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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2008
 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.
  Nevada
    
    16-1728419(State or other jurisdiction of incorporation
 or 
organization)
    
    (IRS Employer Identification No.)One Legacy Town Center, 7160 Dallas Parkway, Suite 380Plano, TX
    
    75024(Address of principal executive offices)
    
    (Zip Code)
 (Issuers telephone number)
 
 
 o þ
 þ o
 o
 o þ
      o þ




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TABLE OF CONTENTS
 Item
    
    
    
    PagePart 11 and 2
    
    Description of Business and Property
    
    
    33
    
    Legal Proceedings
    
    
    164
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Part II5
    
    Market for Common Equity and Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
    
    
    166
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    177
    
    Financial Statements
    
    
    238
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    238A(T)
    
    Controls and Procedures
    
    
    248B
    
    Other Information
    
    
    24Part III9
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act
    
    
    2410
    
    Executive Compensation
    
    
    2911
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    3112
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    3413
    
    Exhibits
    
    
    3414
    
    Principal Accountant Fees and Services
    
    
    37SIGNATURES
    
    
    39
  FORWARD-LOOKING STATEMENTS
  
    
    our future financial and operating performance and results;
    
    our business strategy;
    
    market prices;
    
    our future use of derivative financial instruments; and
    
    our plans and forecasts.EX-10.20EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
    2




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PART I
 
 ITEMS 1 and 2
 Our History
  Business Combinations
 Our Operations
  3




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
    
    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.
  Competitors
  Governmental Regulations
     4




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Environmental
       5




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Employees
  Our Properties
  Acom A-6 Prospect
  Crimson Bayou Prospect
  Barnett Shale Property
  Sherburne Prospect
  Ignis Barnett Shale Joint Venture
  6




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(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.
    7




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Liberty Hills Prospect
   Production
  Oil (bbl)
    
    Gas (mcf)
    
    Oil (bbl)
    
    Gas (mcf)Production by State
    
    2008
    
    2008
    
    2007
    
    2007Texas
    
    
    15,225
    
    
    
    50,269
    
    
    
    14,846
    
    
    
    44,248
  Productive Wells
  Productive Wells
    
    Oil
    
    GasState
    
    Gross
    
    Net
    
    Gross
    
    NetTexas
    
    
    1
    
    
    
    .25
    
    
    
    1
    
    
    
    .13
 Drilling Activity
  Reserves
  Acreage
 8




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Developed
    
    UndevelopedState
    
    Gross
    
    Net
    
    Gross
    
    NetTexas
    
    
    500
    
    
    
    120
    
    
    
    
    
    
    
    Louisiana
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    500
    
    
    
    120
    
    
    
    
    
    
    
    
 9




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Office Lease
   Risk Factors
 Risks Relating to Our Current Financing Arrangement :
 Unless We Are Successful in Restructuring Our Secured Debt, We May Be Forced to Seek Protection
From the Bankruptcy Court and Lose Our Only Producing Oil and Gas Well to Foreclosure.
  The Continuously Adjustable Conversion Price Feature of Our Secured Convertible Debentures
Could Require Us to Issue a Substantially Greater Number of Shares, Which Will Cause Dilution to
Our Existing Stockholders.
  The Continuously Adjustable Conversion Price Feature of Our Secured Convertible Debentures May
Encourage Investors to Make Short Sales in Our Common Stock, Which Could Have a Depressive Effect
on the Price of Our Common Stock.
  The Issuance of Shares Upon Conversion of the Secured Convertible Debentures and Exercise of
Outstanding Warrants May Cause Immediate and Substantial Dilution to Our Existing Stockholders.
  Our Outstanding Secured Convertible Debentures are Due in January 2009, and Our Failure to Repay
the Convertible Debentures, Could Result in Legal Action Against us, Which Could Require the Sale
or Foreclosure of Substantial Assets Including our Only Producing Oil and Gas Well.
  10




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If an Event of Default Occurs under the Second Amended and Restated Securities Purchase Agreement,
Secured Convertible Debentures or Security Agreements, the Investor Could Take Possession of all
Our Goods, Inventory, Contractual Rights and General Intangibles, Receivables, Documents,
Instruments, Chattel Paper, and Intellectual Property.
  Risks Relating to Our Business :
 We Have a History Of Losses Which May Continue, Which May Negatively Impact Our Ability to Achieve
Our Business Objectives.
  Our Independent Auditors Have Expressed Substantial Doubt About Our Ability to Continue As a Going
Concern, Which May Hinder Our Ability to Obtain Future Financing.
  We Have a Limited Operating History and if We are not Successful in Continuing to Grow Our
Business, Then We may have to Scale Back or Even Cease Our Ongoing Business Operations.
  Because We Are Small and Do Not Have Much Capital, We May Have to Limit our Exploration and
Development Activity Which May Result in a Loss of Your Investment.
  If We Are Unable to Successfully Recruit Qualified Managerial and Field Personnel Having Experience
in Oil and
 11




