UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


AMENDMENT
      NO. 2


TO


FORM
      10-KSB/A





(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.)




One
                  Legacy Town Center 7160 Dallas Parkway, Suite 380 Plano,
                  Texas
              
              75024(Address
                  of principal executive offices)
              
              (Zip
                  Code)




972-526-5251(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 xNo 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: $553,266.





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 September 25, 2007, the registrant
        had
        issued and outstanding 56,794,519 shares of common
        stock.





DOCUMENTS
      INCORPORATED BY REFERENCE





None





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











**EXPLANATORY
        NOTE**





We
        are
        filing this Amendment No.2 (“Amendment No.2”) to our Form 10-KSB for the fiscal
        year ended June 30, 2006, filed on October 16, 2006, as amended by an Amendment
        No.1, filed on October 26, 2006 (the “Original 10-KSB”) to amend and restate our
        consolidated balance sheet as of June 30, 2006 and 2005, our consolidated
        statements of operation, stockholders’ equity, and cash flows for the years
        ended June 30, 2006 and 2005. This Amendment No. 2 to the Original Filing
        amends
        our original recordation of warrant and derivative liability and the related
        method of amortization of debt discount, as well as various expense and
        reclassifications affecting net loss and loss per share.  The effects
        of the restatement are presented in Item 6. Management’s Discussion and Analysis
        or Plan of Operation in Part II of this Amendment No.2 and in Note 2, Notes
        to
        the Financial Statements, June 30, 2006.





We
        are
        also filing amendments to our Quarterly Reports on Form 10−QSB for the quarters
        ended March 31, 2006, September 30, 2006, December 31, 2006 and March 31,
        2007,
        to reflect the effects of these restatements. For the convenience of the
        reader,
        this Amendment No.2 sets forth our Original 10-KSB in its entirety, as amended
        by, and to reflect, the Amendment No.2. No attempt has been
        made
        in this Amendment No.2 to update other disclosures presented in our Original
        10-KSB, except as required to reflect the effects of the restatement. This
        Amendment No.2 does not reflect events occurring after the filing of our
        Original 10−KSB, or modify or update those disclosures, including the exhibits
        to the Original 10−KSB affected by subsequent events except as applicable in our
        financial statement footnotes subsequent event disclosures. The following
        sections of our Original 10-KSB have been amended to reflect this Amendment
        No.2:





·
              Part
                  I – Item 1 – Description of
                  Business;


·
              Part
                  II – Item 6 – Management’s Discussion and Analysis or Plan of
                  Operation;


·
              Part
                  II – Item 8 – Financial Statements;
                  and


·
              Part
                  II – Item 8A – Controls and
                  Procedures.





This
        Amendment No.2 has been signed as of a current date and all certifications
        of
        our Chief Executive Officer and Chief Financial Officer are given as of a
        current date. Accordingly, this Amendment No.2 should be read in conjunction
        with our filings made with the Securities and Exchange Commission subsequent
        to
        the filing of the Original 10−KSB for the fiscal year ended June 30, 2006,
        including any amendments to those filings.











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**





Certain
        statements contained in this Form 10-KSB Amendment No. 2 constitute
“forward-looking statements” within the meaning of the Private Securities
        Litigation Reform Act and Section 27A of the Securities Exchange Act of 1933,
        as
        amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
        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.




**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.





**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 pro-ration
        units, the number of wells which may be drilled in a unit, and the unitization
        or pooling of oil and gas properties. In this regard, some states allow the
        forced pooling or integration of tracts to facilitate exploration while other
        states rely on voluntary pooling of lands and leases, which may make it more
        difficult to develop oil and gas properties. In addition, state conservation
        laws establish maximum rates of production from oil and gas wells, generally
        limit the venting or flaring of gas, and impose certain requirements regarding
        the ratable purchase of production. The effect of these regulations is to
        limit
        the amounts of oil and gas we may be able to produce from our wells and to
        limit
        the number of wells or the locations at which we may be able to
        drill.




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





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











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




**Environmental**




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.











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 – 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.  Under this restatement we took an additional
        write down of $199,082 to fully write down the asset to zero.





*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 as of June 30, 2006. We have realized a total of
        5,602
        bbls of oil at an average price of $61.70 and 20,850 mcf of gas at an average
        price of $8.18 through June 30, 2006.











Our
        partner and operator, Kerr-McGee, recently performed a work-over of the well
        to
        clean out paraffin buildup, which had progressively reduced the oil and gas
        production rates. Upon completion of the project, the down-hole 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 L, 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 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
        324 barrels of oil and 2.1 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.





**Production**





The
        table
        below sets forth oil and natural gas production from the Company’s net interest
        in producing properties for each of its last two years.





Oil
                  (bbl)
              
              
              Gas
                  (mcf)Production
                  by State
              
              2006
              
              
              2005
              
              
              2006
              
              
              
              2005Texas
              
              
              5,926
              
              
              
              -
              
              
              
              22,936
              
              
              
              -









The
        Company’s oil and natural gas production is sold on the spot market and the
        Company does not have any production that is subject to firm commitment
        contracts.  During the year ended June 30, 2006, purchases by Kerr
        McGee represents 97% of the Company’s revenues.  We believe that we
        would be able to locate an alternate customer in the event of the loss of
        this
        customer.




**Productive
        Wells**





The
        table
        below sets forth certain information regarding the Company’s ownership, as of
        June 30, 2006, of productive wells in the are area indicated.





Oil
              
              
              GasState
              
              Gross
              
              
              Net
              
              
              Gross
              
              
              NetTexas
              
              
              1.0
              
              
              
              .25
              
              
              
              1.0
              
              
              
              .13








A
        gross
        well  is a well in which a working interest is owned.  The number
        of gross wells in the total number of wells in which a working is
        owned.  The number of wells in which a working interest is
        owned.





A
        net
        well is deemed to exist when the sum of fractional ownership working interests
        in gross wells equals one.  The number of net wells is the sum of the
        fractional working interests owned in gross wells expressed as whole
        numbers and fractions thereof.





**Drilling
        Activity**





The
        table
        below set forth certain information regarding the number of productive and
        dry
        exploratory and development wells drilled for the fiscal year ended June
        30,
        2006.  The Company drilled two successful wells in fiscal year 2006 in
        the Acom A-6 well in Chambers County, Texas and the Inglish Sisters #3 well
        in
        Cooke County, Texas.  The Acom A-6 well came on production in October
        2005 and the Inglish Sisters #3 well came on production in April
        2006.





Exploratory
                  Wells
              
              
              Development
                  WellsState
              
              Productive
              
              
              Dry
              
              
              Productive
              
              
              DryTexas
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              -Louisiana
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              -




**Reserves**




Please
        refer to unaudited Note 11 in the accompanying audited financial statements
        for a summary of the Company’s reserves at June 30, 2006 and
        2005.





**Acreage**





The
        following table set forth the gross and net acres of developed and undeveloped
        oil and natural gas leases in which the Company had a working interest as
        of
        June 30, 2006.










Developed
              
              
              UndevelopedState
              
              Gross
              
              
              Net
              
              
              Gross
              
              
              NetTexas
              
              
              500
              
              
              
              120
              
              
              
              86
              
              
              
              10Louisiana
              
              
              -
              
              
              
              -
              
              
              
              1,812
              
              
              
              373Total
              
              
              500
              
              
              
              120
              
              
              
              1,898
              
              
              
              383




A
        gross
        acre is an acre in which a working interest is owned.  The number
        of gross acres is the total number of acres in which a working interest is
        owned.





A
        net
        well or acre is deemed to exist when the sum of fractional ownership working
        interests in gross wells or acres equals one.  The number of net wells
        or acres is the sum of the fractional working interests owned in gross wells
        or
        acres expressed as whole numbers and fractions thereof.







ITEM
                2.
            DESCRIPTION
                OF
                PROPERTY





We
      maintain our principal executive office at 7160 Dallas Pkwy., Suite 380, Plano,
      Texas 75024. Our telephone number at that office is 972-526-5250 and our
      facsimile number is 972-526-5251. We entered into a 60 month lease effective
      May
      1, 2007. Our current office space consists of approximately 5,200 square
      feet. Our lease payment is $10,404 per month for the first 25 months, $10,729
      per month for months 26 through 49, and $10,054 per month for the remaining
      months. Utilities are expected to be $1,070 per month unless there is a rate.
      We
      paid a security deposit of $8,500 which is refundable upon expiration of the
      lease. 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.








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.





