**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549


**FORM
      10-QSB**





(Mark
      One)


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





For
      the
      quarterly period ended September 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.**(Exact
                name of small business issuer as specified in its charter)





Nevada(State
                or other jurisdiction of incorporation or organization)




16-1728419(IRS
                Employer Identification No.)




100
                Crescent Court 7thFloor Dallas, Texas 75201(Address
                of principal executive offices)




214-459-8188(Issuer's
                telephone number)





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





Yes x No o





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





Yes o No x





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date. As of November 8, 2006, the registrant had
      issued and outstanding 50,288,589 shares of common stock.





Transitional
      Small Business Disclosure Format (check one);





Yes o No x







1





Page
                No.PART
                I - FINANCIAL INFORMATIONItem
                1. Financial StatementsCondensed
                Consolidated Balance Sheet at September 30, 2006
                (unaudited)
            3Condensed
                Consolidated Statement of Operations for the Three
                Months Ended September 30, 2006 and 2005 (unaudited)
            4Condensed
                Consolidated Statement of Cash Flows for the Three
                Months ended September 30, 2006 and 2005 (unaudited)
            5Selected
                Notes to the Condensed Consolidated Financial
                Statements (unaudited)
            6Item
                2. Management's Discussion and Analysis or Plan of
                Operation
            13Item
                3. Controls and Procedures
            21PART
                II - OTHER INFORMATIONItem
                2. Unregistered sale of equity securities and use of
                proceeds
            22Item
                6. Exhibits.
            22SIGNATURES
            23




2
 *Table
          of Contents*


Ignis
      Petroleum Group, Inc. and Subsidiary


Consolidated
      Balance Sheet


September
      30, 2006


(Unaudited)





ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            993,697Accounts
                receivable
            
            
            224,150Prepaid
                expenses and other current assets
            
            
            317,584Total
                current assets
            
            
            1,535,431Property
                and equipment:Oil
                and gas properties, successful efforts method
            
            
            1,895,587Other
                assets
            
            
            603,120Total
                assets
            
            $
            4,034,138LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            1,158,627Notes
                payable
            
            
            600,000Total
                current liabilities
            
            
            1,758,627Convertible
                notes
            
            
            2,622,377Derivative
                liability
            
            
            5,319,149Warrant
                liability
            
            
            3,694,29311,635,818Commitments
                and contingencies
            
            
            -Stockholders'
                equity (deficit):Preferred
                stock, $0.001 par value, 5,000,000 shares authorized none issued
                and
                outstanding
            
            
            -Common
                stock, $0.001 par value, 300,000,000 shares authorized 50,288,589
                issued
                and outstanding
            
            
            50,289Additional
                paid-in capital
            
            
            7,647,356Accumulated
                deficit
            
            
            (17,057,952
            )Total
                stockholders' equity (deficit)
            
            
            (9,360,307
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            4,034,138





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


3
 *Table
          of Contents*


IgnisPetroleum
      Group, Inc. and Subsidiary


Consolidated
      Statement of Operations


(Unsudited)





For
                the
            
            For
                theThree
                Months Ended
            
            Three
                Months EndedSeptember
                30, 2006
            
            September
                30, 2005Revenues
                from oil and gas product sales
            
            $
            471,214
            
            $
            -Operating
                expenses:Depreciation
                and depletion
            
            
            403,193
            
            
            -Exploration
                expenses, including dry holes
            
            
            199,302General
                and administrative expenses
            
            
            549,655
            
            
            1,050,858Total
                operating expenses
            
            
            1,152,149
            
            
            1,050,858Other
                income (expense)Loss
                from valuation of derivative liability
            
            
            (2,714,336
            )
            
            -Interest
                expense
            
            
            (883,255
            )
            
            (27,617
            )(3,597,591
            )
            
            (27,617
            )Net
                loss
            
            $
            (4,278,526
            )
            $
            (1,078,475
            )Basic
                and diluted loss per common share
            
            $
            (0.09
            )
            $
            (0.02
            )Weighted
                average number of common shares outstanding
            
            
            49,537,232
            
            
            43,373,125





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


4
 *Table
          of Contents*


Ignis
      Petroleum Group, Inc. and Subsidiary


Consolidated
      Statement of Cash Flows


(Unaudited)