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Gas Exploration, We May Not Be Able to Continue Our Operations.
  We Are Currently Dependent on Other Oil and Gas Operators for Operations on Our Prospects.
  The Potential Profitability of Oil and Gas Ventures Depends Upon Factors Beyond Our Control.
   The Oil And Gas Industry Is Highly Competitive And There Is No Assurance That We Will Be Successful
In Acquiring Leases.
  The Marketability of Natural Resources Will be Affected by Numerous Factors Beyond Our Control
Which May Result in Us not Receiving an Adequate Return on Invested Capital to be Profitable or
Viable.
  Oil and Gas Operations are Subject to Comprehensive Regulation Which May Cause Substantial Delays
or Require Capital Outlays in Excess of Those Anticipated Causing an Adverse Effect on Our Company.
 12




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Exploration and Production Activities are Subject to Environmental Regulations Which May Prevent or
Delay the Commencement or Continuance of Our Operations.
  Exploratory Drilling Involves Many Risks and We May Become Liable for Pollution or Other
Liabilities Which May Have an Adverse Effect on Our Financial Position.
  Any Change to Government Regulation/Administrative Practices May Have a Negative Impact on Our
Ability to Operate and Our Profitability.
   Risk relating to our financial statements for material weakness in controls
   13




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Risks Relating to Our Common Stock :
 There Are a Large Number of Shares Underlying Our Outstanding Convertible Securities and Warrants
That May be Available for Future Sale and the Sale of These Shares May Depress the Market Price of
Our Common Stock.
  If We Fail to Remain Current in Our Reporting Requirements, We Could be Removed From the OTC
Bulletin Board Which Would Limit the Ability of Broker-Dealers to Sell Our Securities and the
Ability of Stockholders to Sell Their Securities in the Secondary Market.
  Our Common Stock is Subject to the Penny Stock Rules of the SEC and the Trading Market in Our
Securities is Limited, Which Makes Transactions in Our Stock Cumbersome and May Reduce the Value of
an Investment in Our Stock.
  
    
    that a broker or dealer approve a persons account for transactions in penny
stocks; and
    
    the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.
  
    
    obtain financial information and investment experience objectives of the
person; and
    
    make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny
stocks.
  
    
    sets forth the basis on which the broker or dealer made the suitability
determination; and
    
    that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
  14




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Glossary Of Selected Oil and Natural Gas Terms
                15




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ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES
   Fiscal Year 2008
    
    Fiscal Year 2007High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    0.11
    
    
    $
    0.025
    
    
    $
    0.34
    
    
    $
    0.23Second Quarter
    
    $
    0.07
    
    
    $
    0.015
    
    
    $
    0.15
    
    
    $
    0.12Third Quarter
    
    $
    0.02
    
    
    $
    0.003
    
    
    $
    0.18
    
    
    $
    0.17Fourth Quarter
    
    $
    0.023
    
    
    $
    0.0025
    
    
    $
    0.10
    
    
    $
    0.09
   16




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ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 The following discussion should be read in conjunction with our Financial Statements, and
respective notes thereto, included elsewhere herein. The information below should not be construed
to imply that the results discussed herein will necessarily continue into the future or that any
conclusion reached herein will necessarily be indicative of actual operating results in the
future. 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.
 
    
    Management of portfolio risk; and
    
    Direction of critical reservoir management and production operations activities.
    17




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Twelve Months Ended6/30/2008
    
    6/30/2007Oil and Natural Gas Sales
    
    $
    2,006,319
    
    
    $
    1,267,948SalesCondensate (Mbbls)
    
    
    15.2
    
    
    
    14.8Natural Gas (MMcf)
    
    
    50.3
    
    
    
    44.2Total (MBOE)
    
    
    23.6
    
    
    
    22.2Average priceCondensate ($/Bbl)
    
    $
    98.34
    
    
    $
    63.08Natural Gas ($/Mcf)
    
    $
    10.01
    
    
    $
    7.49
         18




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
    
    $400,000 fee payable to Yorkville Advisors LLC, the general partner of Cornell Capital;
 19




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
    
    $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
          20




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21




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Critical Accounting Policies and Estimates
  Successful Efforts Method of Accounting
    Reserve Estimates
 
 22




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Commitments and Contingencies
   Reporting Requirements
  Off-Balance Sheet Arrangements.
  
 ITEM 7.
    
    FINANCIAL STATEMENTS
  
 ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  23




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Item 8A(T).
    
