrants
      held by Petrofinanz GmbH.





25




ITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS.





Other
      than as disclosed below, there have been no transactions, or proposed
      transactions, which have materially affected or will materially affect us in
      which any director, executive officer or beneficial holder of more than 5%
      of
      our outstanding common stock, or any of their respective relatives, spouses,
      associates or affiliates, has had or will have any direct or indirect material
      interest. We have no policy regarding entering into transactions with affiliated
      parties.





Mr.
      Timothy Hart, our Chief Financial Officer, has been providing accounting and
      financial advisory services to us through his certified public accounting firm,
      Ullman & Hart CPAs, since February 2005. For the year ended June 30, 2006,
      we have paid fees totaling approximately $62,533 to Mr. Hart’s firm and issued
      10,000 shares of our common stock to Mr. Hart for services provided by Mr.
      Hart
      and his firm. Although we have no formal agreement with Mr. Hart or his firm,
      we
      anticipate that Mr. Hart will continue to provide accounting and financial
      advisory services to us through Ullman & Hart CPAs at a rate of $150 per
      hour on an as-needed basis. In the past, Mr. Hart has worked an average of
      approximately 8 hours per week for us. We anticipate that Mr. Hart will work
      approximately 16 hours per week for us in the future.





On
      October 18, 2005, we entered into a subscription agreement with a current
      investor, Petrofinanz GmbH, pursuant to which Petrofinanz purchased 133,333
      units, at a price of $1.50 per unit, with each unit consisting of one share
      of
      our common stock and one 2-year warrant to purchase one share of our common
      stock at an exercise price of $2.00 per share.





On
      October 28, 2005, we entered into a subscription agreement with a current
      investor, Petrofinanz GmbH pursuant to which Petrofinanz purchased 80,000 units,
      at a price of $1.25 per unit, with each unit consisting of one share of our
      common stock and one 2-year warrant to purchase one share of our common stock
      at
      an exercise price of $2.00 per share.





On
      December 22, 2005 we borrowed $100,000 from a current investors, Petrofinanz
      GmbH. The loan accrues interest at 12% annually and mature June 20, 2006.





On
      April
      19, 2006, we entered into a subscription agreement with a current investor,
      Petrofinanz GmbH, pursuant to which Petrofinanz purchased 181,818 shares of
      common stock at a price of $1.10 per share.





We
      believe that the related transactions describe above were on terms that we
      would
      have received had we entered into such transactions with unaffiliated third
      parties.





ITEM
                13.
            EXHIBITS





(a)
            EXHIBITS




The
      following are exhibits to this report:





Exhibit
                No.
            Description





3.1
            Articles
                of Incorporation and amendments, filed as an exhibit to the annual
                report
                on Form 10-KSB filed with the Securities and Exchange Commission
                on
                October 13, 2005 and incorporated herein by
                reference.





26





3.2
            Certificate
                of Amendment to Articles of Incorporation, filed with the Nevada
                Secretary
                of State on April 5, 2006, filed as an exhibit to the registration
                statement on Form SB-2 filed with the Securities and Exchange Commission
                on May 3, 2006 and incorporated herein by
                reference.





3.3
            Bylaws
                of the Company, filed as an exhibit to the annual report on Form
                10-KSB
                filed with the Securities and Exchange Commission on October 13,
                2005 and
                incorporated herein by reference.





4.1
            Amended
                and Restated Securities Purchase Agreement, dated April 28, 2006,
                by and
                between Ignis Petroleum Group, Inc. and Cornell Capital Partners,
                LP,filed
                as an exhibit to the current report on Form 8-K, filed with the Securities
                and Exchange Commission on May 1, 2006 and incorporated herein by
                reference.





4.2
            Secured
                Convertible Debenture issued to Cornell Capital Partners, LP by Ignis
                Petroleum Group, Inc., dated January 5, 2006,filed
                as an exhibit to the current report on Form 8-K filed with the Securities
                and Exchange Commission on January 10, 2006 and incorporated herein
                by
                reference.





4.3
            Warrant
                to purchase 3,086,420 shares of Common Stock, dated January 5, 2006,
                issued to Cornell Capital Partners, LP,filed
                as an exhibit to the current report on Form 8-K filed with the Securities
                and Exchange Commission on January 10, 2006 and incorporated herein
                by
                reference.





4.4
            Warrant
                to purchase 2,688,172 shares of Common Stock, dated January 5, 2006,
                issued to Cornell Capital Partners, LP,filed
                as an exhibit to the current report on Form 8-K filed with the Securities
                and Exchange Commission on January 10, 2006 and incorporated herein
                by
                reference.





4.5
            Amended
                and Restated Registration Rights Agreement, dated April 28, 2006,
                by and
                between Ignis Petroleum Group, Inc. and Cornell Capital Partners,
                LP,filed
                as an exhibit to the current report on Form 8-K, filed with the Securities
                and Exchange Commission on May 1, 2006 and incorporated herein by
                reference.





4.6
            Amended
                and Restated Security Agreement, dated February 9, 2006, by and between
                Ignis Petroleum Group, Inc. and Cornell Capital Partners, LP,filed
                as an exhibit to the registration statement on Form SB-2, file number
                333-131774, filed with the Securities and Exchange Commission on
                February
                10, 2006 and incorporated herein by
                reference.





4.7
            Insider
                Pledge and Escrow Agreement, dated January 5, 2006, by and among
                Ignis
                Petroleum Group, Inc., Cornell Capital Partners, LP, Philipp Buschmann,
                Michael Piazza and David Gonzalez, Esq. as escrow agent,filed
                as an exhibit to the current report on Form 8-K filed with the Securities
                and Exchange Commission on January 10, 2006 and incorporated herein
                by
                reference.





4.8
            Pledge
                and Escrow Agreement, dated January 5, 2006, by and among Ignis Petroleum
                Group, Inc., Cornell Capital Partners, LP and David Gonzalez, Esq.
                as
                escrow agent,filed
                as an exhibit to the current report on Form 8-K filed with the Securities
                and Exchange Commission on January 10, 2006 and incorporated herein
                by
                reference.





4.9
            Escrow
                Termination Agreement, dated February 9, 2006, by and among Ignis
                Petroleum Group, Inc., Cornell Capital Partners, LP and David Gonzalez,
                Esq.,filed
                as an exhibit to the registration statement on Form SB-2, file number
                333-131774, filed with the Securities and Exchange Commission on
                February
                10, 2006 and incorporated herein by
                reference.





27





4.10
            Secured
                Convertible Debenture issued to Cornell Capital Partners, LP by Ignis
                Petroleum Group, Inc., dated February 9, 2006,filed
                as an exhibit to the registration statement on Form SB-2, file number
                333-131774, filed with the Securities and Exchange Commission on
                February
                10, 2006 and incorporated herein by
                reference.





4.11
            Irrevocable
                Transfer Agent Instructions, dated January 5, 2006, by and among
                Ignis
                Petroleum Group, Inc. and David Gonzalez, Esq.filed as an exhibit to the amended registration statement on Form
                SB-2/A,
                file number 333-131774, filed with the Securities and Exchange Commission
                on April 14, 2006 and incorporated herein by
                reference.





4.12
            Secured
                Convertible Debenture issued to Cornell Capital Partners, LP by Ignis
                Petroleum Group, Inc., dated April 28, 2006,filed
                as an exhibit to the current report on Form 8-K, filed with the Securities
                and Exchange Commission on May 1, 2006 and incorporated herein by
                reference.





4.13
            Warrant
                to purchase 3,086,420 shares of Common Stock, dated April 28, 2006,
                issued
                to Cornell Capital Partners, LP,filed
                as an exhibit to the current report on Form 8-K, filed with the Securities
                and Exchange Commission on May 1, 2006 and incorporated herein by
                reference.





4.14
            Warrant
                to purchase 2,688,172 shares of Common Stock, dated April 28, 2006,
                issued
                to Cornell Capital Partners, LP,filed
                as an exhibit to the current report on Form 8-K, filed with the Securities
                and Exchange Commission on May 1, 2006 and incorporated herein by
                reference.





4.15
            Form
                of warrants issued to Petrofinanz GmbH, filed as an exhibit to the
                registration statement on Form SB-2 filed with the Securities and
                Exchange
                Commission on May 3, 2006 and incorporated herein by
                reference.





4.16
            Form
                of warrants to be issued to Robert R. Blakely, Scott R. Griffith
                and
                Robert R. Blakely, filed as an exhibit to the registration statement
                on
                Form SB-2 filed with the Securities and Exchange Commission on May
                3, 2006
                and incorporated herein by
                reference.




10.1
            Stock
                Exchange Agreement, dated May 11, 2005, by and among Sheer Ventures,
                Inc.
                and shareholders of Ignis Petroleum Corporation, filed as an exhibit
                to
                the current report on Form 8-K filed with the Securities and Exchange
                Commission on October 11, 2005 and incorporated herein by
                reference.





10.2
            Farmout
                Agreement, dated August 23, 2004, by and between Dragon Energy Corporation
                and Argyle Energy, Inc. regarding Barnett Crossroads Prospect, filed
                as an
                exhibit to the current report on Form 8-K filed with the Securities
                and
                Exchange Commission on March 14, 2006 and incorporated herein by
                reference.





10.3
            First
                Amendment of Farmout Agreement, dated September 30, 2005, by and
                between
                Dragon Energy Corporation and Argyle Energy, Inc. regarding Barnett
                Crossroads Prospect, filed as an exhibit to the current report on
                Form 8-K
                filed with the Securities and Exchange Commission on March 14, 2006
                and
                incorporated herein by reference.