For
                the
            
            For
                theThree
                Months Ended
            
            Three
                Months EndedSeptember
                30, 2006
            
            September
                30, 2005Cash
                flow from operating activitiesNet
                loss
            
            $
            (4,278,526
            )
            $
            (1,078,475
            )Adjustments
                to net loss not affecting cash:Depreciation
                and depletion
            
            
            403,193
            
            
            -Amortization
                of debt cost
            
            
            66,640
            
            
            -Loss
                from valuation adjustment of oil and gas properties
            
            
            199,082Stock
                issued for compensation and services
            
            
            93,481
            
            
            768,000Amortization
                of discount of debentures
            
            
            690,491
            
            
            -Loss
                from valuation of derivatives
            
            
            2,714,336
            
            
            -Increase
                / decrease in current assets and liabilitiesIncrease
                in accounts receivable
            
            
            (168,367
            )
            
            -(Increase)
                decrease in prepaid expenses and other current assets
            
            
            (129,084
            )
            
            19,000Increase
                (decrease) in accounts payable and accrued expenses
            
            
            169,230
            
            
            (1,069,719
            )Cash
                used in operating activities
            
            
            (239,525
            )
            
            (1,361,194
            )Cash
                flow from investing activitiesPurchase
                of oil and gas properties
            
            
            (139,350
            )
            
            (54,993
            )Cash
                used for investing activities
            
            
            (139,350
            )
            
            (54,993
            )Cash
                flow from financing activitiesIssuance
                of common stock and warrants
            
            
            -
            
            
            1,450,000Proceeds
                from note payable
            
            
            500,000
            
            
            -Advance
                from related party
            
            
            -
            
            
            8,131Cash
                provided by financing activities
            
            
            500,000
            
            
            1,458,131Net
                increase in cash
            
            
            121,124
            
            
            41,944Cash
                at beginning of period
            
            
            872,572
            
            
            145,064Cash
                at end of period
            
            $
            993,696
            
            $
            187,008Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            -Income
                taxes
            
            $
            -
            
            $
            -





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


5
 *Table
          of Contents*


IGNIS
      PETROLEUM GROUP, INC.
      AND
      SUBSIDIARY


SELECTED
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


September
      30, 2006




Note
      1


Basis
      of
      Presentation / Accounting Policies





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions of Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they
      do
      not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America for complete
      financial statements. The preparation requires management to make estimates
      and
      assumptions that affect the reported amounts of assets and liabilities and
      the
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amount of revenues and expenses during the reporting
      period. Actual results may differ from these estimates. In the opinion of
      management, all adjustments (consisting of normal recurring accruals) considered
      necessary for a fair presentation have been included. Operating results for
      the
      three month period ended September 30, 2006 are not necessarily indicative
      of
      the results that may be expected for the year ending June 30, 2007.





For
      further information, refer to the financial statements and footnotes thereto
      included in our annual report on Form 10-KSB for the year June 30, 2006 as
      filed
      with the Securities and Exchange Commission.




Note
      2


Nature
      of
      Operations




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


6
 *Table
          of Contents*


·
            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.
      We employ and leverage industry technology, engineering, and operating talent.
      We may, from time to time, participate in high-value or fast-payback plays
      for
      short-term strategic reasons. We outsource lower value activities so that we
      can
      focus our efforts on the earliest part of the value chain while leveraging
      outstanding talent and strategic partnerships to execute our strategy. We
      believe this approach will allow us to grow our business through rapid
      identification, evaluation and acquisition of high-value prospects, while
      enabling us to use specialized industry talent and keep overhead costs to a
      minimum. We believe this strategy will result in significant growth in our
      reserves, production and financial strength.





Our
      Properties





We
      own or
      have the right to acquire working interests in 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 decided not to pursue the prospect and have taken a total write
      down
      of the entire property. This resulted in an additional impairment charge of
      $199,082 for the three months ended September 30, 2006. The North Wright Field
      Prospect is currently unproved.





*Acom
      A-6 Property*





We
      have
      25% of the working interest, which is equal to an 18.75% net revenue interest,
      in the Acom A-6 Prospect, which is located in Chambers County, Texas. Anadarko
      Petroleum Corporation 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 remaining proved reserves of 8,701 Bbls of oil and 48,045
      Mcf
      of gas. We have realized a total of 10,299 Bbls of oil at an average price
      of
      $61.09 and 41,955 Mcf of gas at an average price of $7.47 through September
      30,
      2006.