    CONTROLS AND PROCEDURES
       
 ITEM 8B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 DIRECTORS AND EXECUTIVE OFFICERS
 24




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Names:
    
    Ages
    
    Titles:
    
    Board of DirectorsMichael P. Piazza (1)
    
    
    50
    
    
    Chief Executive Officer, President and Treasurer
    
    DirectorGeoffrey Evett
    
    
    68
    
    
    Interim President, Chief Executive Officer and Treasurer
    
    DirectorShawn L. Clift (2)
    
    
    51
    
    
    Chief Financial Officer and SecretaryGeoffrey Long
    
    
    45
    
    
    Chief Financial OfficerJames Dorman
    
    
    74
    
    
    
    
    DirectorRoger Leopard
    
    
    65
    
    
    Secretary
    
    Director
 
 (1)
    
    Resigned from the Company on December 19, 2007.(2)
    
    Resigned from the Company on December 10, 2007, but stayed until replaced on December 19,
2007.  Michael P. Piazza
 Shawn L. Clift
 Geoffrey Evett
 Geoffrey Long Accountant and Data Processing Manager for Accounts Clerk
and Insolvency Assistant with
 25




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Roger Leopard
 James H. Dorman
  Joseph Gittelman
  Frederick Stein
 26




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Alexander A. Kulpecz
  Eric Hanlon
     27




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28




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ITEM 10.
    
    EXECUTIVE COMPENSATION
  SUMMARY COMPENSATION TABLE
 Name and Principal
    
    
    
    
    
    Salary and Bonuses
    
    Stock AwardsPosition
    
    Fiscal Year
    
    ($)
    
    ($)
    
    TOTAL($)Geoffrey Evett, President,
    
    
    2008
    
    
    
    176,000
    
    
    
    0
    
    
    
    176,000Chief Executive Officer
    
    
    2007
    
    
    
    0
    
    
    
    0
    
    
    
    0and Treasurer (1)Michael P. Piazza,
    
    
    2008
    
    
    
    180,000
    
    
    
    20,000
    
    
    
    200,000President , Chief
    
    
    2007
    
    
    
    172,500
    
    
    
    0
    
    
    
    172,500Executive Officer and
Treasurer (2)Geoff Long, Chief
    
    
    2008
    
    
    
    0
    
    
    
    0
    
    
    
    0Financial Officer (3)
    
    
    2007
    
    
    
    0
    
    
    
    0
    
    
    
    0Shawn Clift, Chief
    
    
    2008
    
    
    
    150,000
    
    
    
    17,200
    
    
    
    167,200Financial Officer and
    
    
    2007
    
    
    
    92,700
    
    
    
    25,500
    
    
    
    118,200Secretary (4)
 
 (1)
    
    The Company appointed Mr. Evett Interim President and Chief Executive Officer on
December 19, 2007 following the resignation of Mr. Piazza. We have entered into an agreement with
Mr. Evett in which we agreed to pay him $12,000 per month as Interim President and Chief Executive
Officer. This monthly payment is in addition to his $3,000 per month remuneration as a Director of
the Company. During the year, we also engaged Metlera Capital, S.L, a consulting firm owned by or
affiliated with Mr. Evett. Included in the salary and bonuses amount for Mr. Evett are payments to
Metlera Capital of $120,000. In addition, we also paid Mr. Evett $27,000 in compensation as a
Director of the Company. See Directors Compensation below.(2)
    
    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 $180,000 on
October 11, 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;
    
    500,000 shares vested and were issued after twelve (12) months of service;
    
    500,000 shares vested and were issued after eighteen (18) months of service;
    
    500,000 shares vested and were issued after twenty four (24) months of service; and
    
    500,000 shares will vest every six (6) months thereafter until the forty-eighth (48th)
month of service.
  
 (3)
    
    The Company appointed Geoffrey Long Chief Financial Officer on December 19, 2007, replacing Ms.
Clift. Mr. Long is not under an employment agreement with the Company and any compensation paid to
Mr. Long is based on time and expense incurred in service to the Company. 29




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(4)
    
    We entered into an employment agreement with Shawn L. Clift on November 20, 2006, to serve as
our Chief Financial Officer through November 20, 2009, unless earlier terminated by either
party. Under the agreement, Ms. Clift is to receive an annual base salary of $150,000, subject to
adjustments based upon our and Ms. Clifts annual performance. In addition, Ms. Clift is to
receive 170,000 shares of our common stock, granted in equal six-month increments over three years
beginning May 21, 2007. We may also grant to Ms. Clift up to 260,000 shares of our common stock
each year over the next three years as an annual bonus, subject to adjustments based upon our and
Ms. Clifts individual performance and the approval of the compensation committee of our board of
directors.     Director Compensation
  Fees Earned or Paid in Cash
    
    TotalName
    
    ($)
    
    ($)Geoff Evett (1)
    
    27,000
    
    27,000Roger Leopard (1)
    
    18,000
    
    18,000James H. Dorman (2)
    
    12,000
    
    12,000
 
 (1)
    