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





NOTE:
        *Certain parts of the following Item 6. Management’s Discussion and Analysis
        or Plan of Operation reflect the effects of the restatement of our audited
        consolidated financial statements for the fiscal year ended June 30, 2006.
        For
        more information see the section heading “Restatement of 2006 Consolidated
        Financial Statements” and review the Explanatory Note to this amended Annual
        Report on Form 10−KSB/A. Apart from revisions relating to changed financial data
        from the restatement, as described above, this Item 6 has not been revised
        for
        new events and developments. Please see our subsequently filed Current Reports,
        Quarterly Reports, and Annual Reports, as filed with the Securities and Exchange
        Commission, for a discussion of events occurring subsequent to this Annual
        Report on Form 10−KSB/A. You should read the following discussion and analysis
        of our financial condition and results of operations together with our financial
        statements and related notes appearing elsewhere in this annual report. This
        discussion and analysis contains forward−looking statements that involve risks,
        uncertainties and assumptions. Our actual results may differ materially from
        those anticipated in these forward−looking statements as a result of many
        factors. The information below should not be construed to imply that the
        results
        discussed in this report will necessarily continue into the future or that
        any
        conclusion reached in this report will necessarily be indicative of actual
        operating results in the future. Such discussion represents only the best
        present assessment of our management.*











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.





*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.





*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 as  we  were in the start-up phase of the company. Our
        first well, the Acom A-6 in Chambers County, Texas is a development well
        that
        was in the drilling phase at June 30, 2005.





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 an impairment charge
        of
        $94,569 related to the ACOM 6 prospect at June 30, 2005.





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 $553,266. Revenue was a result of
        production of crude oil and natural gas from the Acom A-6 well, located in
        Chambers County, Texas and the Inglish Sisters #3 well, located in Cooke
        county,
        Texas.





Current
                Quarter
              6/30/2006
            
            
            Twelve
                Months Ended
              6/30/2006
            
            
            For
                the
              Period
              12/09/2004
              (Inception)
                to
              6/30/2005Operating
                revenues
            
            $
            110,855
            
            
            
            553,266
            
            
            
            -SalesOil
                (Mbbls)
            
            
            1.1
            
            
            
            5.6
            
            
            
            -Natural
                Gas (MMcf)
            
            
            5.6
            
            
            
            20.5
            
            
            
            -Total
                (BOE)
            
            
            2.0
            
            
            
            9.0Average
                priceOil($/Bbl)
            
            $
            68.35
            
            
            
            61.70Natural
                Gas ($/Mcf)
            
            $
            6.72
            
            
            
            8.18





We
        incurred operating expenses in the
        amount of $9,771,459 for the year ended June 30, 2006.




Depletion
        expense was $546,146 for the year ended June 30, 2006. Depletion expense
        is
        related to the Acom A-6 well and the Inglish Sisters #3 well
        .




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 $2,199,082 impairment expense related
      to
      its North Wright Field investments.











General
        and administrative expenses of $4,103,849 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, 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 $300,823 primarily consisting
        of  amortization of the discount associated with the convertible
        debentures. In addition, we incurred a charge of $1,123,537 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 $41,574. For the year
        ended
        June 30, 2006, we generated a net cash flow deficit from operating activities
        of
        $1,457,667. Cash used in investing activities totaled $4,159,235, which was
        utilized for the purchase of oil and gas properties. Cash provided by financing
        activities totaled $6,344,410, of which $2,000,000 was from the sale of shares
        of common stock and warrants and $4,265,000 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.











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. As of June
        30,
        2007, the lowest intraday trading price for our common stock during the
        preceding 30 trading days as quoted by Bloomberg, LP was $0.09 and, therefore,
        the conversion price for the secured convertible debentures was $0.0846.
        Based
        on this conversion price, the $5,000,000 in secured convertible debentures,
        excluding interest, were convertible into 57,801,418 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;


·
            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.











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 and Estimates**





Our
        accounting policies are fully described in Note 1 of the notes accompanying
        our financial statements. As discussed in Note 1, 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.





**Successful
        Efforts Method of Accounting**




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 account for our
        exploration and development activities utilizing the successful efforts method
        of accounting.





The
        application of the successful efforts method of accounting requires managerial
        judgment to determine the proper classification of wells designated as
        development or exploratory which will ultimately determine the proper accounting
        treatment of the costs incurred.   The results from drilling
        operations can take considerable time to analyze, and the determination that
        commercial reserves have been discovered requires both judgment and industry
        experience.  Wells may be completed that were assumed to be
        productive, but may actually deliver oil and natural gas in quantities
        insufficient to be economic. Such results may result in the abandonment of
        the
        wells at a later date. The evaluation of oil and natural gas leasehold
        acquisition costs requires managerial judgment to estimate the fair value
        of
        these costs without reference to drilling activity in a given
        area.











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





**Reserve
        Estimates**





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





**Reclassifications**





For
        the
        twelve-month period ended June 30, 2006, we elected to reclassify the costs
        as presented in
        the
        Statement of Operations.  The original presentation did not separately
        disclose lease operating expense and
        production taxes for oil and gas operations.  We reclassified the
        netted oil and natural gas sales from
        $519,535 to $553,266. Production tax was $28,466. We reclassified lease
        operating expense for the Acom
        A-6
        well from proved property to expense in the amount of $1,866.





The
        original presentation included amortization of debt discount in general and
        administrative expense. We reclassified amortization expense of $130,122
        to
        interest expense.





**Restatement
        of 2006 Consolidated Financial Statements**





We
        identified an error in recording exploration expenses.  We recorded
        additional exploration costs in the amount of $274,082. We elected to write
        down
        the North Wright Field asset balance of $199,082 to zero.  We recorded
        a $75,000 delay rental for the Sherburne prospect that was inadvertently
        recorded as an asset which has been corrected in this
        restatement.





We
        identified an accounting error in recording gross and net revenue and lease
        operating expense for the Barnett Shale property in Cooke County,
        Texas.  We did not accrue revenue for April, May, and June 2006 and we
        did not accrue the associated production tax and lease operating
        expense.  This resulted in an understatement of accounts receivable in
        the amount of $17,482, understatement of revenue in the amount of $23,014,
        understatement of production tax in the amount of $1,261 and lease operating
        expense of $4,304, each of which has been corrected in this
        restatement.











We
        also
        identified an error in recording depletion. We recorded an additional $51,653
        in
        depletion expense under the units of production method which has been corrected
        in this restatement.





In
          addition, we identified errors in our accounting for the warrant liability
          for
          warrants issued to Cornell Capital  Partners, LP. The warrant
          liability error relates to adjusting the warrant liability for changes
          in fair
          market value on a quarterly basis.  We historically recorded the fair
          market value of the warrant liability at inception with no subsequent
          adjustments for changes in the market value.  As a result, we did not
          record the gain/loss on change in the warrant liability as of June 30,
          2006.





The
          warrant liability error resulted in an understatement of warrant liability
          and
          related expense of $1,280,014
          for the twelve months ended June 30, 2006.  The share issuance error
          resulted in an understatement of general and administrative expenses by
          $189,000
          for the issuance of 128,125 shares of our common stock in August 2005 and
          $644,000 for the issuance of 350,000 shares of our common stock in October
          2005. These corrections had no effect on our revenue, total assets,
          cash flow or liquidity for any period.  In addition, we identified an
          error in that the recording of the original warrants dated April 28, 2006
          at
          $0.93 and warrants dated April 28, 2006 at $0.81 were recorded $374,000
          below
          fair market value.  The fair market value exceeded the principal value
          of $5,000,000 and any fair market value in excess of the principal value
          should
          have been expensed at inception of the recording of the debt which properly
          states the true liability. We will use the full fair market value as calculated
          by the Black-Scholes model to record gain/loss on the value of the
          warrants.





We
        identified an error in our
        accounting for the derivative liability issued to Cornell Capital Partners
        LP.  Under the Secured Convertible Debenture, Section 3(b)(i) limits
        the number of shares issuable to Cornell Capital Partners, LP upon conversion
        to
        4.99% of the outstanding stock at time of conversion. Under section 39(a)(ii)
        of
        the same agreement, we are required to pay cash in lieu of shares for the
        portion greater than 4.99%.  The amount of cash is determined by the
        number of shares issuable upon conversion and the current market price of
        our
        stock.  Since the number of shares issuable is calculated using 94% of
        the market price, the cash conversion results in approximately a 6% premium
        paid
        on conversion.  As a result, the value of the derivative liability
        related to the conversion in excess of 4.99% will be based on the conversion
        premium at the end of the reporting period, the Cash Premium Method rather
        than
        using the Black-Scholes model.  We corrected the derivative liability
        for the period ended June 30, 2006 resulting in a decrease in the liability
        of
        $1,455,678.