10.4
            Side
                Letter to First Amendment of Farmout Agreement dated September 30,
                2005,
                by and between Dragon Energy Corporation and Argyle Energy, Inc.
                regarding
                Barnett Crossroads Prospect, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on March
                14,
                2006 and incorporated herein by
                reference.





10.5
            Ratification
                and Amendment of Farmout Agreement, First Amendment of Farmout Agreement,
                and Side Letter to First Amendment of Farmout Agreement dated March
                14,
                2006, by and among Dragon Energy Corporation, Ignis Petroleum Corporation,
                Bayou City Exploration, Inc. f/k/a Blue Ridge Energy, Inc., Argyle
                Energy,
                Inc. and Newton Properties, Inc. regarding Barnett Crossroads Prospect,
                filed as an exhibit to the current report on Form 8-K filed with
                the
                Securities and Exchange Commission on March 14, 2006 and incorporated
                herein by reference.





28





10.6
            Letter
                Agreement, dated March 31, 2005, by and among Argyle Energy, Inc.,
                Newton
                Properties, Inc. and Blue Ridge Energy, Inc. regarding North Wright
                Prospect Area, Acadia Parish, Louisiana, filed as an exhibit to the
                current report on Form 8-K filed with the Securities and Exchange
                Commission on October 11, 2005 and incorporated herein by
                reference.





10.7
            Letter
                Agreement, dated April 22, 2005, by and between Newton Properties,
                Inc.
                and Ignis Petroleum Corporation regarding North Wright Prospect Area,
                Acadia Parish, Louisiana, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on October
                11,
                2005 and incorporated herein by
                reference.





10.8
            Letter
                Agreement, dated September 1, 2005, by and among Argyle Energy, Inc.,
                Ignis Petroleum Corporation and Bayou City Exploration, Inc. (f/k/a
                Blue
                Ridge Energy, Inc.) regarding North Wright Prospect Area, Acadia
                Parish,
                Louisiana, filed as an exhibit to the current report on Form 8-K
                filed
                with the Securities and Exchange Commission on October 11, 2005 and
                incorporated herein by reference.





10.9
            Letter
                Agreement, dated September 30, 2005, by and among Ignis Petroleum
                Group,
                Inc., Newton Properties, Inc. and Ignis Petroleum Corporation regarding
                North Wright Prospect, Acadia Parish, Louisiana, filed as an exhibit
                to
                the current report on Form 8-K filed with the Securities and Exchange
                Commission on October 11, 2005 and incorporated herein by
                reference.





10.10
            Participation
                Agreement, dated June 14, 2005, by and between Ignis Petroleum Corporation
                and Kerr-McGee Oil & Gas Onshore LP. d/b/a KMOG Onshore LP regarding
                Acom A-6 Prospect, filed as an exhibit to the current report on Form
                8-K
                filed with the Securities and Exchange Commission on October 11,
                2005 and
                incorporated herein by reference.





10.11
            Subscription
                Purchase Agreement, dated January 9, 2006, by and between Ignis Petroleum
                Corporation and Provident Oil and Gas Partners #1 regarding Barnett
                Shale
                Prospect,filed as an exhibit to the registration statement on Form SB-2, file
                number 333-133768, filed with the Securities and Exchange Commission
                on
                June 20, 2006 and incorporated herein by reference.





10.12
            Crimson
                Bayou Participation Agreement, dated November 30, 2005, by and between
                Range Production I, L.P. and Ignis Petroleum Corporation regarding
                Crimson
                Bayou Prospect ,filed as an exhibit to the registration statement on Form SB-2, file
                number 333-133768, filed with the Securities and Exchange Commission
                on
                June20, 2006 and incorporated herein by reference.





10.13
            Letter
                Agreement, dated April 21, 2005, by and between Ignis Petroleum
                Corporation and Michael P. Piazza, filed as an exhibit to the current
                report on Form 8-K filed with the Securities and Exchange Commission
                on
                October 11, 2005 and incorporated herein by
                reference.





10.14
            Letter
                Agreement, dated September 22, 2005, by and among Ignis Petroleum
                Group,
                Inc., Newton Properties, Inc. and Ignis Petroleum Corporation regarding
                $375,000 convertible note, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on October
                11,
                2005 and incorporated herein by
                reference.





29





10.15
            Letter
                Agreement, dated September 22, 2005, by and among Ignis Petroleum
                Group,
                Inc., Newton Properties, Inc. and Ignis Petroleum Corporation regarding
                $1,125,000 convertible note, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on October
                11,
                2005 and incorporated herein by
                reference.





10.16
            Letter
                Agreement, dated September 22, 2005, by and among Ignis Petroleum
                Group,
                Inc., Ignis Petroleum Corporation and Michael P. Piazza, filed as
                an
                exhibit to the current report on Form 8-K filed with the Securities
                and
                Exchange Commission on October 11, 2005 and incorporated herein by
                reference.





10.17
            Letter
                Agreement, dated August 8, 2005, by and between Ignis Petroleum Group,
                Inc. and Alexander A. Kulpecz, filed as an exhibit to the current
                report
                on Form 8-K filed with the Securities and Exchange Commission on
                October
                11, 2005 and incorporated herein by
                reference.





10.18
            Letter
                Agreement, dated August 17, 2005, by and between Ignis Petroleum
                Group,
                Inc. and Frederick C. Stein, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on October
                11,
                2005 and incorporated herein by
                reference.





10.19
            Letter
                Agreement, dated August 17, 2005, by and between Ignis Petroleum
                Group,
                Inc. and Joseph Gittelman, filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on October
                11,
                2005 and incorporated herein by
                reference.





10.20
            Stock
                Purchase Agreement, dated June 15, 2005, by and among Sheer Ventures,
                Inc.
                and Petrofinanz GmbH, filed as an exhibit to the current report on
                Form
                8-K filed with the Securities and Exchange Commission on October
                11, 2005
                and incorporated herein by
                reference.





10.21
            Placement
                Agency Agreement, dated as of October 21, 2005, by and between Ignis
                Petroleum Group, Inc. and Stonegate Securities, Inc., filed as an
                exhibit
                to the current report on Form 8-K filed with the Securities and Exchange
                Commission on January 10, 2006 and incorporated herein by
                reference.





10.22
            Amendment
                to Placement Agency Agreement, dated December 29, 2005, by and between
                Ignis Petroleum Group, Inc. and Stonegate Securities, Inc., filed
                as an
                exhibit to the current report on Form 8-K filed with the Securities
                and
                Exchange Commission on January 10, 2006 and incorporated herein by
                reference.





10.23
            Subscription
                Agreement, dated July 26, 2005, by and between Ignis Petroleum Group,
                Inc.
                andPetrofinanz
                GmbH, filed as an exhibit to the current report on Form 8-K filed
                with the
                Securities and Exchange Commission on December 28, 2005 and incorporated
                herein by reference.





10.24
            Subscription
                Agreement, dated October 18, 2005, by and between Ignis Petroleum
                Group,
                Inc. andPetrofinanz
                GmbH, filed as an exhibit to the current report on Form 8-K filed
                with the
                Securities and Exchange Commission on December 28, 2005 and incorporated
                herein by reference.





10.25
            Subscription
                Agreement, dated October 28, 2005, by and between Ignis Petroleum
                Group,
                Inc. andPetrofinanz
                GmbH, filed as an exhibit to the current report on Form 8-K filed
                with the
                Securities and Exchange Commission on January 9, 2006 and incorporated
                herein by reference.





30





10.26
            Loan
                Agreement, dated December 22, 2005, by and between Ignis Petroleum
                Group,
                Inc. andPetrofinanz
                GmbH, filed as an exhibit to the current report on Form 8-K filed
                with the
                Securities and Exchange Commission on January 9, 2006 and incorporated
                herein by reference.





10.27
            2006
                Incentive Stock Plan of Ignis Petroleum Group, Inc. adopted January
                30,
                2006, filed as an exhibit to the definitive information statement
                on
                Schedule 14C filed with the Securities and Exchange Commission on
                March
                16, 2006 and incorporated herein by
                reference.





10.28
            Letter
                Agreement, dated March 29, 2006, by and between Ignis Petroleum
                Corporation and Newton Properties, Inc. filed as an exhibit to the
                current
                report on Form 8-K filed with the Securities and Exchange Commission
                on
                April 19, 2006 and incorporated herein by
                reference.





10.29
            Letter
                Agreement, dated April 13, 2006, by and among Ignis Petroleum Corporation,
                Argyle Energy, Inc. and Bayou City Exploration, Inc. filed as an
                exhibit
                to the current report on Form 8-K filed with the Securities and Exchange
                Commission on April 19, 2006 and incorporated herein by
                reference.





10.30
            Letter
                agreement, dated January 20, 2006, by and between Ignis Petroleum
                Group,
                Inc. and Roger A. Leopard filed as an exhibit to the current report
                on
                Form 8-K filed with the Securities and Exchange Commission on January
                26,
                2006 and incorporated herein by
                reference.





10.31
            Letter
                agreement, dated January 20, 2006, by and between Ignis Petroleum
                Group,
                Inc. and Geoff Evett filed as an exhibit to the current report on
                Form 8-K
                filed with the Securities and Exchange Commission on January 26,
                2006 and
                incorporated herein by reference.





10.32
            Subscription
                Agreement, dated April 19, 2006, by and between Ignis Petroleum Group,
                Inc. andPetrofinanz
                GmbH,filed as an exhibit to the registration statement on Form SB-2, file
                number 333-133768, filed with the Securities and Exchange Commission
                on
                June 20, 2006 and incorporated herein by
                reference.