    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, 2008, 105,000 of the 180,000 shares of our common stock have vested and been
delivered to each of Mr. Evett and Mr. Leopard. The remaining 75,000 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, 2007 and 25,000
shares each six months thereafter.On December 19, 2007 our Board of Directors appointed Mr. Evett Interim CEO and
President. In conjunction with this appointment, we increased the monthly fee paid to
Mr. Evett to $3,000. At this time, the monthly board fee paid to Mr. Leopard was also
increased to $3,000 per month.(2)
    
    We entered into an agreement with James Dorman in which we agreed to pay him $3,000 per
month as a Director of the Company. He does not receive shares of stock at this time.  30




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ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Plan Category
    
    Column (a)
    
    Column (b)
    
    Column (c)Number of securitiesremaining availablefor futureNumber of Securities to be
    
    
    
    
    
    issuance under equityissued upon exercise of
    
    
    
    
    
    compensation plansoutstanding options,
    
    Weighted-average exercise
    
    (excludingwarrants
    
    price of outstanding options,
    
    securities reflected inand rights
    
    warrants and rights
    
    Column (a)Equity compensation
plans approved by
stockholders (1)
    
    
    0
    
    
    
    N/A
    
    
    
    5,000,000Equity compensation
plans not approved
by stockholders (2)
    
    
    0
    
    
    
    N/A
    
    
    
    4,393,125TOTAL
    
    
    0
    
    
    
    N/A
    
    
    
    9,393,125
 
 (1)
    
    See description of 2006 Incentive Stock Plan below.(2)
    
    Includes individual compensation agreements pursuant to which we may issue up to: (i) 3,630,000
shares of our common stock to our officers, (ii) 150,000 shares of our common stock to our
directors, and (iii) 613,125 shares of our common stock to our advisors. Compensation agreements
with our officers and directors are described in Item 10 above. Compensation agreements with our
advisors are described below. 2006 Incentive Stock Plan
  Agreements with Advisors
   31




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MaximumNumber
    
    Total SharesName of Advisor
    
    of Shares
    
    Issued **
    
    Vesting ScheduleAlexander Kulpecz
    
    
    475,000
    
    
    
    296,875
    
    
    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
    
    
    
    212,500
    
    
    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
    
    
    
    240,625
    
    
    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
    
    690,000
    *
    
    
    660,000
    
    
    90,000 shares vested on April 30, 2006; and
30,000 shares vest each month until December 1, 2007 and
continuing thereafter until terminated by either party.TOTAL
    
    
    1,715,000
    
    
    
    1,410,000
 
 *
    
    Pursuant to a consulting agreement dated September 18, 2007, Mr. Hanlon earns shares of our
common stock as compensation for services at a rate of 30,000 shares of our common stock per month
until December 1, 2007 and continuing thereafter until terminated by either party. The 690,000
shares shown above includes shares earned or earnable by Mr. Hanlon under this agreement through
December 1, 2007 and under his prior agreement with the Company.**
    
    On or about December 1, 2007, the members of the advisory board resigned or otherwise ceased
providing services as advisors. No additional common shares will be issued under the advisory
agreements.   
    
    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.
  32




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Name and Address of Owner
    
    Title of Class
    
    Number of Shares Owned (1)
    
    Percent of Class (2)Michael P. Piazza
7160 Dallas Parkway, Suite 380
Plano, Texas 75024
    
    Common Stock
    
    
    2,500,000
    (3)
    
    
    2.0
    %Shawn Clift
7160 Dallas Parkway, Suite 380
Plano, Texas 75024
    
    Common Stock
    
    
    600,000
    (4)
    
    
    *Geoffrey Evett
7160 Dallas Parkway, Suite 380
Plano, Texas 75024
    
    Common Stock
    
    
    105,000
    (5)
    
    
    *Roger A. Leopard
7160 Dallas Parkway, Suite 380
Plano, Texas 75024
    
    Common Stock
    
    
    105,000
    (5)
    
    
    *All Officers and Directors as
a Group (4 persons)
    
    Common Stock
    
    
    3,310,000
    
    
    
    2.7
    %
 
 *
    
    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 September 23, 2008 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 123,562,294 shares issued and outstanding on
September 23, 2008.(3)
    
    Includes all shares issued to Mr. Piazza, under the terms of his employment agreement, who
resigned from the Company on December 19, 2007.(4)
    
    Includes all shares issued to Ms. Clift, under the terms of her employment agreement, who
resigned from the Company on December 19, 2007.(5)
    
    Includes 25,000 shares vested on January 20, 2008, but not issued until July 17, 2008.(6)
    
    Voting authority for the shares of common stock owned is vested in the entitys board of
directors. 33




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##### Table of Contents



(7)
    
    Includes 3,213,333 shares of common stock issued upon exercise of warrants held by Petrofinanz GmbH. 
 ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
      Transactions involving Directors
   Director Independence
  
 ITEM 13.
    
    EXHIBITS
 (a)
    
    EXHIBITS
  34




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##### Table of Contents



Exhibit No.
    
    Description3.1
    
    Articles of Incorporation and first amendment thereto, 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 and amendment thereto, 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
 35




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##### Table of Contents



Exhibit No.
    