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





*Crimson
      Bayou Prospect*





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


7
 *Table
          of Contents*


*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
      fourth 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 of oil and 13,085 Mcf of
      gas. Between April 6, 2006 and September 30, 2006 the Barnett Shale wells
      produced approximately 429 Bbls of oil and 3.1 Mcf of gas, net to
      us.





*Ignis
      Barnett Shale Joint Venture*





On
      September 27, 2006, through our wholly-owned subsidiary, Ignis Barnett Shale,
      LLC, we entered into a purchase and sale agreement with W.B. Osborn Oil &
Gas Operations., Ltd. and St. Jo Pipeline, Limited to acquire 45% of W.B. Osborn
      Oil & Gas Operations and St. Jo Pipeline’s interest 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. The
      purchase price of the acquisition is $17,600,000, subject to certain
      adjustments, plus $850,000 payable by us in thirty-six monthly installments
      of
      $23,611, beginning one month after closing. In addition, we agreed to fund
      additional lease acquisitions up to a total of $5,000,000 for a period of two
      years. We have paid a total deposit of $100,000 to provide for certain rights
      under the fully-executed Purchase and Sale Agreement including the right to
      extend the closing until November 15, 2006, the expected closing
      date.





*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 the fourth quarter of 2006. The Sherburne Prospect is currently
      unproved.





Note
      3


Property
      and equipment





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





Oil
                and gas properties:Proved
            
            $
            1,826,487Unproved
            
            
            935,5742,762,061Less
                depletion allowance
            
            
            866,474$
            1,895,587





8
 *Table
          of Contents*


Note
        4
 Income
        Taxes





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




Net
                Operating Tax Loss
            
            $
            17,057,000Effective
                Tax Rate
            
            
            34
            %Deferred
                tax asset
            
            $
            5,799,000Valuation
                allowance
            
            $
            (5,799,000
            )Net
                Deferred Tax Asset
            
            $
            -





Note
      5


Convertible
      Notes





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




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





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





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




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





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


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


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


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


·
            $65,000
                other professional fees paid at closing





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


9
 *Table
          of Contents*


The
      secured convertible debentures bear interest at 7%, mature three years from
      the
      date of issuance, and are convertible into our common stock, at the selling
      stockholder’s option, at the lower of (i) $0.93 or (ii) 94% of the lowest volume
      weighted average prices of our common stock, as quoted by Bloomberg, LP, during
      the 30 trading days immediately preceding the date of conversion. Accordingly,
      there is no limit on the number of shares into which the secured convertible
      debentures may be converted As of November 6, 2006, the lowest intraday trading
      price for our common stock during the preceding 30 trading days as quoted by
      Bloomberg, LP was $0.17 and, therefore, the conversion price for the secured
      convertible debentures was $0.1598. Based on this conversion price, the
      $5,000,000 in secured convertible debentures, excluding interest, were
      convertible into 31,289,112 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 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.


10
 *Table
          of Contents*


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
      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. The Company has accrued
      a liability of $100,000 at September 30, 2006 in connection with this
      provision.