10.33
            Letter
                Agreement, dated January 24, 2006, by and between Ignis Petroleum
                Group,
                Inc. and Eric Hanlon filed as an exhibit to the registration statement
                on
                Form SB-2, file number 333-133768, filed with the Securities and
                Exchange
                Commission on July 21, 2006 and incorporated herein by
                reference.





21.1
            List
                of subsidiaries, filed as an exhibit to our registration statement
                on Form
                SB-2, file number 333-131774, filed with the Securities and Exchange
                Commission on February 10, 2006 and incorporated herein by
                reference.


*31.1
            Rule
                13a-14(a) Certification of Chief Executive Officer*31.2
            Rule
                13a-14(a) Certification of Chief Financial Officer*32.1
            Section
                1350 Certification of Chief Executive Officer*32.2
            Section
                1350 Certification of Chief Financial
                Officer




*
      Filed
      herewith.




31





ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES





AUDIT
      FEES





For
      the
      years ended June 30, 2006 and 2005, our principal accountant billed $15,000
      and
      $9,000 for the audit of our annual financial statements. For the year ended
      June
      30, 2006, our principal accountant billed $15,779 for the review of financial
      statements included in our Form 10-QSB filings and other SEC filings. For the
      year ended June 30, 2005, our former principal accountant billed $1,800 for
      the
      review of financial statements included in our Form 10-QSB filings.




AUDIT-RELATED
      FEES





There
      were no fees billed for services related to the performance of the audit or
      review of our financial statements outside of those fees disclosed above under
      “Audit Fees” for the years ended June 30, 2006 and 2005.





TAX
      FEES





For
      the
      fiscal years ended June 30, 2006 and 2005, our principal accountant did not
      render any services for tax compliance, tax advice, and tax planning work.





ALL
      OTHER
      FEES





There
      were no other fees billed by our principal accountants other than those
      disclosed above for the years ended June 30, 2006 and 2005.





PRE-APPROVAL
      POLICIES AND PROCEDURES





Prior
      to
      engaging our accountants to perform a particular service, our board of directors
      obtains an estimate for the service to be performed. All of the services
      described above were approved by the board of directors in accordance with
      its
      procedures.




32
  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.








October
                12, 2006
            
            Ignis
                Petroleum Group, Inc.By:
                /s/ Michael PiazzaMichael
                Piazza,President,
                Chief Executive Officer and Treasurer




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





Signature
            
            Title
            
            DateMichael
                P. Piazza
            
            President,
                Chief Executive Officer, Treasurer and Director
            
            October
                12, 2006Timothy
                Hart
            
            Chief
                Financial Officer (Principal Financial Officer and Principal Accounting
                Officer)
            
            October
                12, 2006Philipp
                Buschmann
            
            Director
            
            October
                12, 2006Geoffrey
                Evett
            
            Director
            
            October
                12, 2006Roger
                Leopard
            
            Director
            
            October
                12, 2006





33





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors of


Ignis
      Petroleum Group, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Ignis Petroleum Group,
      Inc. and subsidiaries (the “Company”) as of June 30, 2006, and the related
      consolidated statements of operations, changes in shareholders’ equity and cash
      flows for the year ended June 30, 2006 and the period December 9, 2004
      (Inception) to June 30, 2005. These consolidated 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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audit
      includes 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,
      and
      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 the Company as of June 30, 2006
      and
      the results of their operations and their cash flows for the year ended June
      30,
      2006 and for the period December 9, 2004 (Inception) to June 30, 2005, in
      conformity with US generally accepted accounting principles.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the consolidated
      financial statements, the Company’s dependence on outside financing, lack of
      sufficient working capital, and recurring losses from operations 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 these uncertainties.








/s/De
      Meo, Young McGrath




Fort
      Lauderdale, Florida


October
      13, 2006




F-1




Ignis
                Petroleum Group, Inc. and SubsidiaryConsolidated
                Balance SheetJune
                30, 2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            872,572Accounts
                receivable
            
            
            55,782Prepaid
                expenses and other current assets
            
            
            188,500Total
                current assets
            
            
            1,116,854Property
                and equipment:Oil
                and gas properties, successful efforts method
            
            
            2,521,869Other
                assets
            
            
            669,760Total
                assets
            
            $
            4,308,483LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            1,089,396Note
                payable
            
            
            100,000Total
                current liabilities
            
            
            1,189,396Convertible
                notes
            
            
            1,931,886Derivative
                liability
            
            
            2,604,813Warrant
                liability
            
            
            3,694,2938,230,992Commitments
                and contingencies
            
            
            -Stockholders'
                equity (deficit):Preferred
                stock, $0.001 par value, 5,000,000 shares authorized none issued
                and
                outstanding
            
            
            -Common
                stock, $0.001 par value, 300,000,000 shares authorized 50,026,464
                issued
                and outstanding
            
            
            50,026Additional
                paid-in capital
            
            
            7,554,137Accumulated
                deficit
            
            
            (12,716,068
            )Total
                stockholders' equity (deficit)
            
            
            (4,111,905
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            4,308,483


The
        accompanying notes are an integral part of these condensed consolidated
        financial statements


F-2





Ignis
                Petroleum Group, Inc. and SubsidiaryConsolidated
                Statement of OperationsFor
                the
              Year
                Ended
              June
                30, 2006
            
            For
                the
              Period
              December
                9, 2004 (Inception) to
              June
                30, 2005Revenues
                from oil and gas product sales
            
            $
            519,535
            
            $
            -Operating
                expenses:Depreciation
                and depletion
            
            
            494,493
            
            
            -Exploration
                expenses, including dry holes
            
            
            4,813,268
            
            
            -General
                and administrative expenses
            
            
            4,233,971
            
            
            253,555Total
                operating expenses
            
            
            9,541,732
            
            
            253,555Other
                income (expense)Loss
                from valuation of derivative liability
            
            
            (1,299,201
            )
            
            -Interest
                expense
            
            
            (2,102,681
            )
            
            (22,685
            )(3,401,882
            )
            
            (22,685
            )Net
                loss
            
            $
            (12,424,079
            )
            $
            (276,240
            )Basic
                and diluted loss per common share
            
            $
            (0.26
            )
            $
            (0.01
            )Weighted
                average number of common shares outstanding and proforma
            
            
            47,674,470
            
            
            40,829,557





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements





F-3





Ignis
                Petroleum Group, Inc. and SubsidiaryConsolidated
                Statement of Stockholders' EquityFor
                the Period December 9, 2004 (reverse merger) to June 30, 2005 and
                the Year
                Ended June 30, 2006AdditionalCommon
                Stock
            
            Paid-in
            
            AccumulatedShares
            
            Par
                value
            
            Capital
            
            Deficit
            
            TotalIssuance
                of common stock
            
            
            31,200,000
            
            $
            31,200
            
            $
            -
            
            $
            20,800
            
            $
            52,000Donated
                services for rent
            
            
            -
            
            
            -
            
            
            -
            
            
            3,000
            
            
            3,000Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (39,549
            )
            
            (39,549
            )Balance
                December 9, 2004 (reverse merger)
            
            
            31,200,000
            
            
            31,200
            
            
            -
            
            
            (15,749
            )
            
            15,451Issuance
                of common stock
            
            
            10,000,000
            
            
            10,000
            
            
            340,000
            
            
            -
            
            
            350,000Donated
                services for rent
            
            
            -
            
            
            -
            
            
            13,500
            
            
            -
            
            
            13,500Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (276,240
            )
            
            (276,240
            )Balance
                June 30, 2005
            
            
            41,200,000
            
            
            41,200
            
            
            353,500
            
            
            (291,989
            )
            
            102,711Conversion
                of convertible notes
            
            
            3,100,000
            
            
            3,100
            
            
            1,547,202
            
            
            -
            
            
            1,550,302Issuance
                of common stock for services
            
            
            1,856,313
            
            
            1,856
            
            
            2,569,625
            
            
            -
            
            
            2,571,481Sale
                of common stock
            
            
            3,395,151
            
            
            3,395
            
            
            1,996,605
            
            
            -
            
            
            2,000,000Issuance
                of common stock for Newton extension fee
            
            
            400,000
            
            
            400
            
            
            1,027,600
            
            
            -
            
            
            1,028,000Issuance
                of common stock for debt fees
            
            
            75,000
            
            
            75
            
            
            59,605
            
            
            -
            
            
            59,680Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,424,079
            )
            
            (11,424,079
            )Balance
                June 30, 2006
            
            
            50,026,464
            
            $
            50,026
            
            $
            7,554,137
            
            $
            (12,716,068
            )
            $
            (4,111,905
            )





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





F-4





Ignis
                Petroleum Group, Inc. and SubsidiaryConsolidated
                Statement of Cash FlowsFor
                the
              Year
                Ended
              June
                30, 2006
            
            For
                the
              Period
                ended
              December
                9, 2004
              (Inception)
                to
              June
                30, 2005Cash
                flow from operating activitiesNet
                loss
            
            $
            (12,424,079
            )
            $
            (276,240
            )Adjustments
                to net loss not affecting cash:Donated
                capital
            
            
            -
            
            
            13,500Reverse
                merger adjustments
            
            
            -
            
            
            15,451Depletion
                and amortization
            
            
            494,493
            
            
            -Amortization
                of debt cost
            
            
            133,280Loss
                from valuation adjustment of oil and gas properties
            
            
            1,000,000Stock
                issued for compensation and services
            
            
            2,631,161
            
            
            -Amortization
                of discount of debentures
            
            
            1,931,790
            
            
            -Loss
                from valuation of derivatives
            
            
            1,299,201
            
            
            -Increase
                / decrease in current assets and liabilitiesIncrease
                in accounts receivable
            