    DescriptionMay 1, 2006 and incorporated herein by reference.4.13
    
    Warrant to purchase 3,311,828 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 2,913,580 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 Stonegate Securities, Inc., 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.4.17
    
    Forbearance Agreement between Ignis Petroleum Group, Inc. and YA
Global Investments dated July 17, 2008, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on July 23, 2008 and incorporated herein by reference.10.1
    
    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
20, 2006 and incorporated herein by reference.10.2
    
    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.10.3
    
    Side Letter to First Amendment of Farmout Agreement dated March 14,
2006, by and among 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
    
    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.10.5
    
    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.10.6
    
    Letter Agreement, dated August 8, 2005, by and between Ignis
Petroleum Corporation 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.10.7
    
    Letter Agreement, dated August 17, 2005, by and between Ignis
Petroleum Corporation 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.10.8
    
    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.
 36




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##### Table of Contents



Exhibit No.
    
    Description10.9
    
    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.10.10
    
    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.10.11
    
    Consulting Agreement, dated September 18, 2007, by and between Ignis
Petroleum Group, Inc. and Lifestyles Integration, Inc. pursuant to which
Ignis receives services from Eric Hanlon, filed as an exhibit to the annual
report on Form 10-KSB filed with the Securities and Exchange Commission on October 16, 2007
and incorporated herein by reference.10.12
    
    Second Amended and Restated Loan Agreement, dated March 6, 2007, 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 April 20, 2007 and
incorporated herein by reference.10.13
    
    Form of Indemnification Agreement, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on September 7, 2006 and incorporated herein by
reference.10.14
    
    Purchase and Sale Agreement dated September 27, 2006, by and among
W.B. Osborn Oil & Gas Operations., Ltd., St. Jo Pipeline, Limited
and Ignis Barnett Shale, LLC, filed as an exhibit to the current
report on Form 8-K filed with the Securities and Exchange
Commission on October 3, 2006 and incorporated herein by reference.10.15
    
    Amended and Restated Limited Liability Company Agreement of Ignis
Barnett Shale, LLC dated November 15, 2006, filed as an exhibit to
the current report on Form 8-K filed with the Securities and
Exchange Commission on November 21, 2006 and incorporated herein by
reference.10.16
    
    Employment agreement, dated December 20, 2006, by and between Ignis
Petroleum Group, Inc., Ignis Petroleum Corporation and Shawn L.
Clift, filed as an exhibit to the current report on Form 8-K filed
with the Securities and Exchange Commission on January 29, 2007 and
incorporated herein by reference.10.17
    
    Form of Retention Bonus Agreements with Michael Piazza, Shawn Clift
and Patty Dickerson, filed as an exhibit to the current report on
Form 8-K filed with the Securities and Exchange Commission on July
12, 2007 and incorporated herein by reference.10.18
    
    Form of Retention Bonus Agreement by and between Lifestyles
Integration, Inc. and Ignis Petroleum Group, Inc. for consulting
services of Eric Hanlon dated July 26, 2007, filed as an exhibit to
the current report on Form 8-K with the Securities and Exchange
Commission on July 26, 2007 and incorporated herein by reference.10.19
    
    Purchase and Sale Agreement dated September 6, 2007, by and between
Ignis Louisiana Salt Basin, LLC and Anadarko Petroleum Corporation,
filed as an exhibit to the current report on Form 8-K filed with
the Securities and Exchange Commission on September 10, 2007 and
incorporated herein by reference.*10.20
    
    Consulting Agreement dated June 11, 2008 by and between Lifestyles
Integration, Inc and Ignis Petroleum Group, Inc. pursuant to which
Ignis receives services from Eric Hanlon.*21.1
    
    List of subsidiaries.*23.1
    
    Consent of Hass Petroleum Engineering Services, Inc.*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
 37




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38




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##### Table of Contents



October 13, 2008
    Ignis Petroleum Group, Inc.By:
    /s/ Geoffrey EvettGeoffrey Evett,Interim President and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Geoffrey Evett

Geoffrey Evett
    
    Interim President, Chief
Executive Officer, Treasurer and
Director
    
    October 13, 2008/s/ Geoffrey Long
    
    Chief Financial Officer
    
    October 13, 2008Geoffrey LongDirectorJames Dorman/s/ Roger Leopard
    
    Secretary and Director
    
    October 13, 2008Roger Leopard
 39




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-1




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##### Table of Contents



For the YearsEnded June 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    267,275
    
    
    $
    315,935Accounts receivable
    
    
    259,415
    
    
    
    222,311Prepaid expenses and other current assets
    
    
    65,685
    
    
    
    68,701Total current assets
    
    
    592,375
    
    
    
    606,947Property and equipment:Oil and gas properties, net (successful efforts method)
    
    
    45,444
    
    
    
