- Annual Report (Small Business Issuers) (10KSB)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(Mark One)


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

For the fiscal year ended June 30, 2008


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

For the transition period from to

Commission file number 000-50929

Ignis Petroleum Group, Inc.

(Name of small business issuer in its charter)


Nevada		16-1728419

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

One Legacy Town Center, 7160 Dallas Parkway, Suite 380
Plano, TX		75024

(Address of principal executive offices)		(Zip Code)

972-526-5250

(Issuer’s telephone number)

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

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No þ .

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 þ No o .

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

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

The issuer’s revenues for its most recent fiscal year were $2,096,319.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to average bid and asked price of such common equity as of June 30, 2008 was $260,288. (For purposes of determination of the aggregate market value, only directors, executive officers and 10% or greater stockholders have been deemed affiliates).

As of September 23, 2008, the registrant had issued and outstanding 123,562,294 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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

TABLE OF CONTENTS


Item		Page
Part 1
1 and 2	Description of Business and Property		3
3	Legal Proceedings		16
4	Submission of Matters to a Vote of Security Holders		16

Part II
5	Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities		16
6	Management’s Discussion and Analysis or Plan of Operation		17
7	Financial Statements		23
8	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		23
8A(T)	Controls and Procedures		24
8B	Other Information		24

Part III
9	Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act		24
10	Executive Compensation		29
11	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		31
12	Certain Relationships and Related Transactions, and Director Independence		34
13	Exhibits		34
14	Principal Accountant Fees and Services		37

	SIGNATURES		39

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements, as defined in Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These forward-looking statements relate to, among other things, the following:

	•	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-10.20
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

We have based these forward-looking statements on our current assumptions, expectations and projections about future events.

We use the words “may,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget” and other similar words to identify forward-looking statements. You should read statements that contain these words carefully

because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or revise publicly any forward-looking statements, except as required by law. These statements also involve risks and uncertainties that could cause our actual results or financial condition to materially differ from our expectations in this annual report, including, but not limited to the risk factors identified in Item 1 below.

We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict, or over which we have no control. You are cautioned not to place undue reliance on a forward-looking statement. When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this annual report. The risk factors noted in this annual report and other factors noted throughout this annual report provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those contained in any forward-looking statement.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing prices for oil and natural gas. Declines in oil or natural gas prices may materially adversely affect our financial condition, liquidity, ability to obtain financing and operating results. Lower oil or natural gas prices may also reduce the amount of oil or natural gas that we can produce economically. A decline in oil and/or natural gas prices could have a material adverse effect on the estimated value and estimated quantities of our oil and natural gas reserves, our ability to fund our operations and our financial condition, cash flow, results of operations and access to capital. Historically, oil and natural gas prices and markets have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile.

PART I

ITEMS 1 and 2 . DESCRIPTION OF BUSINESS AND PROPERTY

Our History

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

On May 11, 2005, the stockholders of Ignis Petroleum Corporation entered into a stock exchange agreement with Sheer Ventures, Inc. pursuant to which Sheer Ventures, Inc. issued 9,600,000 shares of common stock in exchange for all of the issued and outstanding shares of common stock of Ignis Petroleum Corporation. As a result of this stock exchange, Ignis Petroleum Corporation became a wholly owned subsidiary of Sheer Ventures, Inc. The stock exchange was accounted for as a reverse acquisition in which Ignis Petroleum Corporation acquired Sheer Ventures, Inc. in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations . Also on May 11, 2005, and in connection with the stock exchange, D.B. Management Ltd., a corporation owned and controlled by Doug Berry, who was then the President, Chief Executive Officer, Secretary, Treasurer and sole director of Sheer Ventures, Inc., agreed to sell an aggregate of 11,640,000 shares of Sheer Ventures, Inc.’s common stock to six individuals, including Philipp Buschmann, then 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. During the last half of the fiscal year ended June 30, 2008, we have focused our activities primarily on restructuring our capital structure and the identification of additional oil and gas prospects. Although we have had discussions with our major creditors, including, but not limited to, Yorkville Capital Advisors, LLC (formerly Cornell Capital Partners) and Petrofinanz GMBH, we have not yet been successful in reaching an agreement on restructuring our debt beyond its current maturity dates. Currently, we have only a fractional interest in one producing oil and gas well. Unless our creditors agree to a restructuring of our debt prior to the maturity date of our secured debentures in January 2009, we will not be able to pay our debentures when they become due and we may have to seek protection from the bankruptcy courts or our only producing asset may be lost in foreclosure. Furthermore, in order to finance any additional oil and gas prospects, our creditors must agree to restructure our debt before we are able to raise additional capital. We cannot assure you that we will be successful in ur endeavors to restructure our debt.