            
            (55,781
            )
            
            -Increase
                in repaid expenses and other current assets
            
            
            (168,434
            )
            
            (20,066
            )Increase
                in other assets
            
            
            (740,000
            )
            
            (3,360
            )Increase
                in accounts payable and accrued expenses
            
            
            1,044,206
            
            
            45,189Cash
                used in operating activities
            
            
            (3,854,163
            )
            
            (225,526
            )Cash
                flow from investing activitiesPurchase
                of oil and gas properties
            
            
            (1,757,739
            )
            
            (1,500,000
            )Cash
                used for investing activities
            
            
            (1,757,739
            )
            
            (1,500,000
            )Cash
                flow from financing activitiesIssuance
                of common stock and warrants
            
            
            2,000,000
            
            
            350,000Proceeds
                from note payable
            
            
            100,000
            
            
            -Proceeds
                from convertible notes
            
            
            4,260,000
            
            
            1,500,000Advance
                from related party
            
            
            (20,590
            )
            
            20,590Cash
                provided by financing activities
            
            
            6,339,410
            
            
            1,870,590Net
                increase in cash
            
            
            727,508
            
            
            145,064Cash
                at beginning of period
            
            
            145,064
            
            
            -Cash
                at end of period
            
            $
            872,572
            
            $
            145,064Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            -Income
                taxes
            
            $
            -
            
            $
            -Supplemental
                non-cash financing transactions:Conversion
                of notes payable and interest into equity
            
            $
            -
            
            $
            -Issuance
                of common stock for oil and gas property
            
            $
            1,028,000
            
            $
            -




F-5





Ignis
      Petroleum Group, Inc. and Subsidiary


Notes
      to
      the Financial Statements


June
      30,
      2006




Note
      1


Nature
      of
      Operations





Our
      History





Ignis
      Petroleum Corporation was incorporated in the State of Nevada on December 9,
      2004.





On
      May
      11, 2005, the stockholders of Ignis Petroleum Corporation entered into a stock
      exchange agreement with Sheer Ventures, Inc. pursuant to which Sheer Ventures,
      Inc. issued 9,600,000 shares of common stock in exchange for all of the issued
      and outstanding shares of common stock of Ignis Petroleum Corporation. As a
      result of this stock exchange, Ignis Petroleum Corporation became a wholly
      owned
      subsidiary of Sheer Ventures, Inc. The stock exchange was accounted for as
      a
      reverse acquisition in which Ignis Petroleum Corporation acquired Sheer
      Ventures, Inc. in accordance with Statement of Financial Accounting Standards
      No. 141, “Business Combinations”. Also on May 11, 2005, and in connection with
      the stock exchange, D.B. Management Ltd., a corporation owned and controlled
      by
      Doug Berry, who was then the President, Chief Executive Officer, Secretary,
      Treasurer and sole director of Sheer Ventures, Inc., agreed to sell an aggregate
      of 11,640,000 shares of Sheer Ventures, Inc.’s common stock to six individuals,
      including Philipp Buschmann, the President, Secretary, Treasurer and sole
      director of Ignis Petroleum Corporation, for $0.0167 per share for a total
      purchase price of $194,000. The stock exchange and the stock purchase were
      both
      consummated on May 16, 2005.





On
      July
      11, 2005, Sheer Ventures, Inc. changed its name to Ignis Petroleum Group, Inc.





Our
      Operations





We
      are
      engaged in the exploration, development, and production of crude oil and natural
      gas properties in the United States. We plan to explore for and develop crude
      oil and natural gas primarily in the onshore areas of the United States Gulf
      Coast. Our strategy is to build an energy portfolio that benefits from:





·
            the
                maturing of new petroleum technologies, such as seismic
                interpretation;


·
            the
                expected increase of oil and gas prices; and


·
            the
                availability of short “outsteps” in the same play as previously-discovered
                hydrocarbons.





We
      have
      acquired several prospects that benefit from state-of-the-art 3-D seismic data
      interpretation. In addition, we are actively seeking to acquire other prospects,
      although we currently do not have any contracts or commitments for other
      prospects. We employ and leverage industry technology, engineering, and
      operating talent. We may, from time to time, participate in high-value or
      fast-payback plays for short-term strategic reasons. We outsource lower value
      activities so that we can focus our efforts on the earliest part of the value
      chain while leveraging outstanding talent and strategic partnerships to execute
      our strategy. We believe this approach will allow us to grow our business
      through rapid identification, evaluation and acquisition of high-value
      prospects, while enabling us to use specialized industry talent and keep
      overhead costs to a minimum. We believe this strategy will result in significant
      growth in our reserves, production and financial strength.





Our
      Properties





We
      own or
      have the right to acquire working interests in several oil and gas prospects
      in
      the United States onshore Gulf Coast region.





F-6





*North
      Wright Field Prospect*





We
      have
      the right to earn 75% of the working interest, which is equal to a 52.5% net
      revenue interest, in oil and gas leases and proposed operations covering the
      North Wright Field Prospect, which is located in Acadia Parish, Louisiana.
      We
      will carry 100% of the costs to drill and test each well drilled on the
      prospect. Bayou City Exploration, Inc. will be the operator of the prospect.
      The
      remaining 25% of the working interest in the prospect will be held by Argyle
      Energy, Inc., who will hold 12.5% of the working interest, and three other
      parties, who collectively will hold 12.5% of the working interest in the
      prospect. We are required to commence drilling operations on the prospect on
      or
      before December 31, 2006, or our interests in the prospect will revert to
      Argyle. We have decided not to pursue the prospect and have taken a $2,000,000
      write down of the property as of June 30, 2006. The North Wright Field Prospect
      is currently unproved.





*Acom
      A-6 Property*





We
      have
      25% of the working interest, which is equal to an 18.75% net revenue interest,
      in the Acom A-6 Prospect, which is located in Chambers County, Texas. Kerr-McGee
      Oil & Gas Onshore LP, d/b/a KMOG Onshore LP is the operator of the prospect
      and holds the remainder of the working interest. Drilling of this prospect
      commenced production in August 2005 and was completed in October 2005. The
      Acom
      A-6 Prospect currently holds proved reserves and is producing oil and gas with
      revenues being earned by us. We have estimated proved reserves of 13,652 bbls
      of
      oil and 69,542 mcf of gas. We have realized a total of 5,602 bbls of oil at
      an
      average price of $58.54 and 19,540 mcf of gas at an average price of $7.94
      through June 30, 2006 as follows:




F-7





*Crimson
      Bayou Prospect*





We
      have
      the right to earn 25% of the working interest, which is
      equal to a 17.88% net revenue interest, in the
      test well before payout and 20% of the working interest, which
      is
      equal to a 14.3% net revenue interest, after
      payout in the Crimson Bayou Prospect, which is located in Iberville Parish,
      Louisiana. Range
      Production I, L.P. is the operator of the prospect and will hold the remainder
      of the working interest. Drilling
      of the first test well on the prospect is expected to commence in 2007. The
      Crimson Bayou Prospect is currently unproved.




*Barnett
      Shale Property*





We
      hold
      12.5% of the working interest, which is equal to a 9.38% net revenue interest
      before payout and 10% of the working interest, which is equal to a 7.5% net
      revenue interest after payout, in three wells located in the Barnett Shale
      trend
      in Greater Fort Worth Basin, Texas. Rife Energy Operating, Inc. is the operator
      of the prospect and holds a majority of the remaining working interest. All
      three wells have been drilled. One well has been completed and is producing
      oil
      and gas.  The
      other
      two wells have been partially completed to test the geological
      formations and have some revenue production.  During the [third
      calendar quarter of 2006], we anticipate that we will finish the completion
      of these two wells, which will bring them up to their full production
      potential. The Barnett Shale Prospect currently holds proved reserves and is
      producing oil and gas. We
      have
      estimated proved reserves of 2,072 bbl’s of oil and 13,085 mcf’s of gas. Between
      April 6, 2006 and June 30, 2006 the Barnett Shale wells produced 272 barrels
      of
      oil and .978 million cubic feet of gas, net to Ignis Petroleum Group,
      Inc.





*Sherburne
      Prospect*





On
      May 5,
      2006 we entered into a participation agreement to drill the Sherburne Field
      Development prospect, located in Pointe Coupee Parish, Louisiana. Under the
      terms of the agreement, we will pay 15% of the drilling, testing and completion
      costs. Upon completion, we will earn a 15% working interest in the well before
      payout and an 11.25% working interest in the well after payout. Drilling
      operations commenced in August 2006 and was finished in September 2006. Multiple
      gas zones were detected. The commercial viability of the gas zones will be
      tested in October 2006. The Sherburne Prospect is currently
      unproved.