We
        also identified an error in
        accounting for the amortization of the debt discount related to the $5,000,000
        Convertible Debenture issued to Cornell Capital Partners, LP.  We
        calculated the amortization of the debt discount using an amortization method
        that is not in accordance with generally accepted accounting
        principles.  We corrected the calculation using the effective interest
        method, which results in near zero amortization in the first year and
        exponentially increasing in the later years because the debt balance (net
        of
        discount) is zero at inception. We corrected the method of amortization in
        this
        restatement resulting in a decrease to interest expense and increase to the
        debt
        discount of $28,042.  For the period ended June 30, 2006 the balance
        of convertible debt less debt discount was $2.





We
        identified an error in the
        accounting for warrants issued for services provided by Stonegate
        Capital.  We under-valued the warrants using an incorrect volatility
        rate.  We corrected the valuation of warrants using the Black-Scholes
        method of valuation resulting in an increase of $188,355 in loan fees and
        the
        associated expense of $24,788.





The
          effects of these changes on the consolidated balance sheet as of June 30,
          2006,
          and the statements of operations for the twelve month period ended June
          30, 2006
          are summarized as follows:










June
                  30, 2006
                As Previously
                Reported
              
              
              Adjustments
              
              
              June
                  30, 2006
                As
                  RestatedAccounts
                  receivable
              
              
              55,782
              
              
              
              17,482
              
              
              
              73,264Oil
                  and gas properties, successful efforts method
              
              
              2,521,869
              
              
              
              (438,170
              )
              
              
              2,083,699Other
                  assets
              
              
              669,760
              
              
              
              191,609
              
              
              
              861,369Accounts
                  payable and accrued expenses
              
              
              1,089,396
              
              
              
              3,366
              
              
              
              1,092,762Long-term
                  debt
              
              
              1,931,886
              
              
              
              3,168,114
              
              
              
              5,100,000Less
                debt discount
              
              
              0
              
              
              
              (4,999,998
              )
              
              
              (4,999,998
              )Derivative
                  liability
              
              
              2,604,813
              
              
              
              (1,455,678
              )
              
              
              1,149,135Warrant
                  liability
              
              
              3,694,293
              
              
              
              1,280,014
              
              
              
              4,974,307Accumulated
                  deficit
              
              
              (12,716,068
              )
              
              
              1,686,748
              
              
              
              (11,029,320
              )Revenues
                  from oil and gas product sales
              
              
              519,535
              
              
              
              33,731
              
              
              
              553,266Lease
                  operating expense
              
              
              -
              
              
              
              5,647
              
              
              
              5,647Production
                  an ad valorem taxes
              
              
              -
              
              
              
              28,466
              
              
              
              28,466Depreciation
                  and depletion
              
              
              494,493
              
              
              
              51,653
              
              
              
              546,146Exploration
                  expenses, including dry holes
              
              
              4,813,268
              
              
              
              274,082
              
              
              
              5,087,350General
                  and administrative expenses
              
              
              4,233,971
              
              
              
              (130,121
              )
              
              
              4,103,850Loss
                  from valuation of derivative liability
              
              
              1,299,201
              
              
              
              (175,664
              )
              
              
              1,123,537Interest
                  expense
              
              
              2,102,681
              
              
              
              (1,801,857
              )
              
              
              300,824Basic
                  and diluted loss per common share
              
              
              (0.26
              )
              
              
              0.04
              
              
              
              (0.22
              )








Reporting
        Requirements





Because
        our common stock is publicly
        traded, we are subject to certain rules and regulations of federal, state
        and
        financial market exchange entities charges with the protection of investors
        and
        the oversight of companies whose securities are publicly
        traded.  These entities, including the SEC, have recently issued new
        requirements and regulations and are currently developing additional regulations
        and requirements in response to recent laws, most notably the Sarbanes-Oxley
        Act
        2002. Our compliance with current and proposed rules such as Section 404
        of the
        Sarbanes-Oxley Act of 2002, is likely to require the commitment of significant
        managerial resources.   We are currently reviewing our internal
        control systems, processes and procedures to ensure compliance with the
        requirements of Section 404.





ITEM
                7.
            FINANCIAL
                STATEMENTS





The
        financial statements required in this Form 10-KSB/A 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





NOTE:*This Item 8A. Controls and Procedures has been updated to reflect the
        restatement of our 2006 financial statements, as discussed above in the
        Explanatory Note and in Item 6 under the section heading “Restatement of 2006
        Consolidated Financial Statements.”*





In
        connection with this amendment to our Annual Report for the fiscal year ended
        June 30, 2006, our management, including our Chief Executive Officer and
        Chief
        Financial Officer, reevaluated the effectiveness of our disclosure controls
        and
        procedures (as defined in Rule 13a−15(e) under the Exchange Act of 1934, as
        amended (the “Exchange Act”)) as of the end of the period covered by this
        report.











Based
        upon that reevaluation and particularly in light of the examination of our
        financial statements for the period covered by this report by our independent
        registered public accounting firm, we identified two material weaknesses in
        our internal control over financial reporting as described
        below.





A
        material weakness in internal control over financial reporting (as defined
        in
        paragraph 140 of Auditing Standard No. 2 of the Public Company Accounting
        Oversight Board) is a significant deficiency, or combination of significant
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim consolidated financial statements will
        not
        be prevented or detected. A significant deficiency is a control deficiency,
        or
        combination of control deficiencies, that adversely affects a company’s ability
        to initiate, authorize, record, process, or report external financial data
        reliably in accordance with generally accepted accounting principles (GAAP)
        such
        that there is more than a remote likelihood that a misstatement of the company’s
        annual or interim consolidated financial statements that is more than
        inconsequential will not be prevented or detected.





We
        identified a material weakness with respect to our accounting for warrant
        and
        derivative liability and the related method of amortization of debt discount,
        as
        well as certain expense and reclassifications affecting net loss and loss
        per
        share. We also did not maintain adequate support for journal entries. Solely
        as
        a result of these material weaknesses, management has revised its earlier
        assessment and has now concluded that our internal control over financial
        reporting was not effective as of June 30, 2006. Management has discussed
        the
        circumstances leading up to the restatement with the audit committee of our
        board of directors, and management and the audit committee has concluded
        that
        the errors were unintentional.





**Changes
        in Internal Controls over Financial Reporting**


During
        the period covered by this Annual Report on Form 10−KSB/A, no changes were made
        to our internal controls over financial reporting. However, subsequent to
        the
        period covered by this report, changes were made to our internal control
        over
        financial reporting that materially affected, or are reasonably likely to
        materially affect, our internal control over financial reporting. Specifically,
        on November 17, 2006, management appointed Shawn L. Clift as our new Chief
        Financial Officer.  Ms. Clift has over twenty years of financial
        management experience, with significant finance and accounting experience
        in the
        energy industry. Management believes this change will mitigate the possibility
        that future accounting errors will go undetected.





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.





**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.





**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.





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,
              2006
              
              
              126,666(1)
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0President
                  , Chief Executive
              2005
              
              
              20,000(1)
              
              
              
              0
              
              
              
              0
              
              
              
              221,333(1)
              
              
              
              0
              
              
              
              0
              
              
              
              0Officer
                  and Treasurer
              2004
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Philipp
                  Buschmann, Chief
              2006
              
              
              120,000(2)
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Operating
                  Officer and
              2005
              
              
              70,000(2)
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Secretary
              2004
              
              
              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:





•
            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:





•
            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.









**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.







**Name
                and Address of Owner**
            **Title
                of Class**
            **Number
                of Shares**
              **Owned
                (1)**
            **Percent
                of Class**
              **(2)**Michael
                P. Piazza
              100
                Crescent Court, 7th
                Floor
              Dallas,
                Texas 75201
            Common
                Stock
            1,500,000
                (3)
            2.95%Philipp
                Buschmann
              100
                Crescent Court, 7th
                Floor
              Dallas,
                Texas 75201
            Common
                Stock
            4,584,000
            9.12%Timothy
                Hart
              100
                Crescent Court, 7th
                Floor
              Dallas,
                Texas 75201
            Common
                Stock
            10,000
            *Geoffrey
                Evett
              100
                Crescent Court, 7th
                Floor
              Dallas,
                Texas 75201
            Common
                Stock
            55,000
            *Roger
                A. Leopard
              100
                Crescent Court, 7th
                Floor
              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.





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.
            