During the first half of the fiscal year ended June 30, 2008, we were actively engaged in the day to day management of Ignis Barnett Shale, LLC, our joint venture with Silver Point Capital, LLC. On December 21, 2007, following the resignation of our Chief Executive Officer, Michael Piazza, we were removed as the day to day manager of the joint venture by Silver Point Capital and our services agreement with the joint venture was automatically terminated. Thereafter, the joint venture retained Mr. Piazza and other consultants of ours to work directly for the joint venture. Consequently, we no longer have an active role in the Ignis Barnett Shale LLC.

Our strategy is to build an energy portfolio that benefits from:

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

	•		the expected increase of oil and gas prices; and

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

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

Competitors

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

Governmental Regulations

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

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

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

We believe that our operations comply in all material respects with applicable laws and regulations and that the

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

Environmental

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

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

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

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

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

We believe that the operators of the properties in which we have an interest are in substantial compliance with applicable laws, rules and regulations relating to the control of air emissions at all facilities on those properties. Although we maintain insurance against some, but not all, of the risks described above, including insuring the costs of clean-up operations, public liability and physical damage, our insurance may not be adequate to cover all such costs, that the insurance will continue to be available in the future or that the insurance will be available at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could have a material adverse effect on our financial condition and operations. Compliance with environmental requirements, including financial assurance requirements and the costs associated with the cleanup of any spill, could have a material adverse effect on our capital expenditures, earnings or competitive position. We do believe, however, that our operators are in substantial compliance with current applicable

environmental laws and regulations. Nevertheless, changes in environmental laws have the potential to adversely affect operations. At this time, we have no plans to make any material capital expenditures for environmental control facilities.

Employees

As of June 30, 2008, we only have 2 employees, our interim President, Chief Executive Officer and Treasurer and our Chief Financial Officer. Many of the daily operational tasks of the Company are performed by consultants.

Our Properties

As of June 30, 2008 and 2007, we had an interest in the following oil and gas prospects in the United States onshore Gulf Coast region, primarily located in Texas and Louisiana.

Acom A-6 Prospect

We have 25% of the working interest, which is equal to an 18.75% net revenue interest, in the Acom A-6 Prospect, which is located in Chambers County, Texas. Kerr-McGee Oil & Gas Onshore LP, d/b/a KMOG Onshore LP is the operator of the prospect and holds the remainder of the working interest. Drilling of this prospect commenced production in August 2005 and was completed in October 2005. The Acom A-6 currently holds proved reserves of 6,210 bbls of oil and 20,990 mcf of gas and is producing oil and gas.

Crimson Bayou Prospect

For the fiscal year ended June 30, 2007 we had the right to earn 25% of the working interest, which was equal to a 17.88% net revenue interest, in the test well before payout and 20% of the working interest, which was equal to a 14.3% net revenue interest, after payout in the Crimson Bayou Prospect, which is located in Iberville Parish, Louisiana. Range Production L, L.P. was the operator of the prospect and would have held the remainder of the working interest. Drilling of the first test well on the prospect was expected to commence in 2007. We have decided not to pursue this prospect and we were refunded our investment of $115,724.

Barnett Shale Property

During the fiscal year ended June 30, 2007 we held a 12.5% of the working interest, which was equal to a 9.38% net revenue interest before payout and 10% of the working interest, which was 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 were drilled and were non-commercial. The leases expired and we recorded abandonment expense of $348,200 during the fiscal year ending June 30, 2007. We also recorded a write down of the underlying value of the producing well to zero as the reserve value was substantially lower than the asset net book value of $201,332. No other costs were incurred for this property for the year ended June 30, 2008.

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 were finished in September 2006. Multiple gas zones were detected. The commercial viability of the gas zones were tested in October 2006. The Sherburne Prospect is currently unproved. We do not believe the operator will develop this prospect due to the lack of commercial viability of the gas zones and we recorded a write down of the asset to zero totaling $172,740 for the year ended June 30, 2007. We did not incur further costs associated with this project in 2008.

Ignis Barnett Shale Joint Venture

On November 15, 2006, we entered into a joint venture with affiliates of Silver Point Capital, L.P. through a limited liability company named Ignis Barnett Shale, LLC. The joint venture acquired 45% of the interests in the acreage, oil and natural gas producing properties and natural gas gathering and treating system located in the St. Jo Ridge Field in the North

Texas Fort Worth Basin then held by W.B. Osborn Oil & Gas Operations, Ltd. and St. Jo Pipeline, Limited. The purchase price for the acquisition was $17,600,000, subject to certain adjustments, plus $850,000 payable by Ignis Barnett Shale in thirty-six monthly installments of $23,611, beginning one month after closing. In addition, Ignis Barnett Shale agreed to fund additional lease acquisitions up to a total of $5,000,000 for a period of two years.