Oil
 
 **Month**
              
              **Revenue
                  ($)**
              
              **Production
                  (barrels)**
              
              **Average
                  Price per Barrel ($)**October
                  2005
              
              $
              14,357
              
              
              246.97
              
              $
              58.13November
                  2005
              
              
              69,375
              
              
              1,245.56
              
              
              55.70December
                  2005
              
              
              66,568
              
              
              1,199.51
              
              
              55.50January
                  2006
              
              
              52,368
              
              
              855.51
              
              
              61.21February
                  2006
              
              
              38,964
              
              
              668.97
              
              
              58.24March
                  2006
              
              
              37,106
              
              
              635.14
              
              
              58.42April
                  2006
              
              
              19,405
              
              
              299.24
              
              
              64.85May
                  2006
              
              
              6,475
              
              
              98.73
              
              
              65.58June
                  2006
              
              
              41,286
              
              
              624.30
              
              
              66.13**Total**
              
              **$**
              **345,904**
              
              
              **5,873.93**
              
              **$**
              **58.88**
 
 Natural
        Gas
 
 **Month**
              
              **Revenue
                  ($)**
              
              **Production
                  (million cubic feet)**
              
              **Average
                  Price per million cubic feet ($)**October
                  2005
              
              $
              8,522
              
              
              805
              
              $
              10.58November
                  2005
              
              
              33,109
              
              
              4,339
              
              
              7.63December
                  2005
              
              
              24,074
              
              
              2,937
              
              
              8.19January
                  2006
              
              
              29,113
              
              
              3,299
              
              
              8.82February
                  2006
              
              
              19,778
              
              
              2,695
              
              
              7.33March
                  2006
              
              
              24,355
              
              
              3,290
              
              
              7.40April
                  2006
              
              
              8,012
              
              
              1,031
              
              
              7.77May
                  2006
              
              
              2,092
              
              
              287
              
              
              7.28June
                  2006
              
              
              12,487
              
              
              1,835
              
              
              7.00**Total**
              
              **$**
              **161,902**
              
              
              **20,518**
              
              **$**
              **7,89**


These
      financial statements have been prepared on a going concern basis. We have
      incurred losses since inception resulting in an accumulated deficit of
      $12,716,068 since inception and further losses are anticipated in the
      development of its business raising substantial doubt about our ability to
      continue as a going concern. Our ability to continue as a going concern is
      dependent upon our ability to generate profitable operations in the future
      and/or to obtain the necessary financing to meet our obligations and repay
      our
      liabilities arising from normal business operations when they come
      due.






Note
      2


Summary
      of Significant Accounting Policies





Basis
      of
      Presentation


Our
      financial statements have been prepared in accordance with generally accepted
      accounting principles in the United States of America and are expressed in
      U.S.
      dollars. Our fiscal year end is June 30.




F-8





Principles
      of Consolidation


The
      consolidated financial statements include the accounts of Ignis Petroleum Group,
      Inc. and its wholly owned subsidiary, Ignis Petroleum Corporation. All
      significant intercompany balances and transactions have been eliminated in
      consolidation.





Use
      of
      Estimates and Assumptions


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





Income
      Taxes


We
      adopted SFAS No. 109 as of our inception. Pursuant to SFAS No. 109 we are
      required to compute tax asset benefits for net operating losses carried forward.
      Potential benefits of income tax losses are not recognized in the accounts
      until
      realization is more likely than not. The potential benefit of net operating
      losses has not been recognized in these financial statements because we cannot
      be assured it is more likely than not we will utilize the net operating losses
      carried forward in future years.





Cash
      and
      Cash Equivalents


We
      consider all highly liquid instruments with maturity of three months or less
      at
      the time of issuance to be cash equivalents.





Concentration
      of Credit Risk


Financial
      instruments that potentially subject us to credit risk consist principally
      of
      cash. Cash was deposited with a high quality credit institution. At
      times, such deposits may be in excess of the FDIC insurance limit.





Property,
      and Equipment. - Oil and Gas Properties


Depreciation,
      depletion and amortization, based on cost less estimated salvage value of the
      asset are primarily determined under the unit-of-production method and the
      straight-line method, which is based on estimated asset service life taking
      obsolescence into consideration. Maintenance and repairs, including planned
      major maintenance, are expensed as incurred. Major renewals and improvements
      are
      capitalized and the assets replaced are retired.




The
      accounting for our business is subject to special accounting rules that are
      unique to the oil and gas industry. There are two allowable methods of
      accounting for oil and gas business activities: the successful-efforts method
      and the full-cost method. There are several significant differences between
      these methods. Under the successful-efforts method, costs such as geological
      and
      geophysical (G&G), exploratory dry holes and delay rentals are expensed as
      incurred, where under the full-cost method these types of charges would be
      capitalized to their respective full-cost pool.





We
      use
      the “successful efforts” method to account for our exploration and production
      activities. Under this method, costs are accumulated on a field-by-field basis
      with exploratory dry holes being expensed as incurred. To date, we have incurred
      $4,813,268 in dry hole costs and impairment charges that have been expensed
      as
      such. Costs of productive wells and development dry holes are capitalized and
      amortized on the unit-of-production method for each field.





Acquisition
      costs of proved properties are amortized using a unit-of-production method,
      computed on the basis of total proved oil and gas reserves. Significant unproved
      properties are assessed for impairment individually and valuation allowances
      against the capitalized costs are recorded based on the estimated economic
      chance of success and the length of time that we expect to hold the properties.
      The valuation allowances are reviewed at least annually. Other exploratory
      expenditures, including geological, geophysical and 3-D seismic survey costs
      are
      expensed as incurred.




Production
        costs are expensed as incurred.




F-9




In
      the
      absence of a determination as to whether the reserves that have been found
      can
      be classified as proved we will not carry the costs of drilling such an
      exploratory well as an asset for more than one year following completion of
      drilling. If after that year has passed a determination that proved reserves
      have been found cannot be made we will assume the well is impaired and charge
      its costs to expense.





Proved
      oil and gas properties held and used by us are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amounts may not
      be
      recoverable.





We
      accrue
      for contingencies in accordance with Statement of Accounting Standards ("SFAS")
      No. 5, "Accounting for Contingencies," when it is probable that a liability
      or
      loss has been incurred and the amount can be reasonably estimated. Contingencies
      by their nature relate to uncertainties that require our exercise of judgment
      both in assessing whether or not a liability or loss has been incurred and
      estimating the amount of probable loss. To date we have not had any significant
      contingency accruals.





In
      June
      2001, the FASB issued SFAS No.143 “Accounting for Asset Retirement Obligations.”
SFAS No. 143 requires that an asset retirement obligation associated with the
      retirement of a tangible long-lived asset be recognized as a liability in the
      period in which a legal obligation is incurred and becomes determinable, with
      an
      offsetting increase in the carrying amount of the associated asset. The cost
      of
      the tangible asset, including the initially recognized asset retirement
      obligation, is depleted such that the cost of the asset retirement obligation
      is
      recognized over the life of the asset.





Environmental
      Costs.


Liabilities
      for environmental costs are recorded when it is probable that obligations have
      been incurred and the amounts can be reasonably estimated. These liabilities
      are
      not reduced by possible recoveries from third parties, and projected cash
      expenditures are not discounted. There is no contingent liability.





Comprehensive
      Loss


SFAS
      No.
      130, “Reporting Comprehensive Income,” establishes standards for the reporting
      and display of comprehensive loss and its components in the financial
      statements. As of June 30, 2006, we had no items that represent a comprehensive
      loss and, therefore, no schedule of comprehensive loss is presented in the
      financial statements.





Advertising


Advertising
      costs are expensed as incurred. Advertising expense was $224,380 in 2006, and
      $6,502 in 2005.





Basic
      and
      Diluted Net Loss per Share


We
      compute net income (loss) per share in accordance with SFAS No. 128, "Earnings
      per Share". SFAS No. 128 requires presentation of both basic and diluted
      earnings per share (EPS) on the face of the income statement. Basic EPS is
      computed by dividing net income (loss) available to common shareholders
      (numerator) by the weighted average number of shares outstanding (denominator)
      during the period. Diluted EPS gives effect to all dilutive potential common
      shares outstanding during the period using the treasury stock method and
      convertible notes using the if-converted method. In computing Diluted EPS,
      the
      average stock price for the period is used in determining the number of shares
      assumed to be purchased from the exercise of stock options or warrants. Diluted
      EPS excludes all dilutive potential shares if their effect is anti
      dilutive.





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.





F-10





In
      November 2005, the FASB issued FSP FAS 123(R)-3, “Transition Election
      Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP
      123R-3”). FSP 123R-3 provides a simplified alternative method to calculate the
      beginning pool of excess tax benefits against which excess future deferred
      tax
      assets (that result when the compensation cost recognized for an award exceeds
      the ultimate tax deduction) could be written off under Statement 123R. The
      guidance in FSP 123R-3 was effective on November 10, 2005. We do not
      believe the adoption of this FSP 123R-3 will have a material impact on our
      financial position, results of operations or cash flows.





We
      have
      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 for employees is recognized based
      on the difference, if any, on the date of grant between the estimated fair
      value
      of the our 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. As of June 30, 2006, we have not
      granted any stock options.





We
      account 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. 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 earliest of a performance
      commitment or completion of performance by the provider of goods or services
      as
      defined by EITF 96-18.




We
      adopted Statement of Financial Accounting Standards No. 133, "Accounting for
      Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes
      accounting and reporting standards for derivative instruments and for hedging
      activities. SFAS 133 requires that an entity recognize derivatives as either
      assets or liabilities on the balance sheet and measure those instruments at
      fair
      value. The accounting for changes in the fair value of a derivative depends
      on
      the intended use of the derivative and the resulting designation.