            Description3.1
            
            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.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.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.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.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.
                and Petrofinanz 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. and Petrofinanz 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. and Petrofinanz 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.10.26
            
            Loan
                Agreement, dated December 22, 2005, by and between Ignis Petroleum
                Group,
                Inc. and Petrofinanz 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. and Petrofinanz 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.





*23.1
              Consent
                of Frederick C. Stein, Independent Petroleum Engineer*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.







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.




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
                  15, 2007
              
              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
              
              Date/s/
                  Michael P. PiazzaMichael
                  P. Piazza
              
              President,
                  Chief Executive Officer, Treasurer and Director
              
              October
                  15, 2007/s/
                  Geoffrey EvettGeoffrey
                  Evett
              
              Director
              
              October
                  15, 2007Roger
                  Leopard
              
              Director










**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**











To
      the
      Board of Directors


Ignis
      Petroleum Group, Inc.


Plano,
        Texas





We
        have
        audited the accompanying consolidated balance sheet of Ignis Petroleum Group,
        Inc. and subsidiary (the “Company”) as of June 30, 2006, and the related
        consolidated statements of operations, stockholders’ deficit and cash flows for
        the year then ended.  These financial statements are the
        responsibility of the Company's management.  Our responsibility is to
        express an opinion on these financial statements based on our
        audit.





We
        conducted our audit 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.  An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements.  An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement
        presentation.  We believe that our audit provides 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 Ignis Petroleum Group, Inc.
        and
        subsidiary as of June 30, 2006, and the results of their operations and their
        cash flows for the year then ended, in conformity with U.S. generally accepted
        accounting principles.








Hein
        & Associates LLP


Dallas,
        Texas


October
        12, 2007







De
            Meo,
            Young, McGrath
 A
            Professional Services Company


SUITE
                    517
                
                SUITE
                    4112400
                    EAST COMMERCIAL BOULEVARD
                
                2424
                    NORTH FEDERAL HIGHWAYFORT
                    LAUDERDALE, FLORIDA 33308
                
                BOCA
                    RATON, FLORIDA 33431(954)
                    351-9800
                
                (561)
                    447-9800FAX
                    (954) 938-8683
                
                FAX
                    (561) 391-8856dym@dymco.net
                
                boca@dymco.net—————————
                
                —————————Anthony
                    De Meo, CPA*, ABV,PFS
                
                Michael
                    I. Bloom, CPARobert
                    E. McGrath, CPA
                
                David
                    B. Price, CPARoberta
                    N. Young, CPA
                
                —————————**regulated
                    by the State of
                    Florida*




**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, 2005, and the related
          consolidated statements of operations, changes in shareholders’ equity and cash
          flows for the year ended 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, 2005 and the results of
          their  operations and their cash flows for the year then ended, 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.
 
 
 **De
          Meo, Young McGrath**
 Fort
        Lauderdale, Florida
 October
          11, 2005
 except
          for Note 5, as to which the date
 is  December
          22, 2006
 
 **DYM**
 MEMBERS
            OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS:  MANAGEMENT
            CONSULTING SERVICES DIVISION; SEC PRACTICE SECTION;
 PRIVATE
            COMPANIES PRACTICE SECTION; TAX DIVISION ● FLORIDA INSTITUTE OF CERTIFIED PUBLIC
            ACCOUNTANTS ● INSTITUTE OF BUSINESS APPRAISERS









Ignis
                  Petroleum Group, Inc. and Subsidiary
                Consolidated
                  Balance Sheet
                June
                  30, 2006





June
                30, 2006***ASSETS***
            
            RestatedCurrent
                assets:Cash
                and cash equivalents
            
            $
            872,572Accounts
                receivable
            
            
            73,264Prepaid
                expenses and other current assets
            
            
            188,500Total
                current assets
            
            
            1,134,336Property
                and equipment:Oil
                and gas properties, successful efforts method
            
            
            2,083,699Other
                assets
            
            
            861,369**Total
                assets**
            
            $
            4,079,404***LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)***Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            1,092,762Total
                current liabilities
            
            
            1,092,762Long
                term debt
            
            
            5,100,000Less
                debt discount
            
            
            (4,999,998
            )Derivative
                liability
            
            
            1,149,135Warrant
                liability
            
            
            4,974,307Total
                non-current liabilities
            
            
            6,223,444Stockholders'
                equity (deficit):Common
                stock, $0.001 par value, 300,000,000 shares
                authorized  50,020,464 issued and outstanding, net of 18,750,000
                shares held in escrow
            
            
            50,020Additional
                paid-in capital
            
            
            7,742,498Accumulated
                deficit
            
            
            (11,029,320
            )Total
                stockholders' equity (deficit)
            
            
            (3,236,802
            )**Total
                liabilities and stockholders' equity (deficit)**
            
            $
            4,079,404








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











Ignis
        Petroleum Group, Inc.


Consolidated
        Statement of Operations








Restated
              For
                the
              Year
                Ended
              June 30, 2006
            
            
            For
                the
              Period
              December 9, 2004
              (Inception)
                to
              June 30, 2005Revenues
                from oil and gas product sales
            
            $
            553,266
            
            
            $
            -Operating
                expenses:Lease
                operating expense
            
            
            5,647
            
            
            
            -Production
                and ad valorem taxes
            
            
            28,466
            
            
            
            -Depreciation
                and depletion
            
            
            546,146
            
            
            
            -Exploration
                expenses, including dry holes
            
            
            5,087,350
            
            
            
            94,569General
                and administrative expenses
            
            
            4,103,850
            
            
            
            253,555Total
                operating expenses
            
            
            9,771,459
            
            
            
            348,124Loss
                from operations
            
            
            (9,218,193
            )
            
            
            (348,124
            )Other
                income (expense)Loss
                from valuation of derivative liability
            
            
            (1,123,537
            )
            
            
            -Interest
                expense
            
            
            (300,824
            )
            
            
            (22,685
            )(1,424,361
            )
            
            
            (22,685
            )Net
                loss
            
            $
            (10,642,554
            )
            
            $
            (370,809
            )Basic
                and diluted loss per common share
            
            $
            (0.22
            )
            
            $
            (0.01
            )Weighted
                average number of common shares outstanding
            
            
            47,824,812
            
            
            
            40,829,557





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










Ignis
                  Petroleum Group, Inc. and SubsidiaryConsolidated
                  Statement of Stockholders' DeficitFor
                  the Period December 9, 2004 (inception) to June 30, 2005 and the Year
                  Ended June 30, 2006
                RestatedCommon
                  Stock
              
              
              Additional
                Paid-in
              
              
              AccumulatedShares
              
              
              Par
                  value
              
              
              Capital
              
              
              Deficit
              
              
              TotalBalance
                  December 9, 2004 (reverse merger)
              
              
              31,200,000
              
              
              
              31,200
              
              
              
              -
              
              
              
              (15,957
              )
              
              
              15,243Issuance
                  of common stock
              
              
              10,000,000
              
              
              
              10,000
              
              
              
              340,000
              
              
              
              -
              
              
              
              350,000Donated
                  services for rent
              
              
              -
              
              
              
              -
              
              
              
              13,500
              
              
              
              -
              
              
              
              13,500Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (370,809
              )
              
              
              (370,809
              )Balance
                  June 30, 2005 (restated)
              
              
              41,200,000
              
              
              
              41,200
              
              
              
              353,500
              
              
              
              (386,766
              )
              
              
              7,934Conversion
                  of convertible notes
              
              
              3,100,000
              
              
              
              3,100
              
              
              
              1,547,202
              
              
              
              -
              
              
              
              1,550,302Issuance
                  of common stock for services
              
              
              1,860,313
              
              
              
              1,860
              
              
              
              2,569,621
              
              
              
              -
              
              
              
              2,571,481Sale
                  of common stock
              
              
              3,385,151
              
              
              
              3,385
              
              
              
              1,996,615
              
              
              
              -
              
              
              
              2,000,000Issuance
                  of common stock for Newton extension fee
              
              
              400,000
              
              
              
              400
              
              
              
              1,027,600
              
              
              
              -
              
              
              
              1,028,000Issuance
                  of common stock and warrants for debt fees
              
              
              75,000
              
              
              
              75
              
              
              
              247,960
              
              
              
              -
              
              
              
              248,035Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,642,554
              )
              
              
              (10,642,554
              )Balance
                  June 30, 2006
              
              
              50,020,464
              
              
              $
              50,020
              
              
              $
              7,742,498
              
              
              $
              (11,029,320
              )
              
              $
              (3,236,802
              )





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











Ignis
        Petroleum Group, Inc.