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





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





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


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The
      $5,000,000 face amount of the secured convertible debentures outstanding as
      of
      September 30, 2006 was stripped of its conversion feature due to the accounting
      for the conversion feature as a derivative, which was recorded using the
      residual proceeds method, whereby any remaining proceeds after allocating the
      proceeds to the warrants and conversion option would be attributed to the debt.
      The beneficial conversion feature (an embedded derivative) included in these
      secured convertible debentures resulted in an initial debt discount of
      $1,305,661. At September 30, 2006, we revalued this derivative liability, For
      the three months ended September 30, 2006, after adjustment, we recorded a
      loss
      on valuation of derivative liability of $2,714,336. The associated warrants
      are
      exercisable for 12,000,000 shares of common stock at exercise prices between
      $0.93 and $0.81 per share. The warrants, which expire five years after issuance,
      were assigned a value of $3,694,293, estimated using the Black-Scholes valuation
      model. The following assumptions were used to determine the fair value of the
      warrants using the Black-Scholes valuation model: a term of five years,
      risk-free rate of 5.00%, volatility of 53%, and dividend yield of zero. In
      accordance with EITF No. 00-19, EITF No. 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      the
      values assigned to both the debenture, conversion feature and the warrants
      were
      allocated based on their fair values. The amount allocated as a discount on
      the
      secured convertible debentures for the value of the warrants and conversion
      option will be amortized to interest expense, using the effective interest
      method, over the term of the secured convertible debentures. The holders of
      the
      secured convertible debentures and warrants have registration rights that
      required us to file a registration statement with the Securities and Exchange
      Commission to register the resale of the common stock issuable upon conversion
      of the debenture or the exercise of the warrants. Under EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock* ,
      the
      ability to register stock was deemed to be outside of our control. Accordingly,
      the initial aggregate fair value of the derivatives (embedded and free-standing)
      of $1,305,661 was recorded as a derivative liability in the consolidated balance
      sheet, and is marked to market at the end of each reporting period. At September
      30, 2006, this derivative liability was $5,319,149. During the three months
      ended September 30, 2006, the recording of this derivative liability associated
      with this debt financing resulted in a non-cash loss of $2,714,336 which was
      reflected in the consolidated statement of operations for the three months
      ended
      September 30, 2006. Additionally, the initial aggregate fair value of the
      warrants of $3,694,339 was recorded as an accrued warrant liability in the
      consolidated balance sheet. For the three months ended September 30, 2006,
      amortization of the discount on debenture amounted to $690,491 which is included
      in interest expense.




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




Convertible
                debentures payable
            
            $
            5,000,000Less:
                unamortized discount on debentures
            
            
            (2,377,623
            )Convertible
                debentures, net
            
            $
            2,622,377




Note
      6


Stockholders’
      Equity





On
      July
      20, 2006, we issued 25,000 shares of common stock to Roger A. Leopard for
      services to us as a director. This issuance is considered exempt pursuant to
      Rule 506 and/or Section 4(2) of the Securities Act. No underwriters were used.
      These shares were valued at $10,750 or $0.22 per share, the fair market value
      of
      the common stock at the date of grant.





On
      July
      20, 2006, we issued 25,000 shares of common stock to Geoff Evett for services
      to
      us as a director. This issuance is considered exempt pursuant to Rule 506 and/or
      Section 4(2) of the Securities Act. No underwriters were used. These shares
      were
      valued at $10,750 or $0.22 per share, the fair market value of the common stock
      at the date of grant.





On
      September 21, 2006, we issued an aggregate of 218,125 shares of common stock
      to
      our advisors for services to us as advisors. This issuance is considered exempt
      pursuant to Rule 506 and/or Section 4(2) of the Securities Act. No underwriters
      were used. These shares were valued at $71,981 or $0.33 per share, the fair
      market value of the common stock at the date of grant.


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ITEM2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF O PERATIO N.





Forward-looking
      Statement and Information





We
      are
      including the following cautionary statement in this Form 10-QSB for any
      forward-looking statements made by, or on behalf of, us. Certain statements
      contained herein and other materials we file with the Securities and Exchange
      Commission are forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933, as amended and Section 21E of the Securities Act
      of
      1934, as amended and, accordingly, involve risks and uncertainties which could
      cause actual results or outcomes to differ materially from those expressed
      in
      the forward-looking statements. 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. Forward looking statements are accompanied
      by
      words such as “may”, “will”, “could”, “should”, “anticipate”, “believe”,
“budgeted”, “expect”, “intend”, “plan”, “project”, “potential”, “estimate”, or
“future” or variations thereof or similar statements. Our expectations, beliefs
      and projections are expressed in good faith and are believed by us to have
      a
      reasonable basis, including without limitation, 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.





Introduction




For
      the
      year ended June 30, 2006, our auditors, in Note 2 of the Financial Statements
      from the Form 10-KSB, have noted that there is substantial doubt about our
      ability to continue as a going concern. Our existence is dependent upon
      management funding operations and raising sufficient capital. At this point
      in
      time it is impossible to state an amount of profitable operations and/or
      additional funding which we believe would remove the going concern
      opinion.





We
      do not
      have any historical business operations. We have neither a history of earnings
      nor have we paid dividends. We are unlikely to realize earnings or pay dividends
      in the immediate or foreseeable future.