In
      February 2006, the FASB issued FASB Statement No. 155 (SFAS 155), “Accounting
      for Certain Hybrid Financial Instruments: an amendment of FAS 133 and 140.” FAS
      155 nullifies the guidance from the FASB’s Derivatives Implementation Group
      (DIG) in Issue D1, Application of Statement 133 to Beneficial Interests in
      Securitized Financial Assets, which deferred the application of the bifurcation
      requirements of SFAS 133 for certain beneficial interests. FAS 155 provides
      a
      fair value measurement option for certain hybrid financial instruments that
      contain an embedded derivative that would otherwise require bifurcation and
      requires that beneficial interests in securitized financial assets be analyzed
      to determine whether they are freestanding derivatives or whether they are
      hybrid instruments that contain embedded derivatives requiring bifurcation.
      FAS
      155 also provides clarification on specific points related to derivative
      accounting. FAS 155 is effective for fiscal years beginning after September
      15,
      2006.





Note
      3


Acquisition





On
      May
      11, 2005, the stockholders of Ignis Petroleum Corporation entered into a stock
      exchange agreement with Sheer Ventures, Inc. pursuant to which Sheer Ventures,
      Inc. issued 9,600,000 shares of common stock in exchange for all of the issued
      and outstanding shares of common stock of Ignis Petroleum Corporation. As a
      result of this stock exchange, Ignis Petroleum Corporation became a wholly
      owned
      subsidiary of Sheer Ventures, Inc. The stock exchange was accounted for as
      a
      reverse acquisition in which Ignis Petroleum Corporation acquired Sheer
      Ventures, Inc. in accordance with Statement of Financial Accounting Standards
      No. 141, “Business Combinations”. Also on May 11, 2005, and in connection with
      the stock exchange, D.B. Management Ltd., a corporation owned and controlled
      by
      Doug Berry, who was then the President, Chief Executive Officer, Secretary,
      Treasurer and sole director of Sheer Ventures, Inc., agreed to sell an aggregate
      of 11,640,000 shares of Sheer Ventures, Inc.’s common stock to six individuals,
      including Philipp Buschmann, the President, Secretary, Treasurer and sole
      director of Ignis Petroleum Corporation, for $0.0167 per share for a total
      purchase price of $194,000. The stock exchange and the stock purchase were
      both
      consummated on May 16, 2005. The
      capital structure of the consolidated enterprise is now different due to the
      reverse acquisition accounting.





F-11





Note
      4


Property
      and equipment





Oil
      and
      gas properties consisted of the following at June 30, 2006:





Oil
                and gas properties:Proved
            
            $
            2,409,055Unproved
            
            
            607,3073,016,362Less
                depletion allowance
            
            
            494,493$
            2,521,869




In
      June
      2001, the FASB issued SFAS No.143 “Accounting for Asset Retirement Obligations.”
SFAS No. 143 requires that an asset retirement obligation associated with the
      retirement of a tangible long-lived asset be recognized as a liability in the
      period in which a legal obligation is incurred and becomes determinable, with
      an
      offsetting increase in the carrying amount of the associated asset. The cost
      of
      the tangible asset, including the initially recognized asset retirement
      obligation, is depleted such that the cost of the asset retirement obligation
      is
      recognized over the life of the asset.






Note
      5


Income
      Taxes





Potential
      benefits of income tax losses are not recognized in the accounts until
      realization is more likely than not. We have incurred net operating losses
      of
      approximately $12,400,000 for the year ended June 30, 2006. Pursuant to SFAS
      No.
      109 we are required to compute tax asset benefits for net operating losses
      carried forward. Potential benefit of net operating losses have not been
      recognized in these financial statements because we cannot be assured it is
      more
      likely than not we will utilize the net operating losses carried forward in
      future years.





The
      components of the net deferred tax asset at June 30, 2006, and the effective
      tax
      rate and the elected amount of the valuation allowance are indicated below:




Net
                operating tax loss
            
            $
            12,400,000Effective
                tax rate
            
            
            34
            %Deferred
                tax asset
            
            $
            4,216,000Valuation
                allowance
            
            $
            (4,216,000
            )Net
                deferred tax asset
            
            $
            -






Note
      6


Convertible
      Notes





To
      obtain
      funding for our ongoing operations, we entered into a securities purchase
      agreement with Cornell Capital Partners, LP, an accredited investor, on January
      5, 2006 and amended and restated on February 9, 2006 and April 28, 2006, for
      the
      sale of $5,000,000 in secured convertible debentures and 12,000,000
      warrants. Cornell Capital provided us with an aggregate of $5,000,000 as
      follows:




F-12





$2,500,000
      was disbursed on January 5, 2006;




$1,500,000
      was disbursed on February 9, 2006; and




$1,000,000
      was disbursed on April 28, 2006




Out
      of
      the $5 million in gross proceeds that we received from Cornell Capital upon
      issuance of all the secured convertible debentures, the following fees payable
      in cash were deducted or paid in connection with the transaction:





·
            $400,000
                fee payable to Yorkville Advisors LLC, the general partner of Cornell
                Capital;


·
            $15,000
                structuring fee payable to Yorkville Advisors LLC, the general partner
                of
                Cornell Capital;


·
            $5,000
                due diligence fee payable to Cornell Capital;
                and


·
            $250,000
                placement agent fee payable to Stonegate Securities,
                Inc.


·
            $65,000
                other professional fees paid at closing





Thus,
      we
      received total net proceeds of $4,260,000 from the issuance of secured
      convertible debentures to Cornell Capital. In connection with the issuance
      of
      secured convertible debentures to Cornell Capital, we were required under our
      placement agency agreement with Stonegate Securities, Inc. to issue to
      affiliates of Stonegate 75,000 shares of our common stock and 5-year warrants
      to
      purchase 400,000 shares of our common stock at an exercise price of $1.25.





The
      secured convertible debentures bear interest at 7%, mature three years from
      the
      date of issuance, and are convertible into our common stock, at the selling
      stockholder’s option, at the lower of (i) $0.93 or (ii) 94% of the lowest volume
      weighted average prices of our common stock, as quoted by Bloomberg, LP, during
      the 30 trading days immediately preceding the date of conversion. Accordingly,
      there is no limit on the number of shares into which the secured convertible
      debentures may be converted. As of July 19, 2006, the lowest intraday trading
      price for our common stock during the preceding 30 trading days as quoted by
      Bloomberg, LP was $0.37 and, therefore, the conversion price for the secured
      convertible debentures was $0.3478. Based on this conversion price, the
      $5,000,000 in secured convertible debentures, excluding interest, were
      convertible into 14,376,079 shares of our common stock. The conversion price
      of
      the secured convertible debentures will be adjusted in the following
      circumstances:





If
      we pay
      a stock dividend, engage in a stock split, reclassify our shares of common
      stock
      or engage in a similar transaction, the conversion price of the secured
      convertible debentures will be adjusted proportionately;


If
      we
      issue rights, options or warrants to all holders of our common stock (and not
      to
      Cornell Capital) entitling them to subscribe for or purchase shares of common
      stock at a price per share less than $0.93 per share, other than issuances
      specifically permitted by the securities purchase agreement, as amended and
      restated, then the conversion price of the secured convertible debentures will
      be adjusted on a weighted-average basis;


If
      we
      issue shares, other than issuances specifically permitted by the securities
      purchase agreement, as amended and restated, of our common stock or rights,
      warrants, options or other securities or debt that are convertible into or
      exchangeable for shares of our common stock, at a price per share less than
      $0.93 per share, then the conversion price will be adjusted to such lower price
      on a full-ratchet basis;


If
      we
      distribute to all holders of our common stock (and not to Cornell Capital)
      evidences of indebtedness or assets or rights or warrants to subscribe for
      or
      purchase any security, then the conversion price of the secured convertible
      debenture will be adjusted based upon the value of the distribution as a
      percentage of the market value of our common stock on the record date for such
      distribution;





F-13





If
      we
      reclassify our common stock or engage in a compulsory share exchange pursuant
      to
      which our common stock is converted into other securities, cash or property,
      Cornell Capital will have the option to either (i) convert the secured
      convertible debentures into the shares of stock and other securities, cash
      and
      property receivable by holders of our common stock following such transaction,
      or (ii) demand that we prepay the secured convertible debentures;
      and


If
      we
      engage in a merger, consolidation or sale of more than one-half of our assets,
      then Cornell Capital will have the right to (i) demand that we prepay the
      secured convertible debentures, (ii) convert the secured convertible debentures
      into the shares of stock and other securities, cash and property receivable
      by
      holders of our common stock following such transaction, or (iii) in the case
      of
      a merger or consolidation, require the surviving entity to issue to a
      convertible debenture with similar terms.





In
      connection with the securities purchase agreement, as amended and restated,
      we
      issued Cornell Capital warrants to purchase 6,000,000 shares of our common
      stock
      exercisable for a period of five years at an exercise price of $0.81 and
      warrants to purchase 6,000,000 shares of our common stock, exercisable for
      a
      period of five years at an exercise price of $0.93. We have the option to force
      the holder to exercise the warrants, as long as the shares underlying the
      warrants are registered pursuant to an effective registration statement, if
      our
      closing bid price trades above certain levels. If the closing bid price of
      our
      common stock is greater than or equal to $1.10 for a period of 15 consecutive
      trading days prior to the forced conversion, we can force the warrant holder
      to
      exercise the warrants exercisable at a price of $0.81. If the closing bid price
      of our common stock is greater than or equal to $1.23 for a period of 15
      consecutive trading days prior to the forced conversion, we can force the
      warrant holder to exercise the warrants exercisable at a price of $0.93.





In
      connection with the exercise of any of the warrants issued to Cornell Capital,
      we are required under our placement agency agreement with Stonegate Securities,
      Inc. to pay a fee to Stonegate equal to five percent (5%) of the gross proceeds
      of any such exercise.