Consolidated
        Statement of Cash Flows





Restated For
                the Year
              Ended
                June 30, 2006
            
            
            For
                the Period
              ended
              December 9,2004
              (Inception)
                to
              June 30,
                2005Cash
                flow from operating activitiesNet
                loss
            
            $
            (10,642,554
            )
            
            $
            (370,809
            )Adjustments
                to net loss not affecting cash:Donated
                capital
            
            
            -
            
            
            
            13,500Reverse
                merger adjustments
            
            
            -
            
            
            
            15,451Depletion
                and amortization
            
            
            546,146
            
            
            
            -Amortization
                of debt cost
            
            
            130,026
            
            
            
            -Stock
                issued for interest expense
            
            
            50,302Loss
                from valuation adjustment of oil and gas properties
            
            
            5,087,350
            
            
            
            94,569Stock
                issued for compensation and services
            
            
            2,571,491
            
            
            
            -Amortization
                of discount on debentures
            
            
            2
            
            
            
            -Loss
                of derivative financial instrument
            
            
            1,123,442
            
            
            
            -Change
                in current assets and liabilitiesAccounts
                receivable
            
            
            (73,264
            )
            
            
            -Expenses
                and other current assets
            
            
            (173,434
            )
            
            
            (20,066
            )Other
                assets
            
            
            -
            
            
            
            (3,360
            )Accounts
                payable and accrued expenses
            
            
            (77,174
            )
            
            
            45,189Cash
                used in operating activities
            
            
            (1,457,667
            )
            
            
            (225,526
            )Cash
                flow from investing activitiesPurchase
                of oil and gas properties
            
            
            (4,159,235
            )
            
            
            (1,500,000
            )Cash
                used for investing activities
            
            
            (4,159,235
            )
            
            
            (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
            
            
            4,265,000
            
            
            
            1,500,000Advance
                from related party
            
            
            (20,590
            )
            
            
            20,590Cash
                provided by financing activities
            
            
            6,344,410
            
            
            
            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
                non-cash financing transactions:Conversion
                of notes payable and interest into equity
            
            $
            1,550,302
            
            
            $
            -Issuance
                of common stock for oil and gas property
            
            $
            1,028,000
            
            
            $
            -Non-cash debt
                costs
            
            $
            983,035
            
            
            $
            -




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







Ignis
      Petroleum Group, Inc. and Subsidiary


Notes
      to
      the Financial Statements


June
      30,
      2006





Note
        1


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.




Consolidation
        and Use of Estimates


The
        accompanying financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America
        ("GAAP") and include the accounts of Ignis and its wholly-owned subsidiaries.
        Intercompany accounts and transactions are eliminated. In preparing the
        accompanying financial statements, management has made certain estimates
        and
        assumptions that affect reported amounts in the financial statements and
        disclosures of contingencies. Actual results may differ from those estimates.
        Significant assumptions are required in the valuation of proved oil and natural
        gas reserves, which may affect the amount at which oil and natural gas
        properties are recorded. It is at least reasonably possible these estimates
        could be revised in the near term, and these revisions could be
        material.




The
        term
        proved reserves is defined by the Securities and Exchange Commission in
        Rule 4-10(a) of Regulation S-X adopted under the Securities Act of
        1933, as amended. In general, proved reserves are the estimated quantities
        of
        oil, gas and liquids that geological or engineering data demonstrate with
        reasonable certainty to be recoverable in future years from known reservoirs
        under existing economic and operating conditions, i.e., prices and costs
        as of
        the date the estimate is made. Prices include consideration of changes in
        existing prices provided only by contractual arrangements, but not on
        escalations based on future conditions.




Our
        estimates of proved reserves materially impact
        depletion expense. If proved reserves decline, then the rate at which we
        record
        depletion expense increases, reducing net income. A decline in estimates
        of
        proved reserves may result from lower prices, evaluation of additional operating
        history, mechanical problems on our wells and catastrophic events such as
        explosions, hurricanes and floods. Lower prices also may make it uneconomical
        to
        drill wells or produce from fields with high operating costs. In addition,
        a
        decline in proved reserves may impact our assessment of our oil and natural
        gas
        properties for impairment.




Our
        proved reserve estimates are a function of many assumptions, all of which
        could
        deviate materially from actual results. As such, reserve estimates may vary
        materially from the ultimate quantities of oil and natural gas actually
        produced.




Income
      Taxes


We
        adopted SFAS No. 109 as of our inception. Pursuant to SFAS No. 109, Accounting
        for Income Taxes, 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
        assets are primarily determined under the unit-of-production 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.





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.




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.





Impairment
        of Developed Oil and Natural Gas Properties


We
        review
        our oil and natural gas properties for impairment whenever events and
        circumstances indicate a decline in the recoverability of their carrying
        value.   We estimate the expected future cash flows of our oil
        and natural gas properties and  compare such future cash flows to the
        carrying amount of our oil and natural gas properties to determine if the
        carrying amount is recoverable.  If the carrying amount exceeds
        undiscounted future cash flows, we will adjust the carrying amount of the
        oil
        and natural gas properties to its fair value.  The factors used to
        determine fair value include, but are not limited to, estimates of proved
        reserves, commodity pricing, future production estimates, anticipated capital
        expenditures, and a discount rate commensurate with the risk associated with
        realizing the expected cash flows projected.  For the twelve months
        ended June 30, 2006 we recorded an impairment of $2,888,268 on the Sherburne
        prospect in Point Coupee Parish, Louisiana and $2,199,082 on the North
        Wrightfield prospect in Escambia County, Alabama.





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.





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.





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. FSP 123R-3 will
      not 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.




New
        Pronouncements




We
        apply
        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.





We
        apply
        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. The Company did not record ARO for fiscal years ended June 30,
        2006
        and June 30, 2005  due to immateriality.











New
        Pronouncements




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. Management does not believe this pronouncement has a significant impact
        on
        our financial statements.





Note
        2.


Restatement
        of Prior Financial Information





**Reclassifications**





For
        the
        twelve-month period ended June 30, 2006, we elected to reclassify the costs
        as presented in
        the
        Statement of Operations.  The original presentation did not separately
        disclose lease operating expense and
        production taxes for oil and gas operations.  We reclassified the
        netted oil and natural gas sales from
        $519,535 to $553,266. Production tax was $28,466. We reclassified lease
        operating expense for the Acom
        A-6
        well from proved property to expense in the amount of $1,866.





The
        original presentation included amortization of debt in general and
        administrative expense. We reclassified amortization expense of $130,122
        to
        interest expense.





**Restatement
        of 2006 and 2005 Consolidated Financial Statements**





**2005**





We
        adopted FASB Statement No. 154*, Accounting Changes and Error
        Corrections* , a replacement of APB Opinion No. 20 and FASB Statement No.
        3.  This Statement provides guidance on the accounting
        for  and reporting of accounting changes and error
        corrections.  It establishes, unless impracticable, retrospective
        application as the required method for reporting a change in accounting
        principle in the absence of explicit transition requirements specific to
        the
        newly adopted accounting principle.  This Statement also provides for
        determining whether retrospective application of a change in accounting
        principle is impracticable and for reporting a change when retrospective
        application is impracticable.  The correction of an error in
        previously issued financial statements is not an accounting
        change.  However, the reporting of an error correction involves
        adjustments to previously issued financial statements similar to those generally
        applicable to reporting an accounting change
        retrospectively.  Therefore the reporting of a correction of an error
        by restating previously issued financial statements is also addressed by
        this
        statement.





In
        accordance with Statement of Financial Accounting Standards No. 154, Accounting
        Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
        Statement No. 3, we elected to restate June 30, 2005 presentation in our
        June
        30, 2006 10KSB Amendment No. 1.  We recorded a write-down of $94,569
        on our  Acom A-6 property, Chambers County, Texas primarily due to the
        underlying value of asset compared to the proved reserve potential of this
        property. The correction is reflected in the tables below.














**As Originally Reported**
              **June
                30, 2005**
            
            
            **As Adjusted**
            
            
            **Effect of Change**
              **June
                30, 2005**Oil
                and gas properties
            
            
            2,553,080
            
            
            
            2,458,511
            
            
            
            (94,569
            )Accumulated
                deficit
            
            
            (291,989
            )
            
            
            (386,558
            )
            
            
            (94,569
            )Liabilities
                and stockholders' equity
            
            
            102,711
            
            
            
            8,142
            
            
            
            (94,569
            )Exporation
                expenses, including dry holes
            
            
            -
            
            
            
            94,569
            
            
            
            94,569Net
                Loss
            
            
            (276,240
            )
            
            
            (370,809
            )
            
            
            (94,569
            )





**2006**





We
        identified an error in recording exploration expenses.  We recorded
        additional exploration costs in the amount of $274,082. We elected to write
        down
        the North Wright Field asset balance of $199,082 to zero.  We recorded
        a $75,000 delay rental for the Sherburne prospect that was inadvertently
        recorded as an asset which has been corrected in this
        restatement.