Under the terms of Ignis Barnett Shale’s operating agreement, we agreed to manage the day-to-day operations of Ignis Barnett Shale, subject to Silver Point’s power to remove us as a manager in their sole and absolute discretion, and the Silver Point affiliates agreed to fund 100% of the purchase price of the transaction and 100% of future acreage acquisitions and development costs of Ignis Barnett Shale to the extent approved by Silver Point. Ignis Barnett Shale’s budget, its operating plan, financial and hedging arrangements, if any, and generally all other material decisions affecting Ignis Barnett Shale are subject to the approval of Silver Point. We assigned our intellectual property directly related to the Ignis Barnet Shale all of our intellectual property related to the joint venture and its activities. On December 21, 2007, Silver Point exercised its right to remove us as a manager of Ignis Barnett Shale and since that date we have not been actively engaged in the day to day management of Ignis Barnett Shale. Distributions from Ignis Barnett Shale will be made when and if declared by Silver Point as follows:

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

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

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

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

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

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

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

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

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

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

For the year ended June 30, 2008, we have not earned our share of equity and therefore we have not recorded any financial transactions relating to this venture. During the first six months of the fiscal year ended June 30, 2008, we charged a management fee to the partnership to handle day-to-day operations. During the years ended June 30, 2008 and 2007, management fees were paid to us in the amount of $90,000 and $142,500, respectively.

Limited Liability Company Agreement of IBS, dated November 15, 2006 (the “LLC Agreement”), by Silver Point Capital L.P. (“Silver Point”). The Services Agreement was entered into on November 15, 2006 for the purpose of providing management and administrative services to IBS in exchange for payment of $50,750 per month during the initial 12 months and $43,250 per month thereafter. The LLC Agreement remains in effect and unchanged.

Liberty Hills Prospect

On September 6, 2007, Ignis Louisiana Salt Basin, LLC (“ILSB”), our wholly owned subsidiary, entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with Anadarko Petroleum Corporation (“Anadarko”) providing for the sale by Anadarko to ILSB of Anadarko’s interests in the acreage and oil and natural gas producing properties in the Liberty Hills prospect, located in Bienville Parish, Louisiana (the “Properties”). The purchase price of the acquisition was to be $3,000,000 in cash, subject to customary adjustments more fully described in the Purchase Agreement.

The Purchase Agreement required the parties to close on the acquisition no later than September 28, 2007. Due to our inability to finalize terms of funding necessary to acquire the Properties by this deadline, the Purchase Agreement terminated by its own terms on September 28, 2007. Termination of the Purchase Agreement terminated all obligations and liabilities of the parties to one another and to any third party under the Purchase Agreement. We incurred no material penalties under the Purchase Agreement as a result of its termination.

Production

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


	Oil (bbl)		Gas (mcf)		Oil (bbl)		Gas (mcf)
Production by State	2008		2008		2007		2007
Texas		15,225		50,269		14,846		44,248

Our oil and natural gas production is sold on the spot market and we do not have any production that is subject to firm commitment contracts. For the years ended June 30, 2008 and 2007, purchases by Denbury Onshore, LLC represented 99.8% and 97.0% of our revenues, respectively. We believe that we would be able to locate an alternate customer in the event of the loss of this customer.

Productive Wells

The table below sets forth certain information regarding our ownership, as of June 30, 2008 and June 30, 2007, of productive wells in the area indicated.

Productive Wells

Oil

Gas

State

Gross

Net

Gross

Net

Texas

.25

.13

Drilling Activity

We did not commence drilling activities during the fiscal years ended June 30, 2008 or 2007.

Reserves

Please refer to unaudited Note 11 in the accompanying audited financial statements for a summary of our reserves at June 30, 2008 and 2007.

Acreage

The following table sets forth the gross and net acres of developed and undeveloped oil and natural gas leases in which we had a working interest as of June 30, 2008 and 2007.


	Developed				Undeveloped
State	Gross		Net		Gross		Net

Texas		500		120		—		—
Louisiana		—		—		—		—

Total		500		120		—		—

Office Lease

We maintain our principal executive office at 7160 Dallas Parkway, Suite 380, Plano, Texas 75024. Our telephone number at that office is (972) 526-5250 and our facsimile number is (972) 526-5251. We entered into a 60 month lease effective May 1, 2007. Our current office space consists of approximately 5,200 square feet. Our lease payment is $10,404 per month for the first 25 months, $10,729.13 per month for months 26 through 49, and $10,054 per month for the remaining months. Utilities are expected to be $1,070 per month unless there is a rate adjustment. We paid a security deposit of $8,500 which is refundable upon expiration of the lease.

Given our current staffing levels, we believe the current office space is greater than our needs required and, therefore, we are investigating subleasing our current office space to reduce costs. We do not anticipate any difficulty securing alternative space more in line with our current needs and staffing levels.

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.