    315,928Other assets
    
    
    300,086
    
    
    
    652,908Total assets
    
    $
    937,905
    
    
    $
    1,575,783LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued expenses
    
    $
    344,420
    
    
    $
    260,501Accrued interest
    
    
    997,014
    
    
    
    1,557,673Current portion of long-term debt
    
    
    5,630,900
    
    
    
    5,890,000Current portion of debt discount
    
    
    (4,537,527
    )
    
    
    (4,889,454
    )Current portion of derivative liability
    
    
    311,943
    
    
    
    366,568Current portion of contingent liability
    
    
    1,600,000
    
    
    
    Current portion of warrant liability
    
    
    
    
    
    
    627,387Total current liabilities
    
    
    4,346,750
    
    
    
    3,812,675Long-term liabilities:Asset retirement obligation
    
    
    25,662
    
    
    
    48,598Total long-term liabilities
    
    
    25,662
    
    
    
    48,598Stockholders deficit:Preferred stock, $0.001 par value, 5,000,000 shares authorized none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 300,000,000 shares authorized 97,754,394 and 53,255,338
issued and outstanding, net of 18,250,000 shares held in escrow as of June 30, 2008 and
2007, respectively
    
    
    97,754
    
    
    
    53,254Additional paid-in capital
    
    
    12,771,185
    
    
    
    8,346,425Accumulated deficit
    
    
    (16,303,446
    )
    
    
    (10,685,169
    )Total stockholders deficit
    
    
    (3,434,507
    )
    
    
    (2,285,490
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    937,905
    
    
    $
    1,575,783
  F-2




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##### Table of Contents



For the YearsEnded June 30,2008
    
    
    2007Oil and gas product sales
    
    $
    2,006,319
    
    
    $
    1,267,948Management fees
    
    
    90,000
    
    
    
    142,500Total revenue
    
    
    2,096,319
    
    
    
    1,410,448Operating expenses:Lease operating expense
    
    
    209,769
    
    
    
    30,771Production an ad valorem taxes
    
    
    107,213
    
    
    
    89,041Depreciation, depletion and amortization
    
    
    297,716
    
    
    
    835,879Accretion of asset retirement obligation
    
    
    3,435
    
    
    
    16,585Exploration expenses, including dry holes
    
    
    
    
    
    
    825,737General and administrative expenses
    
    
    2,028,791
    
    
    
    2,583,463Total operating expenses
    
    
    2,646,924
    
    
    
    4,381,475Loss from operations
    
    
    (550,605
    )
    
    
    (2,971,028
    )Other income (expense)Gain from valuation of derivative liability
    
    
    54,625
    
    
    
    5,127,252Interest expense
    
    
    (894,679
    )
    
    
    (1,812,073
    )Interest income
    
    
    1,119
    
    
    
    Gain on sales of other assets
    
    
    1,464
    
    
    
    Gain on sales of oil and gas property
    
    
    86,371
    
    
    
    (751,100
    )
    
    
    3,315,179Net income/(loss)
    
    $
    (1,301,705
    )
    
    $
    344,151Basic income (loss) per common share
    
    $
    (0.02
    )
    
    $
    0.01Weighted average number of common shares outstanding
    
    
    56,707,350
    
    
    
    50,809,288Diluted income (loss) per common share
    
    $
    (0.02
    )
    
    $
    Diluted weighted average number of common shares outstanding
    
    
    56,707,350
    
    
    
    58,838,192
  F-3




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##### Table of Contents



AdditionalCommon Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Par value
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance June 30, 2006
    
    
    50,020,464
    
    
    $
    50,020
    
    
    $
    7,742,498
    
    
    $
    (11,029,320
    )
    
    $
    (3,236,800
    )Issuance of common stock for services
    
    
    2,290,937
    
    
    
    2,291
    
    
    
    475,523
    
    
    
    
    
    
    
    477,814Conversion of convertible notes
    
    
    942,937
    
    
    
    943
    
    
    
    109,057
    
    
    
    
    
    
    
    110,001Loss on conversion of debt into common stock
    
    
    
    
    
    
    
    
    
    
    2,234
    
    
    
    
    
    
    
    2,234Employee restricted stock plan exposure
    
    
    
    
    
    
    
    
    
    
    17,112
    
    
    
    
    
    
    
    17,112Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344,151
    
    
    
    344,151Balance June 30, 2007
    
    
    53,254,338
    
    
    $
    53,254
    
    
    $
    8,346,425
    
    
    $
    (10,685,169
    )
    
    $
    (2,285,490
    )Issuance of common stock for services
    
    
    378,125
    
    
    $
    378
    
    
    $
    30,434
    
    
    $
    
    
    
    $
    30,812Issuance of common stock to officers
    
    
    930,000
    
    
    
    930
    
    
    
    41,801
    
    
    
    
    
    
    
    42,731Conversion of convertible notes
    
    
    43,191,931
    
    
    