We
        identified an accounting error in recording gross and net revenue and lease
        operating expense for the Barnett Shale property in Cooke County,
        Texas.  We did not accrue revenue for April, May, and June 2006 as we
        did not accrue the associated production tax and lease operating
        expense.  This resulted in an understatement of accounts receivable in
        the amount of $17,482, understatement of revenue in the amount of $23,014,
        understatement of production tax in the amount of $1,261 and lease operating
        expense of $4,304, each of which has been corrected in this
        restatement.





We
        also
        identified an error in recording depletion. We recorded an additional $51,653
        in
        depletion expense under the units of production method which has been corrected
        in this restatement.





In
          addition, we identified errors in our accounting for the warrant liability
          for
          warrants issued to Cornell Capital  Partners, LP.  The
          warrant liability error relates to adjusting the warrant liability for
          changes
          in fair market value on a quarterly basis.  We historically recorded
          the fair market value of the warrant liability at inception with no subsequent
          adjustments for changes in the market value.  As a result, we did not
          record the gain/loss on change in the warrant liability as of June 30,
          2006.




The
          warrant liability error resulted in an understatement of warrant liability
          and
          related expense of 1,280,014
          for the twelve months ended June  30, 2006.  The share issuance
          error resulted in an understatement of general and administrative expenses
          by
          $189,000 for the issuance of 128,125 shares of our common stock in August
          2005
          and $644,000 for the issuance of 350,000 shares of our common stock in
          October
          2005.  These corrections had no effect on our revenue, total
          assets, cash flow or liquidity for any period.  In addition, we
          identified an error in the recording of the original warrants dated April
          28,
          2006 at $0.93 and warrants dated April 28, 2006 at $0.81 were recorded
          $374,000
          below fair market value.  The fair market value exceeded the principal
          value of $5,000,000 and any fair market value in excess of the principal
          value
          should have been expensed at inception of the recording of the debt which
          properly states the true liability. We will use the full fair market value
          as
          calculated by the Black-Scholes model to record gain/loss on the value
          of the
          warrants,





We
        identified an error in our
        accounting for the derivative liability issued to Cornell Capital Partners
        LP.  Under the Secured Convertible Debenture, Section 3(b)(i) limits
        the number of shares issuable to Cornell Capital Partners, LP upon conversion
        to
        4.99% of the outstanding stock at time of conversion. Under section 39(a)(ii)
        of
        the same agreement, we are required to pay cash in lieu of shares for the
        portion greater than 4.99%.  The amount of cash is determined by the
        number of shares issuable upon conversion and the current market price of
        our
        stock.  Since the number of shares issuable is calculated using 94% of
        the market price, the cash conversion results in approximately a 6% premium
        paid
        on conversion.  As a result, the value of the derivative liability
        related to the conversion in excess of 4.99% will be based on the conversion
        premium at the end of the reporting period, the Cash Premium Method rather
        than
        using the Black-Scholes model.  We corrected the derivative liability
        for the period ended June 30, 2006 resulting in a decrease in the liability
        of
        $1,455,678.











We
        also identified an error in
        accounting for the amortization of the debt discount related to the $5,000,000
        Convertible Debenture issued to Cornell Capital Partners, LP.  We
        calculated the amortization of the debt discount using an amortization method
        that is not in accordance with generally accepted accounting
        principles.  We corrected that calculation using the effective
        interest mthod which results near zero amortization in the first year and
        exponentially increasing in the later years because the debt balance (net
        of
        discount) is zero at inception. We corrected the method of amortization in
        this
        restatement resulting in a decrease to interest expense and increase to the
        debt
        discount of $28,042.  For the period ended June 30, 2006 the balance
        of convertible debt less debt discount was $2.





We
        identified an error in the accounting for warrants issued for services provided
        by Stonegate Capital.  We under-valued the warrants using an incorrect
        volatility rate.  We corrected the valuation of warrants using the
        Black-Scholes method of valuation resulting in an increase of $188,355 in
        loan
        fees and the associated expense of $24,788.








The
          effects of these changes on the consolidated balance sheet as of June 30, 2006,
          and the statements of operations for the twelve month period ended June
          30, 2006
          are summarized as follows:





June
                  30, 2006
                As Previously
                Reported
              
              
              Adjustments
              
              
              June
                  30, 2006 As RestatedAccounts
                  receivable
              
              
              55,782
              
              
              
              17,482
              
              
              
              73,264Oil
                  and gas properties, successful efforts method
              
              
              2,521,869
              
              
              
              (438,170
              )
              
              
              2,083,699Other
                  assets
              
              
              669,760
              
              
              
              191,609
              
              
              
              861,369Accounts
                  payable and accrued expenses
              
              
              1,089,396
              
              
              
              3,366
              
              
              
              1,092,762Long-term
                  debt
              
              
              1,931,886
              
              
              
              3,168,114
              
              
              
              5,100,000Less
                Debt discount
              
              
              0
              
              
              
              (4,999,998
              )
              
              
              (4,999,998
              )Derivative
                  liability
              
              
              2,604,813
              
              
              
              (1,455,678
              )
              
              
              1,149,135Warrant
                  liability
              
              
              3,694,293
              
              
              
              1,280,014
              
              
              
              4,974,307Accumulated
                  deficit
              
              
              (12,716,068
              )
              
              
              1,686,748
              
              
              
              (11,029,320
              )Revenues
                  from oil and gas product sales
              
              
              519,535
              
              
              
              33,731
              
              
              
              553,266Lease
                  operating expense
              
              
              -
              
              
              
              5,647
              
              
              
              5,647Production
                  an ad valorem taxes
              
              
              -
              
              
              
              28,466
              
              
              
              28,466Depreciation
                  and depletion
              
              
              494,493
              
              
              
              51,653
              
              
              
              546,146Exploration
                  expenses, including dry holes
              
              
              4,813,268
              
              
              
              274,082
              
              
              
              5,087,349General
                  and administrative expenses
              
              
              4,233,971
              
              
              
              (130,121
              )
              
              
              4,103,850Loss
                  from valuation of derivative liability
              
              
              1,299,201
              
              
              
              (175,664
              )
              
              
              1,123,537Interest
                  expense
              
              
              2,102,681
              
              
              
              (1,801,857
              )
              
              
              300,824Basic
                  and diluted loss per common share
              
              
              (0.26
              )
              
              
              0.04
              
              
              
              (0.22
              )








Note
      3


Going
        Concern





The
        financial statements of the Company have been prepared on the basis of
        accounting principles applicable to a going concern, which contemplates the
        realization of assets and the satisfaction of liabilities in the normal course
        of business.




Should
        the Company be unable to achieve profitable operations or raise additional
        capital to bring on new projects, it may not be able to continue
        operations. These factors raise substantial doubt concerning the ability
        of the
        Company to continue as a going concern. The accompanying financial statements
        do
        not purport to reflect or provide for the consequences of discontinuing
        operations. In particular, such financial statements do not purport to show
        (a) as to assets, their realizable value on a liquidation basis or their
        availability to satisfy liabilities; (b) as to liabilities, the amount that
        may be allowed for claims and contingencies, or the status and priority
        thereof; (c) as to shareholder accounts, the effect of any changes that
        may be made in the capitalization of the Company; and (d) as to
        operations, the effect of any changes that may be made in its
        business.











Note
        4


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.





Note
      5


Property
      and equipment





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





Oil
                  and gas properties:Proved
              
              $
              1,905,373Unproved
              
              
              672,4472,577,820Less
                  accumulated depletion and depreciation
              
              
              (494,121)$
              2,083,699








Note
        6


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 $10,642,554 as of  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
              
              $
              10,642,544Effective
                  tax rate
              
              
              34
              %Deferred
                  tax asset
              
              $
              3,618,468Valuation
                  allowance
              
              $
              (3,618,648
              )Net
                  deferred tax asset
              
              $
              -






Note
        7


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, which was 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:




$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 $4,265,000 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 except under   Section 3(b)(i) limits
        the number of shares issuable to Cornell Capital Partners, LP upon conversion
        to
        4.99% of the outstanding stock at time of conversion. Under section 39(a)(ii)
        of
        the same agreement, we are required to pay cash in lieu of shares for the
        portion greater than 4.99%.  The amount of cash is determined by the
        number of shares issuable upon conversion and the current market price of
        our
        stock.  Since the number of shares issuable is calculated using 94% of
        the market price, the cash conversion results in approximately a 6% premium
        paid
        on conversion. 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;





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.