In January 2006, we entered into a securities purchase agreement, as amended and restated, for the sale of $5,000,000 principal amount of secured convertible debentures and accruing annual interest of 7%. The secured convertible debentures are due and payable in January 2009, unless sooner converted into shares of our common stock. Unless we are successful in negotiating a restructuring of our secured debentures, we will not be able to pay our secured debentures when they become due in January 2009, and we may be forced to seek bankruptcy protection and lose our only producing oil and gas well to foreclosure. Although we have had numerous discussions with our creditors about recapitalizing the Company, we have not yet been successful in doing so and we cannot assure you that we will reach an agreement with our creditors to recapitalize the Company.

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.

Our obligation to issue shares upon conversion of our secured convertible debentures is essentially limitless. The number of shares of common stock issuable upon conversion of our secured convertible debentures will increase if the market price of our stock declines, 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 secured convertible debentures are convertible into shares of our common stock at a 6% discount to the trading price of the common stock prior to the conversion. The downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of common stock could encourage short sales by investors. Short sales by investors could place further downward pressure on the price of the common stock. The selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which could cause the further downward pressure on the stock price. In addition, not only the sale of shares issued upon conversion of secured convertible debentures, but also the mere perception that these sales could occur, may adversely affect the market price of the 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.

There are a large number of shares underlying our secured convertible debentures. The continued issuance of shares upon conversion of the secured convertible debentures and exercise of warrants may result in substantial dilution to the interests of other stockholders since the selling stockholder may ultimately convert and sell the full amount issuable on conversion. Although the holder of our secured convertible debentures and related warrants, YA Global (formerly Cornell Capital Partners), may not fully convert their secured convertible debentures if such conversion would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent it from converting and/or exercising some of their holdings and then later converting the rest of their holdings. There is no other upper limit on the number of shares that may be issued upon conversion of the secured convertible debentures and such conversions have the effect of further diluting the proportionate equity interest and voting power of other holders of our common stock.

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.

Any event of default in connection with our secured convertible debentures such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the securities purchase agreement, as amended and restated, or related secured convertible debentures, the assignment or appointment of a receiver to control a substantial part of our property or business, the filing of a money judgment, writ or similar process against us in excess of $50,000, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against us and the delisting of our common stock could require the early repayment of the secured convertible debentures, including default interest rate on the outstanding principal balance of the secured convertible debentures if the default is not cured with the specified grace period. If we were required to repay the secured convertible debentures, we would be required to use our limited working capital and raise a significant amount of additional funds. If we were unable to repay the secured convertible debentures when required, the debenture holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would likely require us to cease operations.

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.

In connection with the secured convertible debentures and the securities purchase agreement, as amended and restated, we executed a security agreement in favor of the investor granting it 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 securities purchase agreement, as amended and restated, secured convertible debentures or security agreement, the investor has the right to take possession of the collateral, to operate our business using the collateral, and has 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.

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.

We incurred a net loss of $1,301,705 and net income of $344,151 for our fiscal years ending June 30, 2008, and June 30, 2007, respectively. We may not be able to achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. Our future operations may not be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

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.

In their report dated October 13, 2008, our independent auditors expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations, lack of sufficient working capital and our dependence on outside financing. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and such methods may not prove successful.

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.

We have a limited history of revenues from operations and have limited tangible assets. We have yet to generate any profits and we may never operate profitably. We have a limited operating history and just recently emerged from the exploration stage and began producing oil and/or gas. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a new enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are not an established company and potential investors should be aware of the difficulties normally encountered by enterprises in the early stages of their development. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

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.

Because we are small and do not have much capital, we must limit our exploration and development activity. As such we may not be able to complete an exploration and development program that is as thorough as we would like. In that event, existing reserves may go undiscovered. Without finding reserves, we cannot generate revenues and you will lose your investment.

If We Are Unable to Successfully Recruit Qualified Managerial and Field Personnel Having Experience in Oil and

Gas Exploration, We May Not Be Able to Continue Our Operations.

In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Our current management team does not have a lot of technical experience in the oil and gas field. Competition for qualified individuals is intense. We may not be able to find, attract and retain existing employees and we may not be able to find, attract and retain qualified personnel on acceptable terms. If we are unable to find, attract and retain qualified personnel with technical expertise, our business operations could be harmed.

We Are Currently Dependent on Other Oil and Gas Operators for Operations on Our Prospects.

All of our current operations are prospects in which we own a minority interest. As a result, the drilling and operations are conducted by other operators, upon which we are reliant for successful drilling and revenues. In addition, as a result of our dependence on others for operations on our properties, we do not have any control over the timing, cost or rate of development on such properties. As a result, drilling operations may not occur in a timely manner or take more time than we anticipate as well as resulting in higher expenses. The inability of these operators to adequately staff or conduct operations on these prospects could have a material adverse effect on our revenues and operating results.