    43,192
    
    
    
    8,566
    
    
    
    
    
    
    
    51,758Effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    4,343,959
    
    
    
    (4,316,572
    )
    
    
    27,387Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,301,705
    )
    
    
    (1,301,705
    )Balance June 30, 2008
    
    
    97,754,394
    
    
    $
    97,754
    
    
    $
    12,771,185
    
    
    $
    (16,303,446
    )
    
    $
    (3,434,507
    )
  F-4




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##### Table of Contents



For the YearsEnded June 30,2008
    
    
    2007Cash flow from operating activitiesNet income/(loss)
    
    $
    (1,301,705
    )
    
    $
    344,151Adjustments to reconcile net income(loss) to net cash used in operating activitiesDepreciation and depletion
    
    
    297,716
    
    
    
    835,879Amortization of debt cost
    
    
    322,860
    
    
    
    312,617Amortization of debt discount
    
    
    144,585
    
    
    
    544Loss from valuation adjustment of oil and gas properties
    
    
    
    
    
    
    825,517Loss from contingent liability
    
    
    1,000,000
    
    
    
    Stock issued for compensation and services
    
    
    73,542
    
    
    
    617,890Gain from sale of oil and gas properties
    
    
    (86,371
    )
    
    
    Accretion of asset retirement obligation expense
    
    
    3,435
    
    
    
    16,585(Gain) Loss of derivative financial instrument
    
    
    (54,625
    )
    
    
    (5,127,252
    )Change in current assets and liabilities:Accounts receivable
    
    
    (37,104
    )
    
    
    (149,047
    )Prepaid expenses and other current assets
    
    
    5,747
    
    
    
    164,693Accounts payable and accrued expenses
    
    
    (476,740
    )
    
    
    725,413Cash used in operating activities
    
    
    (108,660
    )
    
    
    (1,433,010
    )Cash flow from investing activitiesPurchase of oil and gas properties
    
    
    
    
    
    
    (23,626
    )Sale of oil and natural gas property
    
    
    60,000Cash provided by (used in) investing activities
    
    
    60,000
    
    
    
    (23,626
    )Cash flow from financing activitiesProceeds from note payable
    
    
    
    
    
    
    900,000Cash provided by financing activities
    
    
    
    
    
    
    900,000Net decrease in cash
    
    
    (48,660
    )
    
    
    (556,637
    )Cash at beginning of period
    
    
    315,935
    
    
    
    872,572Cash at end of period
    
    $
    267,275
    
    
    $
    315,935Supplemental non-cash financing transactions:Warrant liability reversal
    
    $
    600,000
    
    
    
    Conversion of debenture into equity
    
    $
    259,100
    
    
    $
    110,000
  F-5




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##### Table of Contents



Note 1
Summary of Significant Accounting Policies
 Basis of Presentation
  Principles of Consolidation
  Use of Estimates
     Income Taxes
 Accounting for Income Taxes
 Cash and Cash Equivalents
  Concentration of Credit Risk
  F-6




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##### Table of Contents



Accounts Receivable
  Revenue Recognition and Concentration of Credit Risks
  Property and Equipment  Oil and Gas Properties
     Impairment of Developed Oil and Natural Gas Properties
  Asset Retirement Obligation
  F-7




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##### Table of Contents



Accounting for Asset Retirement Obligations,
 2008
    
    2007Asset retirement obligation at June 30,
    
    
    48,598
    
    
    
    Liabilities incurredLiabilities assumed
    
    
    
    
    
    
    32,013Liabilities settled due to property sale
    
    
    (26,371
    )Accretion expense
    
    
    3,435
    
    
    
    16,585Asset retirement obligation at June 30,
    
    
    25,662
    
    
    
    48,598
 Environmental Costs
  Advertising
  Basic and Diluted Net Loss per Share
 Earnings per Share.
   Stock-based Compensation
 Share Based Payments
  F-8




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##### Table of Contents



New Pronouncements
  Note 2
   (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
 F-9




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##### Table of Contents



(ix)
    
    50% to the Silver Point affiliates pro rata and 50% to us.
    Note 3
      F-10




---



##### Table of Contents



Note 4
  Oil and gas properties:
    
    2008
    
    
    2007Proved
    
    $
    1,608,710
    
    
    $
    1,608,710Unproved
    
    
    
    
    
    
    1,608,710
    
    
    
    1,608,710Less accumulated depletion and depreciation
    
    
    (1,563,266
    )
    
    
    (1,292,782
    )$
    45,444
    
    
    $
    315,928
 Note 5
   Net operating tax loss
    
    $
    11,900,000Effective tax rate
    
    
    34
    %Deferred tax asset
    
    $
    4,046,000Valuation allowance
    
    $
    (4,046,000
    )Net deferred tax asset
    
    $
    
 Note 6
      
    
    $400,000 fee payable to Yorkville Advisors LLC, the general partner of Cornell Capital;
 F-11