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”), *Accounting for Derivative
        Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
        Stock*, and must be accounted for as a derivative
        liability.





Under
        the
        Secured Convertible Debenture, Section 3(b)(i) limits the number of shares
        issuable to Cornell Capital Partners, LP upon conversion to 4.99% of the
        outstanding stock at time of conversion. Under section 39(a)(ii) of the same
        agreement, we are required to pay cash in lieu of shares for the portion
        greater
        than 4.99%.  The amount of cash is determined by the number of shares
        issuable upon conversion and the current market price of our
        stock.  Since the number of shares issuable is calculated using 94% of
        the market price, the cash conversion results in approximately a 6% premium
        paid
        on conversion.  As a result, the value of the derivative liability
        related to the conversion in excess of 4.99% will be based on the Cash Premium
        Method rather than using the Black-Scholes model. The value of the conversion
        feature up to the 4.99% cap will be valued using the Black-Scholes model.
        We are
        correcting the error due to valuation in this restatement. As of June 30,
        2006
        we recorded a liability of $1,149,135.











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 warrants were recorded as a derivative liability
        in
        the consolidated balance sheet, and is marked to market at the end of each
        reporting period.  For the year ended June 30, 2006 the warrants were
        assigned a value of $4,974,307 which is corrected in this
        restatement.  Prior to the restatement the warrants were not
        marked-to-market.  Utilizing the Black-Scholes method we
        marked-to-market the warrants on a quarterly basis which resulted in a liability
        at June 30, 2006 and 2005 of $4,974,037 and $0, respectively.  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 fair market value of the warrants and conversion
        option at issuance exceeded the principal balance of the secured convertible
        debentures by $4,933,880.  The excess value was expensed to interest
        expense at issuance. 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. For the year ended June 30, 2006
        we
        recorded the amortization of the debt discount using the effective interest
        method. For the period ended June 30, 2006, the amortization of the discount
        and
        resulting balance of convertible debt less debt discount was
        $2.





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




Convertible
                  debentures payable
              
              $
              5,000,000Less:
                  unamortized discount on debentures
              
              
              (4,999,998
              )Convertible
                  debentures, net
              
              $
              2






Note
        8


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
        9


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 unregistered shares of our common stock.
        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 unregistered shares
        of our
        common stock. 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 unregistered 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.





On
        August
        15, 2005, we issued 240,000 unregistered shares of common stock to Douglas
        Berry
        as compensation for his services as one of our directors. 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 unregistered shares of common stock to an advisor
        as
        compensation for their services as an advisor. 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 unregistered shares of common stock to our advisors
        as
        compensation for their services as advisors. 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.





On
        August
        25, 2005, we issued 150,000 unregistered shares of common stock to our chief
        executive officer Michael Piazza for compensation as provided in his employment
        agreement. 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 unregistered 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.





On
        October 18, 2005, we entered into a Subscription Agreement with Petrofinanz
        GmbH
        pursuant to which Petrofinanz agreed to purchase 133,333 unregistered 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 Petrofinanz
        GmbH
        pursuant to which Petrofinanz agreed to purchase 80,000 unregistered 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
        October 31, 2005, we issued 350,000 unregistered shares of common stock to
        Michael Piazza for services to us as a CEO. 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 unregistered shares to three affiliates
        of
        Stonegate Securities, Inc., for compensation relating to Stonegate acting
        as our
        placement agent. 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 unregistered shares of common stock to
        Roger
        A. Leopard for services to us as a director.. 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 unregistered shares of common stock to
        Geoff
        Evett for services to us as a director. 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
        February 9, 2006, we issued 10,000 unregistered shares of common stock to
        Timothy Hart for services to us as an officer. 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 unregistered shares of common stock to
        our
        advisors for services to us as advisors.. 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 unregistered shares of common stock to Petrofinanz
        GmbH, at a price of $1.10 per share for a total of $200,000.





On
        May
        30, 2006, we issued 500,000 unregistered shares of common stock to Michael
        Piazza for services to us as an officer. 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 unregistered shares of common stock to Eric Hanlon
        for services to us as a consultant. 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
        10


Note
        Payable





We
        entered into a loan agreement with Petrofinanz Gmbh on December 22, 2005
        for an
        amount of  $100,000 due on June 20, 2006, at 12% per
        annum.  The maturity date was extended to June 30, 2009 subsequent to
        June 30, 2006.  See further discussion in Note 11, Subsequent
        Events.





Note
        11


Subsequent
      Events





We
        amended and restated our loan
        agreement with Petrofinanz, GBMH twice to borrow an aggregate of an additional
        $900,000 during our fiscal year ending June 30, 2007.    We
        borrowed $500,000 from Petrofinanz on August 28, 2006, and we borrowed $400,000
        from Petrofinanz on March 6, 2007, in each case for working capital
        purposes.  The aggregate principal amount of our Second Amended and
        Restated Loan Agreement with  of June 30, 2007 is $1,000,000 and the
        repayment date is June 30, 2009.  Interest accrues under the
        Petrofinanz loan agreement at the rate of 10% per annum and is payable upon
        the
        loan’s maturity date.





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. 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. As of June 30, 2007 the registration statement has
        not
        been declared effective, therefore we are considered in default and accordingly
        we accrued liquidated damages in the amount of $1,000,000 for the 2007 fiscal
        year.











Joint
        Venture


On
        November 15, 2006, we entered into a joint venture with affiliates of Silver
        Point Capital, L.P. through a limited liability company named Ignis Barnett
        Shale, LLC.  The joint venture acquired 45% of the interests in the
        acreage, oil and natural gas producing properties and natural gas gathering
        and
        treating system located in the St. Jo Ridge Field in the North Texas Fort
        Worth
        Basin then held by W.B. Osborn Oil & Gas Operations, Ltd. and St. Jo
        Pipeline, Limited.  The purchase price for the acquisition was
        $17,600,000, subject to certain adjustments, plus $850,000 payable by Ignis
        Barnett Shale in thirty-six monthly installments of $23,611, beginning one
        month
        after closing.  In addition, Ignis Barnett Shale agreed to fund
        additional lease acquisitions up to a total of $5,000,000 for a period of
        two
        years.





Under
        the
        terms of Ignis Barnett Shale’s operating agreement, we agreed to manage the
        day-to-day operations of Ignis Barnett Shale and the Silver Point affiliates
        agreed to fund 100% of the purchase price of the transaction and 100% of
        future
        acreage acquisitions and development costs of Ignis Barnett Shale to the
        extent
        approved by Silver Point.  Ignis Barnett Shale’s budget, its operating
        plan, financial and hedging arrangements, if any, and generally all other
        material decisions affecting Ignis Barnett Shale are subject to the approval
        of
        Silver Point.  We assigned our intellectual property directly related
        to the Ignis Barnet Shale all of our intellectual property related to the
        joint
        venture and its activities.  Distributions from Ignis Barnett Shale
        will be made when and if declared by Silver Point as follows:





(i)
              To
                  the Silver Point affiliates pro rata until the Silver Point affiliates
                  have received an amount equal to their aggregate capital contributions;
                  then





(ii)
              100%
                  to the Silver Point affiliates pro rata until they have received
                  an amount
                  representing a rate of return equal to 12%, compounded annually,
                  on their
                  aggregate capital contributions;
                  then





(iii)
              100%
                  to us until the amount distributed to us under this clause (iii)
                  equals
                  12.5% of all amounts distributed pursuant to clauses (ii) and (iii);
                  then





(iv)
              87.5%
                  to the Silver Point affiliates pro rata and 12.5% to us until the
                  amount
                  distributed to the Silver Point affiliates represents a return
                  equal to
                  20%, compounded annually, on their aggregate capital contributions;
                  then





(v)
              100%
                  to us until the amount distributed to us under clauses (iii), (iv),
                  and
                  (v) equals 20% of all amounts distributed pursuant to clauses (ii),
                  (iii),
                  (iv), and (v); then





(vi)
              80%
                  to the Silver Point affiliates pro rata and 20% to us until the
                  amount
                  distributed to the Silver Point affiliates represents a return
                  equal to
                  30%, compounded annually, on their aggregate capital contributions;
                  then





(vii)
              100%
                  to us until the amount distributed to us under clauses (iii), (iv),
                  (v),
                  (vi), and (vii) equals 25% of all amounts distributed pursuant
                  to clauses
                  (ii), (iii), (iv), (v), (vi), and (vii);
                  then





(viii)
              75%
                  to the Silver Point affiliates pro rata and 25% to us until the
                  amount
                  distributed to the Silver Point affiliates represents a return
                  equal to
                  60%, compounded annually, on their aggregate capital contributions;
                  then





(ix)
              50%
                  to the Silver Point affiliates pro rata and 50% to
                  us.