THREE
      MONTHS ENDED SEPTEMBER 30, 2006 AND 2005





Revenues
      for the three months ended September 30, 2006 were $471,214. Revenue was a
      result of production of crude oil and natural gas at the Acom A-6 Prospect,
      located in Chambers County, Texas and the Barnett Shale prospect, located in
      Montague and Cooke counties, Texas. There were no revenues for the three months
      ended September 30, 2005.




We
      incurred operating expenses in the amount of $1,152,149 and $ 1,050,858 for
      the
      three months ended September 30, 2006 and 2005, respectively.




We
      recorded a $199,302 impairment expense related to our North Wright Field
      investment.





Depletion
      expense was $403,193 for the three months ended September 30, 2006. Depletion
      expense is related to the Acom A-6 prospect and the Barnett Shale
      prospect.


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For
      the
      three months ended September 30, 2006 general and administrative expenses of
      $549,655 were mainly comprised of payroll expenditures of $101,203, professional
      fees of $266,004 (of which $172,523 was in cash and $93,481 was a non-cash
      issuance of our common stock), advertising of $10,090, rent expense of $28,379,
      travel expenses of $28,799, amortization of debt fees of $66,640 (non-cash)
      and
      other office and related expenses of $48,540. The total cash expended for
      general and administrative expenses were $389,534. For the three months ended
      September 30, 2005 general and administrative expenses were $1,050,858. These
      operating expenses were mainly comprised of payroll expenditures of $280,562
      (of
      which $207,000 was a non-cash issuance of our common stock), professional fees
      of $671,458 (of which $561,000 was a non-cash issuance of our common stock),
      advertising of $64,300, rent expense of $7,927, travel expenses of $10,007,
      and
      other office and related expenses of $16,605.. The total cash expended for
      general and administrative expenses were $282,858.




For
      the
      three months ended September 30, 2006 we incurred interest expense of $883,255
      of which $690,491 represented amortization of the discount associated with
      the
      convertible debentures. In addition, we incurred a charge of $2,714,336 in
      connection with valuing our derivative liability to actual at September 30,
      2006. Both the amortization of the discount and the charge related to the
      derivative liability are non-cash charges.




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.


14
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*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




15
 *Table
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The
      table
      below outlines the following:





·
            the
                estimated amount of costs we have incurred to date for specific oil
                and
                gas projects, including the costs to acquire our interests in the
                prospects, if any;


·
            the
                estimated cash outlays that are expected to be incurred by us to
                drill
                test wells to casing point and determine whether or not to complete
                such
                test wells;


·
            the
                estimated cash outlays that are expected to be incurred by us to
                complete
                the test wells and begin production, if we deem it advisable to do
                so;


·
            the
                total costs expected to be incurred by us on each of the prospects;
                and


·
            the
                percentage of the total costs for each prospect expected to be incurred
                by
                us through December 31, 2006.





If
      we are
      not satisfied with the results of our test wells on any of the prospects, we
      will not complete such well and no additional wells will be drilled on such
      prospect unless we decide to drill a substitute test well. If we are unable
      to
      raise an addition $5 million in gross proceeds from Cornell Capital or other
      sources during calendar year 2006, we will be forced to slow down or stop our
      drilling activities and the costs outlined below will be reduced accordingly.





**Prospect**
            **Estimated
                Costs Incurred To Date, Including Acquisition and Drilling
                Costs**
            **Estimated
                Remaining Costs to Drill Test Well to Casing
                Point**
            **Estimated
                Costs to Complete Test Well and Begin Production, if Deemed
                Advisable**
            **Estimated
                Total Cost of Proposed Drilling on Prospect**
            **Estimated
                Percentage of Total Costs to be Incurred through December 31, 2006**Acom
                A-6
            $1,700,000
            -0-
            -0-
            $1,700,000
            100%Barnett
                Shale
            $550,000
            -0-
            -0-
            $550,000
            100%Crimson
                Bayou
            $100,000
            $600,000
            $500,000
            $1,200,000
            10%Sherburne
                Prospect
            $500,000
            -0-
            -0-
            $500,000
            100%TOTAL:
            $2,850,000
            $600,000
            $500,000
            $3,950,000





LIQUIDITY
      AND CAPITAL RESOURCES





As
      of
      September 30, 2006, we had a working capital deficit of $223,196. For the three
      ended September 30, 2006, we generated a net cash flow deficit from operating
      activities of $339,525. Cash used in investing activities totaled $39,350,
      which
      was utilized for the purchase of oil and gas properties. Cash provided by
      financing activities totaled $500,000.