The Potential Profitability of Oil and Gas Ventures Depends Upon Factors Beyond Our Control.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in us not receiving an adequate return on invested capital.

The Oil And Gas Industry Is Highly Competitive And There Is No Assurance That We Will Be Successful In Acquiring Leases.

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed.

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.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulations concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors 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.

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

Exploration and Production Activities are Subject to Environmental Regulations Which May Prevent or Delay the Commencement or Continuance of Our Operations.

In general, our exploration and production activities are subject to federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations. Our operating partners maintain insurance coverage customary to the industry; however, we are not fully insured against all possible environmental risks.

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.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Any Change to Government Regulation/Administrative Practices May Have a Negative Impact on Our Ability to Operate and Our Profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

Risk relating to our financial statements for material weakness in controls

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not effective as of June 30, 2008.

Our management has identified material weaknesses in our internal control over financial reporting, as defined in the standards by the Public Company Accounting Oversight Board. The Company’s material weaknesses in internal control are (a) insufficient entity level controls caused by a lack of senior management oversight and absence of corporate governance structure and (b) lack of segregation of duties and the lack of sufficient accounting expertise in the financial reporting process

to support sufficient review and approval procedures and timely filing of financial statements. However, the Company believes the costs of remediation outweigh the benefits given the limited operations of the Company. Inability to correct the material weakness may have a material adverse effect on our compliance with financial reporting.

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.

As of June 30, 2008, we had 57,841,982 shares of common stock, net of 18,250,000 shares held in escrow related to our loan agreement with YA Global (formerly Cornell Capital Partners, LP), issued and outstanding, secured convertible debentures issued and outstanding that may be converted into 1,131,678,487 shares of common stock based on the market price of our common stock on June 30, 2008, and outstanding warrants to purchase 12,000,000 shares of common stock. The sale of these shares may adversely affect 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.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13 or 15(d), in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our Common Stock is Subject to the “Penny Stock” Rules of the 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.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

	•		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.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

	•		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.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

	•		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.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Glossary Of Selected Oil and Natural Gas Terms

“3D” or “3D SEISMIC.” An exploration method of sending energy waves or sound waves into the earth and recording the wave reflections to indicate the type, size, shape, and depth of subsurface rock formations. 3D seismic provides three-dimensional pictures.

“Bbl.” One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.

“BOE.” Barrels of oil equivalent. BTU equivalent of six thousand cubic feet (Mcf) of natural gas which is equal to the BTU equivalent of one barrel of oil.

“BTU.” British Thermal Unit.

“DEVELOPMENT WELL” A well drilled within the proved boundaries of an oil or natural gas reservoir with the intention of completing the stratigraphic horizon known to be productive.

“DISCOUNTED PRESENT VALUE.” The present value of proved reserves is an estimate of the discounted future net cash flows from each property at the specified date, or as otherwise indicated. Net cash flow is defined as net revenues, after deducting production and ad valorem taxes, less future capital costs and operating expenses, but before deducting federal income taxes. The future net cash flows have been discounted at an annual rate of 10% to determine their “present value.” The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties. In accordance with Securities and Exchange Commission rules, estimates have been made using constant oil and natural gas prices and operating costs at the specified date, or as otherwise indicated.

“DRY HOLE.” A development or exploratory well found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well.

“EXPLORATORY WELL” A well drilled to find and produce oil or natural gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir, or to extend a known reservoir.

“GROSS ACRES” or “GROSS WELLS.” The total number of acres or wells, as the case may be, in which a working or any type of royalty interest is owned.

“Mcf.” One thousand cubic feet of natural gas.

“NET ACRES.” or “NET WELLS.” The sum of the fractional working or any type of royalty interests owned in gross acres or gross wells, as applicable.

“PRODUCING WELL” or “PRODUCTIVE WELL.“A well that is capable of producing oil or natural gas in economic quantities.

“PROVED DEVELOPED RESERVES.” The oil and natural gas reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and natural gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

“PROVED RESERVES.” The estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

“PROVED UNDEVELOPED RESERVES.” The oil and natural gas reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of

production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery techniques is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

“STANDARDIZED MEASURE.” Under the Standardized Measure, future cash flows are estimated by applying year-end prices, adjusted for fixed and determinable changes, to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pretax cash inflows. Future income taxes are computed by applying the statutory tax rate to the excess inflows over a company’s tax basis in the associated properties.

Tax credits, net operating loss carryforwards and permanent differences also are considered in the future tax calculation. Future net cash inflows after income taxes are discounted using a 10% annual discount rate to arrive at the Standardized Measure.

“WORKING INTEREST.” The operating interest (not necessarily as operator) that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production, subject to all royalties, overriding royalties and other burdens, and to all exploration, development and operational costs including all risks in connection therewith.