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##### Table of Contents




    
    $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
          F-12




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##### Table of Contents



Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
  Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys
Own Stock
 F-13




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##### Table of Contents



Application of Issue No. 98-5 to Certain Convertible Instruments
     Convertible debentures payable
    
    $
    4,630,900Less: unamortized discount on debentures
    
    
    (4,537,527
    )Convertible debentures, net
    
    $
    93,393
 F-14




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##### Table of Contents



Note 7
  Note 8
 Issuances of common stock to officers:
 
    
    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;
    
    500,000 shares vested and were issued after twelve (12) months of service;
    
    500,000 shares vested and were issued after eighteen (18) months of service;
    
    500,000 shares vested and were issued after twenty four (24) months of service; and
    
    500,000 shares will vest every six (6) months thereafter until the forty-eighth (48th)
month of service.
    Issuance of common stock for services:
 F-15




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##### Table of Contents



Conversion of convertible notes:
 Note 9
   Note 10
  Note 11
  Oil and gas properties:
    
    2008
    
    2007Proved
    
    
    1,608,710
    
    
    
    1,608,710Unproved
    
    
    
    
    
    
    Total capitalized costs
    
    
    1,608,710
    
    
    
    1,608,710Less accumulated depletion & depreciation
    
    
    (1,563,266
    )
    
    
    (1,292,782
    )Net capitalized costs
    
    $
    45,444
    
    
    $
    315,928
 F-16




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##### Table of Contents



Oil and gas properties:
    
    2008
    
    
    2007Acquisition of proved properties
    
    $
    
    
    
    $
    Acquisition of unproved properties
    
    
    
    
    
    
    23,626Development cost
    
    
    
    
    
    
    
  Twelve Months Ended June 30,2008
    
    
    2007Results of oil and gas producing operations
    
    $
    1,388,184
    
    
    $
    (530,065
    )Management Fees
    
    
    90,000
    
    
    
    142,500General & administrative expense
    
    
    (2,028,791
    )
    
    
    (2,583,463
    )Gain/(loss) from valuation of derivative
liability
    
    
    54,625
    
    
    
    5,127,252Interest expense
    
    
    (894,679
    )
    
    
    (1,812,073
    )Interest income
    
    
    1,119
    
    
    
    Gain on sale of other assets
    
    
    1,465
    
    
    
    Gain on sale of oil and gas property
    
    
    86,371
    
    
    
    Net income/ (loss)
    
    $
    (1,301,705
    )
    
    $
    344,151
    Crude Oil
    
    
    Natural Gas(Bbls)
    
    
    (Mcf)PROVED-DEVELOPED AND UNDEVELOPED RESERVES:June 30, 2006
    
    
    15,724
    
    
    
    82,627Revisions of previous estimates
    
    
    16,232
    
    
    
    (9,809
    )Production
    
    
    (14,846
    )
    
    
    (44,248
    )June 30, 2007
    
    
    17,110
    
    
    
    28,570
 F-17




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##### Table of Contents



Crude Oil
    
    
    Natural Gas(Bbls)
    
    
    (Mcf)Revisions of previous estimates
    
    
    4,367
    
    
    
    44,526Sale of reserves
    
    
    (42
    )
    
    
    (1,837
    )Production
    
    
    (15,225
    )
    
    
    (50,269
    )June 30, 2008
    
    
    6,210
    
    
    
    20,990PROVED DEVELOPED RESERVESJune 30, 2007
    
    
    17,110
    
    
    
    28,570June 30, 2008
    
    
    6,210
    
    
    
    20,990
     As of June 30,2008
    
    
    2007Future cash inflows
    
    $
    1,219
    
    
    $
    1,370Future production costs
    
    
    (330
    )
    
    
    (209
    )Future development costs
    
    
    
    
    
    
    (25
    )Future income tax expense
    
    
    
    
    
    
    Future net cash flows
    
    
    889
    
    
    
    1,13610% annual discount for estimated timing of cash flows
    
    
    (33
    )
    
    
    (215
    )Standardized measure of discounted future net cash flows related to proved reserves
    
    $
    856
    
    
    $
    921
  Years Ended June 30,2008
    
    2007Balance, beginning of period
    
    
    921
    
    
    
    1,389Sales of oil and gas, net
    
    
    (1,689
    )
    
    
    (1,244
    )Net change in prices and production costs
    
    
    810
    
    
    
    9Net change in future development costs
    
    
    24
    
    
    
    (1
    )Extensions and discoveries
    
    
    
    
    
    
    Sale of reserves
    
    
    (18
    )
    
    
    Revisions of previous quantity estimates
    
    
    603
    
    
    
    628Previously estimated development costs incurred
    
    
    
    
    
    
    Accretion of discount
    
    
    92
    
    
    
    133Other
    
    
    113
    
    
    
    7Balance, end of period
    
    $
    856
    
    
    $
    921
 F-18