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.


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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.





Our
      registered independent auditors have stated in their report dated October 13,
      2006, that we are dependent on outside financing, lack sufficient working
      capital, and have incurred recurring losses from operations. These factors
      among
      others may raise substantial doubt about our ability to continue as a going
      concern.





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;


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


17
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·
            $65,000
                other professional fees paid at closing





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





The
      secured convertible debentures
      bear interest at 7%, mature three years from the date of issuance, and are
      convertible into our common stock, at the selling stockholder’s option, at the
      lower of (i) $0.93 or (ii) 94% of the lowest volume weighted average prices
      of
      our common stock, as quoted by Bloomberg, LP, during the 30 trading days
      immediately preceding the date of conversion. Accordingly, there is no limit
      on
      the number of shares into which the secured convertible debentures may be
      converted. As of November 6, 2006, the lowest intraday trading price for our
      common stock during the preceding 30 trading days as quoted by Bloomberg, LP
      was
      $0.17 and, therefore, the conversion price for the secured convertible
      debentures was $0.1598. Based on this conversion price, the $5,000,000 in
      secured convertible debentures, excluding interest, were convertible into
      31,289,112 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 be 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 be 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.


18
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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.


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CRITICAL
      ACCOUNTING POLICIES





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





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




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





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





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





Production
      costs are expensed as incurred.





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





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





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





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


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





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





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





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





ITEM
      3.
CONTROLS AND P ROCEDU RES.





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





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


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





PART
      II -
      OTHER INFORMATION





ITEM
      2.
      UNREGISTERED SALE OF EQUITY SECURITIES AND USE
      OF
      PROCEEDS





On
      July
      20, 2006, we issued 25,000 shares of common stock to Roger A. Leopard for
      services to us as a director. This issuance is considered exempt pursuant to
      Rule 506 and/or Section 4(2) of the Securities Act.





On
      July
      20, 2006, we issued 25,000 shares of common stock to Geoff Evett for services
      to
      us as a director. This issuance is considered exempt pursuant to Rule 506 and/or
      Section 4(2) of the Securities Act.





On
      September 21, 2006, we issued an aggregate of 218,125 shares of common stock
      to
      our advisors for services to us as advisors. This issuance is considered exempt
      pursuant to Rule 506 and/or Section 4(2) of the Securities Act.





*
      All of
      the above offerings and sales were deemed to be exempt under rule 506 of
      Regulation D, Regulation S and/or Section 4(2) of the Securities Act of 1933,
      as
      amended. No advertising or general solicitation was employed in offering the
      securities. The offerings and sales were made to a limited number of persons,
      all of whom were accredited investors, business associates of Ignis Petroleum
      Group, Inc. or executive officers of Ignis Petroleum Group, Inc. and transfer
      was restricted by Ignis Petroleum Group, Inc. in accordance with the
      requirements of the Securities Act of 1933. In addition to representations
      by
      the above-referenced persons, we have made independent determinations that
      all
      of the above-referenced persons were accredited or sophisticated investors,
      and
      that they were capable of analyzing the merits and risks of their investment,
      and that they understood the speculative nature of their investment.
      Furthermore, all of the above-referenced persons were provided with access
      to
      our Securities and Exchange Commission filings. Except as expressly set forth
      above, the individuals and entities to whom we issued securities as indicated
      in
      this section of the registration statement are unaffiliated with us.





ITEM6 .
      EXHIBITS .





The
      following are exhibits to this report:





Exhibit
                No.
            Description10.1
            Amended
                and Restated Loan Agreement, dated August 28, 2006, by and between
                Ignis
                Petroleum Group, Inc. andPetrofinanz
                GmbH, filed as an exhibit to the current report on Form 8-K filed
                with the
                Securities and Exchange Commission on September 7, 2006 and incorporated
                herein by reference.10.2
            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.10.3
            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


*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


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SIGN ATUR ES





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.








Ignis
                Petroleum Group, Inc. (Registrant)Date:
                November 14, 2006
            
            By:
            /s/
                Michael PiazzaMichael
                Piazza,President,
                Chief Executive Officer and
                Treasurer






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