ITEM 3 .		LEGAL PROCEEDINGS

We are not aware of any pending or threatened litigation or legal proceedings.


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

There were no matters submitted to a vote of our security holders during the fourth quarter of our fiscal year ended June 30, 2008.

PART II


ITEM 5 .		MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock trades on the National Association of Securities Dealers’ Over-The-Counter Bulletin Board under the symbol “IGPG”. The following table sets forth the quarterly high and low bid information for our common stock as reported by the National Association of Securities Dealers’ Over-The-Counter Bulletin Board for the periods indicated below. The over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.


	Fiscal Year 2008				Fiscal Year 2007
	High		Low		High		Low
First Quarter	$	0.11	$	0.025	$	0.34	$	0.23
Second Quarter	$	0.07	$	0.015	$	0.15	$	0.12
Third Quarter	$	0.02	$	0.003	$	0.18	$	0.17
Fourth Quarter	$	0.023	$	0.0025	$	0.10	$	0.09

HOLDERS

As of September 29, 2008, we had approximately 52 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common

stock is Empire Stock Transfer, Inc., 2470 St. Rose Parkway, Suite 304, Henderson, Nevada 89074.

DIVIDENDS

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

By the terms of our agreements with Cornell Capital Partners, LP, we are required to obtain the prior written consent of Cornell Capital Partners, LP prior to paying dividends or redeeming shares of our stock while the secured convertible debentures owed to Cornell Capital Partners, LP are outstanding. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as our Board of Directors deems relevant.

RECENT SALES OF UNREGISTERED SECURITIES

During our fiscal year ending June 30, 2008, we issued the following equity securities in transactions exempt from the registration requirements under the Securities Act of 1933, as amended, that were not disclosed previously in Current Reports on Form 8-K or Quarterly Reports on Form 10-QSB.

During the period January 1, 2008 through June 30, 2008, we issued 39,652,412 shares of common stock to YA Global Investments, L.P. (formerly known as Cornell Capital Partners, L.P. and referred to herein as “YA Global”) upon conversion of a portion of their Convertible Debenture Agreement. The shares were issued in reliance upon the exemptions contained in Rule 506 and/or Section 4(2) of the Securities Act. The shares issued were valued at $156,100 or average price of $0.004 per share, the fair market value of the common stock at the date of conversion.


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.

RESULTS OF OPERATIONS

Total revenue for the periods ended June 30, 2008 and 2007 were $2,096,319 and $1,410,448, respectively, an increase of $685,871 or about 49%. Revenues from the sale of oil and gas increased $738,371 year-over-year, from $1,267,948 for the period ended June 30, 2007 to $2,006,319 for the period ended June 30, 2008. In addition we recorded management fees through June 30, 2008 and 2007 of $90,000 and $142,500 under the Ignis Barnett Shale, LLC services agreement, respectively.

The increase in oil and natural gas sales was primarily attributable to higher product prices. For the year ended June 30, 2008, production was essentially flat compared to the same period ended June 30, 2007. Overall production increased to 23.6 BOE from 22.2 BOE or an increase of 1.4 BOE, or about 6%. The production for the year ended June 30, 2008 was primarily from the Acom A-6 well. Effective September 30, 2007 we sold the Inglish Sisters #3 well located in Montague County, Texas. During our ownership period in 2008, we had production of .04 BOE from this well. Oil prices increased from an average of $63.08 to $98.34 or 56% and gas prices increased $2.52, or 34% from $7.49 to $10.01.


	Twelve Months Ended
	6/30/2008		6/30/2007
Oil and Natural Gas Sales	$	2,006,319	$	1,267,948

Sales
Condensate (Mbbls)		15.2		14.8
Natural Gas (MMcf)		50.3		44.2
Total (MBOE)		23.6		22.2

Average price
Condensate ($/Bbl)	$	98.34	$	63.08
Natural Gas ($/Mcf)	$	10.01	$	7.49

On December 21, 2007 our Services Agreement, dated November 15, 2006 with Ignis Barnett Shale, LLC (“IBS”) was automatically terminated pursuant to its term upon our removal as the B Manager of the Amended and Restated Limited Liability Company Agreement of IBS dated November 15, 2006 by Silver Point Capital L.P. The service agreement was entered into for the purpose of providing management and administrative services to IBS in exchange for payment of $50,750 per month during the initial 12 months and $43,250 per month thereafter. Due to our removal as the B Manager, we will no longer receive any management fees.

Lease operating expense for the year ended June 30, 2008 were $209,769 compared with $30,771 for 2007. This represented an increase of $178,998 or approximately 582% and resulted primarily from increased maintenance on the wells. During the year ended June 30, 2008 we had two wells in production: ACOM A #6 in Chambers County, Texas and the Inglish Sisters #3 in Cooke County, Texas. The breakdown in lease operating costs for these two wells was $147,747 and $62,022, respectively. We sold the Inglish Sisters #3 well on September 30, 2007 and recorded a gain of $60,000.