Cornell
      Capital has agreed to restrict its ability to convert the secured convertible
      debentures or exercise the warrants and receive shares of our common stock
      such
      that the number of shares of common stock held by it and its affiliates after
      such conversion does not exceed 4.99% of the then issued and outstanding shares
      of common stock. **** If
      the
      conversion price is less than $0.93, Cornell Capital may not convert more than
      $425,000 of secured convertible debentures in any month, unless we waive such
      restriction. In the event that the conversion price is equal to or greater
      than
      $0.93, there is no restriction on the amount Cornell Capital can convert in
      any
      month.





We
      have
      the right, at our option, with three business days advance written notice,
      to
      redeem a portion or all amounts outstanding under the secured convertible
      debentures prior to the maturity date if the closing bid price of our common
      stock, is less than $0.93 at the time of the redemption. In the event of a
      redemption, we are obligated to pay an amount equal to the principal amount
      being redeemed plus a 15% redemption premium, and accrued interest.





In
      connection with the second amended and restated securities purchase agreement,
      we also entered into a second amended and restated registration rights agreement
      providing for the filing, within five days of April 28, 2006, of a registration
      statement with the Securities and Exchange Commission registering the common
      stock issuable upon conversion of the secured convertible debentures and
      warrants. We are obligated to use our best efforts to cause the registration
      statement to be declared effective no later than 130 days after filing and
      to
      insure that the registration statement remains in effect until the earlier
      of
      (i) all of the shares of common stock issuable upon conversion of the secured
      convertible debentures have been sold or (ii) January 5, 2008. In the event
      of a
      default of our obligations under the registration rights agreement, including
      our agreement to file the registration statement no later than May 3, 2006,
      or
      if the registration statement is not declared effective by September 5, 2006,
      we
      are required pay to Cornell Capital, as liquidated damages, for each month
      that
      the registration statement has not been filed or declared effective, as the
      case
      may be, either a cash amount or shares of our common stock equal to 2% of the
      liquidated value of the secured convertible debentures.





F-14





In
      connection with the securities purchase agreement, we executed a security
      agreement in favor of the investor granting them a first priority security
      interest in all of our goods, inventory, contractual rights and general
      intangibles, receivables, documents, instruments, chattel paper, and
      intellectual property. The security agreement states that if an event of default
      occurs under the secured convertible debentures or security agreements, the
      investor has the right to take possession of the collateral, to operate our
      business using the collateral, and have the right to assign, sell, lease or
      otherwise dispose of and deliver all or any part of the collateral, at public
      or
      private sale or otherwise to satisfy our obligations under these
      agreements.





We
      also
      pledged 18,750,000 shares of common stock to secure the obligations incurred
      pursuant to the securities purchase agreement, as amended and restated.





In
      accordance with Statement of Financial Accounting Standards No. 133,
‘Accounting for Derivative Instruments and Hedging Activities’,
      (“FASB 133”), we determined that the conversion feature of the secured
      convertible debentures met the criteria of an embedded derivative and therefore
      the conversion feature of the debt needed to be bifurcated and accounted for
      as
      a derivative. Due to the reset provisions of the secured convertible debentures,
      the debt does not meet the definition of “conventional convertible debt” because
      the number of shares which may be issued upon the conversion of the debt is
      not
      fixed. Therefore, the conversion feature fails to qualify for equity
      classification under EITF 00-19, and must be accounted for as a derivative
      liability.





The
      $5,000,000 face amount of the secured convertible debentures outstanding as
      of
      June 30, 2006 was stripped of its conversion feature due to the accounting
      for
      the conversion feature as a derivative, which was recorded using the residual
      proceeds method, whereby any remaining proceeds after allocating the proceeds
      to
      the warrants and conversion option would be attributed to the debt. The
      beneficial conversion feature (an embedded derivative) included in these secured
      convertible debentures resulted in an initial debt discount of $1,305,661.
      At
      June 30, 2006, we revalued this derivative liability, For the year ended June
      30, 2006, after adjustment, we recorded a loss on valuation of derivative
      liability of $1,299,201. The associated warrants are exercisable for 12,000,000
      shares of common stock at exercise prices between $0.93 and $0.81 per share.
      The
      warrants, which expire five years after issuance, were assigned a value of
      $3,694,293, estimated using the Black-Scholes valuation model. The following
      assumptions were used to determine the fair value of the warrants using the
      Black-Scholes valuation model: a term of five years, risk-free rate of 5.00%,
      volatility of 53%, and dividend yield of zero. In accordance with EITF No.
      00-19, EITF No. 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      the
      values assigned to both the debenture, conversion feature and the warrants
      were
      allocated based on their fair values. The amount allocated as a discount on
      the
      secured convertible debentures for the value of the warrants and conversion
      option will be amortized to interest expense, using the effective interest
      method, over the term of the secured convertible debentures. The holders of
      the
      secured convertible debentures and warrants have registration rights that
      required us to file a registration statement with the Securities and Exchange
      Commission to register the resale of the common stock issuable upon conversion
      of the debenture or the exercise of the warrants. Under EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ,
      the
      ability to register stock was deemed to be outside of our control. Accordingly,
      the initial aggregate fair value of the derivatives (embedded and free-standing)
      of $1,305,661 was recorded as a derivative liability in the consolidated balance
      sheet, and is marked to market at the end of each reporting period. At June
      30,
      2006, this derivative liability was $2,604,813. During the year ended June
      30,
      2006, the recording of this derivative liability associated with this debt
      financing resulted in a non-cash loss of $1,299,201 which was reflected in
      the
      consolidated statement of operations for the year ended June 30, 2006.
      Additionally, the initial aggregate fair value of the warrants of $3,694,339
      was
      recorded as an accrued warrant liability in the consolidated balance sheet.
      For
      the year ended June 30, 2006, amortization of the discount on debenture amounted
      to $1,931,886 which is included in interest expense.




F-15




The
        convertible debenture liability is as follows at June 30, 2006:


Convertible
                debentures payable
            
            $
            5,000,000Less:
                unamortized discount on debentures
            
            
            (3,068,114
            )Convertible
                debentures, net
            
            $
            1,931,886






Note
      7


Leases





In
      January 2005 we entered into a one year operating lease for our office space.
      The lease requires monthly payments of $9,516 plus the cost of office services
      provided by the landlord. The additional services average $500 per month. A
      total of $63,935 was charged to rent expense for the year ended June 30,
      2006.






Note
      8


Stockholders’
      Equity





On
      April
      22, 2005, we acquired a working interest in two oil, gas and mineral leases
      in
      Louisiana and Alabama, respectively, for an aggregate of $1,550,302. We financed
      the acquisitions with one year 8% convertible promissory notes. These notes
      were
      convertible into our common stock at a price of $.50 per share. The notes could
      have been converted into our common stock in whole or part anytime after August
      15, 2005. On September 22, 2005, all principal and accrued interest on such
      notes were converted into 3,100,000 shares of our common stock. The shares
      were
      issued without registration under the Securities Act of 1933, as amended, in
      reliance on the exemption provided by Regulation S as an offer and sale that
      occurred outside the United States and/or Rule 506 and/or Section 4(2) of the
      Securities Act as a transaction by an issuer not involving a public offering.
      No
      underwriters were used. In the event we did not commence actual drilling
      operations on or before September 30, 2005 we were to deliver assignments of the
      acquired interest back to the seller with no further force or effect on either
      party. This deadline was extended until March 31, 2006 in exchange for 400,000
      shares of our common stock. The shares were issued without registration under
      the Securities Act of 1933, as amended, in reliance on the exemption provided
      by
      Regulation S as an offer and sale that occurred outside the United States and/or
      Rule 506 and/or Section 4(2) of the Securities Act as a transaction by an issuer
      not involving a public offering. No underwriters were used. This common stock
      issuance was valued at $1,028,000 or $2.57 per share, which was the market
      value
      of our common stock on September 30, 2005.





On
      July
      26, 2005, we sold 3,000,000 units to Petrofinanz GMBH, a private investment
      group in the Marshall Islands, for $0.50 per unit for an aggregate purchase
      price of $1,500,000. Each unit consisted of one share of our common stock and
      one warrant to purchase one share of our common stock for $1.50 per share until
      July 2006. The units were sold in a private sale without registration under
      the
      Securities Act of 1933, as amended, in reliance on the exception provided by
      Regulation S as an offer and sale that occurred outside the United States and/or
      Rule 506 and/or Section 4(2) of the Securities Act as a transaction by an issuer
      not involving a public offering..





On
      August
      15, 2005, we issued 240,000 shares of common stock to Douglas Berry as
      compensation for his services as one of our directors. The shares were issued
      without registration under the Securities Act of 1933, as amended, in reliance
      on the exemption provided by Rule 506 and/or Section 4(2) of the Securities
      Act
      as a transaction by an issuer not involving a public offering. No underwriters
      were used. These shares were valued at $372,000 or $1.55 per share, the fair
      market value of the common stock at the date of grant.





In
      August
      2005, we issued 50,000 shares of common stock to an advisor as compensation
      for
      their services as an advisor. The shares were issued without registration under
      the Securities Act of 1933, as amended, in reliance on the exemption provided
      by
      Rule 506 and/or Section 4(2) of the Securities Act as a transaction by an issuer
      not involving a public offering. No underwriters were used. These shares were
      valued at $79,000 or $1.58 per share, the fair market value of the common stock
      at the date of grant.