Ignis
        Barnett Shale’s operating agreement also provides that Silver Point may remove
        us as a member and our interest in the joint venture will be forfeited if
        we
        provide them with “cause” or if we enter bankruptcy.  Generally,
        Silver Point will have “cause” to remove us from the joint venture
        if:





·
              we
                  or any of our officers or significant employees or consultants:
                  (i)
                  commits a felony or crime of moral turpitude; (ii) commits fraud,
                  bad
                  faith or gross negligence in performance of their duties to the
                  joint
                  venture; or (iii) commits a material breach of the joint venture
                  agreement;


·
              we
                  attempt to transfer out interest in the joint venture in violation
                  of the
                  operating agreement; or


·
              if
                  we fire or terminate our consulting relationships with Michael
                  Piazza,
                  Fred Stein or Eric Hanlon.





If
        we
        lose the services of Mr. Piazza, Mr. Stein or Mr. Hanlon because they have
        quit,
        died or become disabled, and we are unable to find a replacement to Silver
        Point’s reasonable satisfaction, then our distributions from the joint venture
        will be reduced as follows:








Name
              Years
                  of service prior to termination<
                  1
              1-2
              2-3
              >
                  3Mike
                  Piazza
              25%
              20%
              15%
              5%Eric
                  Hanlon
              20%
              15%
              10%
              5%Fred
                  Stein
              30%
              25%
              20%
              5%





The
        operating agreement provides that Silver Point will have a right of first
        offer
        on any debt or equity financing we undertake prior to November 15, 2008,
        subject
        to similar rights we previously granted to Cornell Capital.





We
        also
        agreed not to make any additional investments in parts of three North Texas
        counties, the area of mutual interest that Ignis Barnett Shale established
        with
        W.B. Osborn Oil & Gas Operations, until the joint venture has satisfied its
        obligation to W.B. Osborn Oil & Gas Operations to purchase an additional $5
        million of acreage.  Thereafter, the joint venture will have a right
        of first offer on any future investment opportunity we desire to make in
        the
        area of mutual interest.  If the joint venture does not exercise its
        right of first offer, we can pursue the opportunity, subject to some limitations
        during the first 18 months after the joint venture completes the $5 million
        additional investment with W.B. Osborn Oil & Gas Operations.  If
        the joint venture exercises its right to pursue an opportunity, we will have
        the
        opportunity to co-invest up to 50% of such investment up to $10
        million.





Note
        12.


Supplemental
        Information For Oil and Gas Producing Activities (Unaudited)





Capitalized
        costs relating to oil and gas producing activities for the years ended June
        30,
        2006 and 2005:





Oil
                  and gas properties:
              
              2006
              
              
              2005Proved
              
              $
              1,905,373
              
              
              $
              -Unproved
              
              
              672,447
              
              
              
              2,529,960Total
                  capitalized costs
              
              
              2,577,820
              
              
              
              2,529,960Less
                  accumulated depletion & depreciation
              
              
              (494,121
              )
              
              
              -Net
                  capitalized costs
              
              $
              2,083,699
              
              
              $
              2,529,960









Costs
        incurred in oil and gas producing activities for the years ended June 30,
        2006
        and 2005:





Oil
                  and gas properties:
              
              2006
              
              
              2005Acquisition
                  of proved properties
              
              $
              174,752
              
              
              $
              -Acquisition
                  of unproved properties
              
              
              2,253,862Exploration
                  cost
              
              
              -
              
              
              
              2,624,529Development
                  cost
              
              
              1,730,621
              
              
              
              -





Results
        of operations from oil and gas producing activities for the years ended June
        30,
        2006 and 2005:





Restated
                Twelve Months Ended
              June 30,
            
            
            Restated
                For the Period December  9, 2004 (Inception) to
                June 30
            
            
            Increase2006
            
            
            2005
            
            
            (Decrease)Results
                of oil and
                gas  producing operations
            
            $
            (5,114,344
            )
            
            
            (94,569
            )
            
            
            (5,019,775
            )General
                & administrative expense
            
            $
            4,103,850
            
            
            
            253,555
            
            
            
            3,850,294Gain/(loss)  from
                valuation  of derivative liaility
            
            $
            (1,123,537
            )
            
            
            -
            
            
            
            (1,123,537
            )Interest
                (income)/expense
            
            $
            300,824
            
            
            
            (22,685
            )
            
            
            298,720Net
                income/ (loss)
            
            $
            (10,642,554
            )
            
            
            (370,809
            )
            
            
            (9,694,886
            )





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
        following table sets forth the Company’s net proved reserves, including the
        changes therein, and proved developed reserves:










Crude
                Oil (Bbls)
            
            
            Natural
                Gas (Mcf)PROVED-DEVELOPED
                AND UNDEVELOPED RESERVES:June
                30, 2004
            
            
            -
            
            
            
            -Extensions,
                discoveries, and other additions
            
            
            19,000
            
            
            
            89,082June
                30, 2005
            
            
            19,000
            
            
            
            89,082Extensions,
                discoveries, and other additions
            
            
            2,344
            
            
            
            14,063Production
            
            
            (5,620
            )
            
            
            (20,518
            )June
                30, 2006
            
            
            15,724
            
            
            
            82,627PROVED
                DEVELOPED RESERVESJune
                30, 2006
            
            
            15,724
            
            
            
            82,627







The
        Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
        Relating to Proved Oil and Natural Gas Reserves (“Standardized Measure”) does
        not purport to present the fair market value of the Company’s natural gas and
        crude oil properties. An estimate of such value should consider, among other
        factors, anticipated future prices of natural gas and crude oil, the probability
        of recoveries in excess of existing proved reserves, the value of probable
        reserves and acreage prospects, and perhaps different discount rates. It
        should
        be noted that estimates of reserve quantities, especially from new discoveries,
        are inherently imprecise and subject to substantial revision.





Under
        the
        Standardized Measure, future cash inflows were estimated by applying year-end
        prices, adjusted for contracts with price floors but excluding hedges, to
        the
        estimated future production of the year-end reserves. As of June 30, 2006
        gas
        prices were $5.65 and oil prices were $72.48.





Future
        cash inflows were reduced by estimated future production and development
        costs
        based on year-end costs to determine pre-tax cash inflows. Future income
        taxes
        were computed by applying the statutory tax rate to the excess of pre-tax
        cash
        inflows over the Company’s tax basis in the associated proved natural gas and
        crude oil properties. Tax credits and net operating loss carry forwards were
        also considered in the future income tax calculation. Future net cash inflows
        after income taxes were discounted using a 10% annual discount rate to arrive
        at
        the Standardized Measure.





The
        standardized measure of discounted net cash flows relating to proved oil
        and
        natural gas reserves is as follows (in thousands):





As
                  of June 30,2006
              
              
              2005Future
                  cash inflows
              
              $
              1,578
              
              
              $
              1,845Future
                  production costs
              
              
              (24
              )
              
              
              (19
              )Future
                  development costs
              
              
              (24
              )
              
              
              (602
              )Future
                  income tax expense
              
              
              -
              
              
              
              -Future
                  net cash flows
              
              
              1,530
              
              
              
              1,22410%
                  annual discount for estimated timing of cash flows
              
              
              (141
              )
              
              
              (194
              )Standardized
                  measure of discounted future net cash flows related to proved
                  reserves
              
              $
              1,389
              
              
              $
              1,030










A
        summary
        of the changes in the standardized measure of discounted future net cash
        flows
        applicable to proved oil and natural gas reserves is as follows (in
        thousands):





Years
                Ended June 30,2006
            
            
            2005Balance,
                beginning of period
            
            
            1,030
            
            
            
            -Sales
                of oil and gas, net
            
            
            (553
            )
            
            
            -Net
                change in prices and production costs
            
            
            (54
            )
            
            
            -Net
                change in future development costs
            
            
            (1,200
            )
            
            
            -Extensions
                and discoveries
            
            
            223
            
            
            
            1,030Previously
                estimated development costs incurred
            
            
            1,905
            
            
            
            -Accretion
                of discount
            
            
            103
            
            
            
            -Other
            
            
            (65
            )
            
            
            -Balance,
                end of period
            
            $
            1,389
            
            
            $
            1,030