In
      August
      2005, we issued 128,500 shares of common stock to our advisors as compensation
      for their services as advisors. The shares were issued without registration
      under the Securities Act of 1933, as amended, in reliance on the exemption
      provided by Rule 506 and/or Section 4(2) of the Securities Act as a transaction
      by an issuer not involving a public offering. No underwriters were used. These
      shares were valued at $189,000 or $1.47 per share, the fair market value of
      the
      common stock at the date of grant.





F-16





On
      August
      25, 2005, we issued 150,000 shares of common stock to our chief executive
      officer Michael Piazza
      for compensation as provided in his employment agreement. The shares were issued
      without registration under the Securities Act in reliance on the exemption
      provided by Rule 506 and/or Section 4(2) of the Securities Act of 1933, as
      amended, as a transaction by an issuer not involving a public offering. No
      underwriters were used. These shares were valued at $207,000 or $1.38 per share,
      the fair market value of the common stock at the date such shares were earned
      under the terms of Mr. Piazza’s employment agreement.





On
      October 21, 2005, we entered into a Placement Agency Agreement with Stonegate
      Securities, Inc. . On
      November 29, 2005, pursuant to this agreement, we issued 50,000 shares of our
      common stock to affiliates of Stonegate in exchange for Stonegate’s service as
      our placement agent. These shares were valued at $56,000 which was the then
      market value of the shares . The
      shares were issued without registration under the Securities Act of 1933, as
      amended, in reliance on the exemption provided by Rule 506 and/or Section 4(2)
      of the Securities Act as a transaction by an issuer not involving a public
      offering. No underwriters were used.





On
      October 18, 2005, we entered into a Subscription Agreement with Petrofinanz
      GmbH
      pursuant to which Petrofinanz agreed to purchase 133,333 units, at a price
      of
      $1.50 per unit, with each unit consisting of one share of our common stock
      and
      one 2-year warrant to purchase one share of our common stock at an exercise
      price of $2.00 per share. The units were sold in a private sale without
      registration under the Securities Act of 1933, as amended, in reliance on the
      exception provided by Regulation S as an offer and sale that occurred outside
      the United States and/or Rule 506 and/or Section 4(2) of the Securities Act
      as a
      transaction by an issuer not involving a public offering.





On
      October 28, 2005, we entered into a Subscription Agreement with Petrofinanz
      GmbH
      pursuant to which Petrofinanz agreed to purchase 80,000 units, at a price of
      $1.25 per unit, with each unit consisting of one share of our common stock
      and
      one 2-year warrant to purchase one share of our common stock at an exercise
      price of $2.00 per share. The units were sold in a private sale without
      registration under the Securities Act of 1933, as amended, in reliance on the
      exception provided by Regulation S as an offer and sale that occurred outside
      the United States and/or Rule 506 and/or Section 4(2) of the Securities Act
      as a
      transaction by an issuer not involving a public offering.





On
      October 31, 2005 we issued 350,000 shares of common stock to Michael Piazza
      for
      services to us as a CEO. This issuance is considered exempt pursuant to Rule
      506
      and/or Section 4(2) of the Securities Act. No underwriters were used. These
      shares were valued at $644,000 or $1.84 per share, the fair market value of
      the
      common stock at the date the shares were issuable.





On
      January 5, 2006, we issued 75,000 shares to three affiliates of Stonegate
      Securities, Inc., for compensation relating to Stonegate acting as our placement
      agent. The shares were issued in reliance on the exemption provided by Rule
      506
      and/or Section 4(2) of the Securities Act. (See note 6). No underwriters
      were used. These shares were valued at $57,000 or $0.76 per share, the fair
      market value of the common stock at the date of grant.





On
      January 20, 2006, we issued 30,000 shares of common stock to Roger A. Leopard
      for services to us as a director. This issuance is considered exempt pursuant
      to
      Rule 506 and/or Section 4(2) of the Securities Act. No underwriters were used.
      These shares were valued at $31,500 or $1.05 per share, the fair market value
      of
      the common stock at the date of grant.





On
      January 20, 2006, we issued 30,000 shares of common stock to Geoff Evett for
      services to us as a director. This issuance is considered exempt pursuant to
      Rule 506 and/or Section 4(2) of the Securities Act. No underwriters were used.
      These shares were valued at $31,500 or $1.05 per share, the fair market value
      of
      the common stock at the date of grant.





F-17





On
      February 9, 2006, we issued 10,000 shares of common stock to Timothy Hart for
      services to us as an officer. This issuance is considered exempt pursuant to
      Rule 506 and/or Section 4(2) of the Securities Act. No underwriters were used.
      These shares were valued at $15,000 or $1.50 per share, the fair market value
      of
      the common stock at the date of grant.





On
      February 9, 2006, we issued 192,188 shares of common stock to our advisors
      for
      services to us as advisors. This issuance is considered exempt pursuant to
      Rule
      506 and/or Section 4(2) of the Securities Act. No underwriters were used. These
      shares were valued at $288,282 or $1.50 per share, the fair market value of
      the
      common stock at the date of grant.





On
      May
      30, 2006, we issued 181,818 shares of common stock to Petrofinanz GmbH, at
      a
      price of $1.10 per share for a total of $200,000. The shares and warrants were
      issued in reliance on the exemption provided by Regulation S as an offer and
      sale that occurred outside the United States and/or Rule 506 and/or Section
      4(2)
      of the Securities Act.





On
      May 30
      2006, we issued 500,000 shares of common stock to Michael Piazza for services
      to
      us as an officer. This issuance is considered exempt pursuant to Rule 506 and/or
      Section 4(2) of the Securities Act. These shares were valued at $525,000 or
      $1.05 per share, the fair market value of the common stock at April 21, 2006,
      the date the shares were issuable.





On
      May 30
      2006, we issued 120,000 shares of common stock to Eric Hanlon for services
      to us
      as a consultant. This issuance is considered exempt pursuant to Rule 506 and/or
      Section 4(2) of the Securities Act. These shares were valued at $133,200 or
      $1.11 per share, the fair market value of the common stock at April 30, 2006,
      the date the shares were issuable.






Note
      9


Subsequent
      Events





We
      have
      agreed to acquire 45% of the acreage, producing properties and natural gas
      gathering and treating system currently held by W. B. Osborn Oil & Gas
      Operations, Ltd. ("WBO") and St. Jo Pipeline Limited within the St. Jo Ridge
      (Barnett Shale) Field, located in Montague and Cooke Counties, Texas. WBO will
      remain the operator.


Terms
      of
      the purchase were:





·
            Purchase
                price of $18,450,000 before closing adjustments, to be paid in cash.
                The
                adjustments will be determined from time to time as production flows
                and
                drilling investments are accounted for by the
                parties.





·
            As
                part of the transaction, Ignis will commit to invest capital into
                an
                ongoing continuous drilling program as well as invest up to $5,000,000
                in
                future property acquisitions within an Area of Mutual
                Interest.





The
      consummation of the agreement is subject to standard closing conditions. The
      transaction is scheduled to close on or before October 31, 2006, with a 15
      day
      extention if required. We are currently negotiating financing for the
      transaction.





We
      will
      be acquiring forty-five percent (45%) of WBO's interests in 7,890 gross acres
      (6,864 net acres), 13 producing wells, and an estimated total net proved
      reserves of 1.4 million barrels of oil equivalent (Mboe) of which 0.5 Mboe
      are
      proved developed producing as of June 1, 2006. Approximately fifty percent
      (50%)
      of the proved reserves are oil and fifty percent (50%) are a combination of
      gas
      and gas liquids. The gathering and treating system consists of a 100% interest
      in approximately 24 miles of gathering lines, which accumulates and treats
      natural gas at a central plant. WBO has identified 36 initial drilling locations
      on the acreage before beginning the infill drilling program, which could yield
      more than 100 additional drilling sites.




F-18




Note
        10.
 Supplemental
        Information (Unaudited)
  Proved
        oil and gas reserves estimates were prepared by a petroleum engineer. The
        reserve reports were prepared in accordance with guidelines established by
        the
        Securities and Exchange Commission and, accordingly, were based on existing
        economic and operating conditions.
  There
        are
        numerous uncertainties inherent in estimating quantities of proved reserves
        and
        in projecting the future rates of production and timing of development
        expenditures. The following reserve data represents estimates only and should
        not be construed as being exact. Moreover, the present values should not
        be
        construed as the current market value of the Company’s natural gas and crude oil
        reserves or the costs that would be incurred to obtain equivalent reserves.
  The
        changes in proved reserves is as follows
 
 Natural
                  gas
              
              Crude
                  oilmcf
              
              bblsDecember
                  9, 2004
              
              
              -
              
              
              -Revisions
              
              
              -
              
              
              -Discoveries
              
              
              -
              
              
              -Production
              
              
              -
              
              
              -June
                  30, 2005
              
              
              -
              
              
              -RevisionsDiscoveries:Acom
                  - 6
              
              
              89,082
              
              
              19,000Barnett
                  Shale
              
              
              14,063
              
              
              2,344Production:Acom
                  - 6
              
              
              (19,540
              )
              
              (5,348
              )Barnett
                  Shale
              
              
              (978
              )
              
              (272
              )June
                  30, 2006
              
              
              82,627
              
              
              15,724
  The
        capitalized cost relating to oil and gas properties is as follows:
 
 Property
        and equipment consisted of the following at June 30, 2005:
 
 Oil
                  and gas properties- unproved
              
              $
              2,624,529
 
 Oil
        and
        gas properties consisted of the following at June 30, 2006:
 
 Oil
                  and gas properties:Proved
              
              $
              2,409,055Unproved
              
              
              607,3073,016,362Less
                  depletion allowance
              
              
              494,493$
              2,521,869
   F-19