Production and Ad Valorem taxes for the year increased $18,132, or approximately 17%, to $107,213 compared to $89,081 in the prior year. The increase is entirely due increased production from the increase in production and to the increase in the price of oil and gas.

We did not incur any exploration expense for the year ended June 30, 2008 versus $825,737 in the prior year. We were not able to obtain adequate financing during the year for exploration activities.

Depletion expense decreased from $835,879 to $297,716 or $538,163 for the comparative periods primarily a result from a rapid increase in depletion expense for the Inglish Sisters #3 well in fiscal 2007 and sale of the well in first quarter of fiscal 2008.

General and administrative expenses for the year ended June 30, 2008 were $2,028,791 compared to $2,583,463 the prior year; a decrease of $554,672 or 21%. The reduction in general and administrative expenses was primarily the result of lower employee and related costs compared to the prior year of $572,216. Other areas of decrease in expense are advertising, investor relations, and rent. The reduction in employee and related, advertising, investor relation and rent was offset by a $289,452 increase over last year in professional fees. We accrued expense of $52,975 in 2008, versus $161,528 for the prior year, for expenses incurred by our Board members related to financing opportunities. Total non-cash expense in the current year is $70,783 versus $617,890 for fiscal year 2007 for common stock issued to management and advisors.

We incurred interest expense of $894,679 for the year ended June 30, 2008 compared to the prior year ended June 30, 2007 of $1,812,073. For the year ended June 20, 2007 we accrued liquidated damages under the Cornell Capital Partners, LP Convertible Debenture Agreement for non-registration of the transaction in the amount of $1,000,000. We did not have any liquidating damages under the agreement for fiscal year 2008, which accounts for the decrease from 2007 levels. We recorded a gain on the valuation of derivatives of $54,625 compared to $5,127,252 or a decrease of $5,072,627 compared to the prior year. We recorded a smaller gain in the fiscal year ended 2008 compared to the fiscal year ended 2007 based on the marked-to-market of our derivatives. Due to the decrease in our common stock price and the decrease in the remaining term our liability decreased. We use the Black-Scholes method to account for the mark-to-market valuation except for the convertible debenture that requires we pay cash in lieu of shares for the portion greater than 4.99% is valued using the cash premium method.

For fiscal year ended June 30, 2008 we reported a net loss of ($1,301,705) compared to net income of $344,151 for the prior fiscal year. While revenues for the year increased $685,871 and operating expenses decreased by $1,734,549, we saw a reduction in the amount of gain from the valuation of the derivative liability of $5,072,627. The decrease in operating expense is largely due to the decrease in exploration expense of $825,737 and a reduction in general and administrative

expense of $554,672. The reduction in the derivative liability valuation gain was further offset by a reduction in interest expense of $917,392. Loss per share for fiscal year 2008 was ($0.02) compared to income per share of $0.01 in 2007 based on the average number of common shares outstanding in the respective periods.

LIQUIDITY AND CAPITAL RESOURCES

For the years ended June 30, 2008 and 2007, we generated a net cash flow deficit from operating activities of $108,660 and $1,433,011, respectively. Cash provided from investing activities was $60,000 for fiscal year 2008 from the sale of the Inglish Sisters Well #3 in September 2007 and zero for the year ended June 30, 2007. Cash provided by financing activities was zero in 2008 and totaled $900,000 in 2007, which resulted from a promissory note we amended with Petrofinanz.

We do not expect any capital expenditures through the remainder of the calendar year or in the foreseeable future. If current market conditions and our existing production levels of oil and natural gas continue we have sufficient funds to conduct our operations for a limited amount of time which includes no capital expenditures. We anticipate that we will need external funding to continue our current and planned operations for the next 12 months. 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 either slow or cease operations.

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 sufficient 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 may not be successful in obtaining additional funding.

We will still need additional investments in order to continue operations to achieve 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 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 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 or cease our operations.

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

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

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

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

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

•

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

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

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

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

	•		$65,000 other professional fees paid at closing

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

The secured convertible debentures bear interest at 7%, mature three years from the date of issuance, and are convertible into our common stock, at the selling stockholder’s option, at the lower of (i) $0.93 or (ii) 94% of the lowest volume weighted average prices of our common stock, as quoted by Bloomberg, LP, during the 30 trading days immediately preceding the date of conversion. Accordingly, there is no limit on the number of shares into which the secured convertible debentures may be converted. As of June 30, 2007, the lowest intraday trading price for our common stock during the preceding 30 trading days as quoted by Bloomberg, LP was $0.09 and, therefore, the conversion price for the secured convertible debentures was $0.846. Based on this conversion price, the $5,000,000 in secured convertible debentures, excluding interest and excluding principal amounts previously converted, were convertible into 57,801,418 shares of our common stock. The conversion price of the secured convertible debentures will be adjusted in the following circumstances:

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

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

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

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

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

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

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

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

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

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

In connection with the second amended and restated securities purchase agreement, we also entered into a second amended and restated registration rights agreement providing for the filing, within five days of April 28, 2006, of a registration statement with the Securities and Exchange Commission registering the common stock issuable upon conversion of the secured convertible debentures and warrants. We are obligated to use our best efforts to cause the registration statement to be declared effective no later than 130 days after filing and to insure that the registration statement remains in effect until the earlier of (i) all of the shares of common stock issuable upon conversion of the secured convertible debentures have been sold or (ii) January 5, 2008. Because we defaulted on our obligation under the registration rights agreement to have the registration statement 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.

On July 18, 2008, we executed a forbearance agreement with YA Global Investments, L.P. (f/k/a Cornell Capital Partners L.P. and referred to herein as “YA Global”) under which, YA Global agreed, subject to specified limitations and conditions, to forbear from exercising its rights and remedies arising from the our failure to register with the Securities and Exchange Commission shares of its common stock underlying its secured convertible debentures, for the period commencing on July 17, 2008 and ending on January 5, 2009 (the “Forbearance Period”). Under the Forbearance Agreement, we agreed to make payments of $55,000 per month of the Forbearance Period to YA Global beginning with the month of August.

Furthermore, pursuant to the terms and conditions of the Forbearance Agreement, contemporaneously with the execution and delivery of the Forbearance Agreement, we amended each of the following secured convertible debentures issued (the “Debentures”) by executing amendments having the effect that the Fixed Conversion Price (as defined in the Debentures) under each Debenture is $0.03: Secured Convertible Debenture issued to YA Global on January 5, 2006, in the original principal amount of $2,500,000, No. CCP-1, Secured Convertible Debenture issued to YA Global on February 9, 2006, in the original principal amount of $1,500,000, No. CCP-2, and Secured Convertible Debenture issued to YA Global on April 28, 2006, in the original principal amount of $1,000,000, No. CCP-3. Upon execution of the Forbearance Agreement, the effective conversion price will be the lower of $0.03 or 94% of the lowest Volume Weighted Average Price of the Common Stock during the thirty trading days immediately preceding the conversion date as quoted by Bloomberg, LP.

Unless we are successful in negotiating a restructuring of our secured debentures, we will not be able to pay our secured debentures when they become due in January 2009, and we may lose our only producing oil and gas well to foreclosure. Although we have had numerous discussions with our creditors about recapitalizing the Company, we have not yet been successful in doing so and we cannot assure you that we will reach an agreement with our creditors to recapitalize the Company.

We amended and restated our loan agreement with Petrofinanz, GBMH twice to borrow an aggregate of an additional $900,000 during our fiscal year ending June 30, 2007. We borrowed $500,000 from Petrofinanz on August 28, 2006, and we borrowed $400,000 from Petrofinanz on March 6, 2007, in each case for working capital purposes. The aggregate principal amount of our Second Amended and Restated Loan Agreement as of June 30, 2008 is $1,000,000 and the repayment date is June 30, 2009. Interest accrues under the Petrofinanz loan agreement at the rate of 10% per annum and is payable upon the loan’s maturity date.

Critical Accounting Policies and Estimates

Our accounting policies are fully described in Note 1 of the notes accompanying our financial statements. As discussed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such difference may be material to our financial statements. We believe that the following discussion addresses our Critical Accounting Policies.

Successful Efforts Method of Accounting

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

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

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

Reserve Estimates

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

production, revenues and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material. We engaged a third party engineering company to prepare our annual reserve report as of June 30, 2008.

Commitments and Contingencies

On July 12, 2007, we entered into a retention bonus agreement (the “Agreement”) with Michael P. Piazza, our President and Chief Executive Officer and Shawn L. Clift, our Chief Financial Officer (each an “Executive”). Under the terms of the Agreement, we agreed to pay to the Executives beginning June 1, 2007 (the “Effective Date”), a retention bonus equal to the Executive’s monthly base salary in effect as of the Effective Date during the period we investigate restructuring options. On July 26, 2007, we entered into a retention bonus agreement with Lifestyles Integration, Inc., the company through which we receive the consulting services of Eric Hanlon. Under the terms of the agreement, we will pay Lifestyles, effective June 1, 2007, a monthly retention bonus equal to Lifestyles’ monthly consulting fee of $12,500 during the period in which we consider restructuring alternatives.

For the year ending June 30, 2008 retention bonuses were paid to Michael Piazza and Shawn Clift for $75,000 and $62,500 respectively. In addition, retention bonuses of $61,875 were paid to Lifestyles Integration, Inc., for the consulting services provided by Eric Hanlon. There is no accrual on the June 30, 2008 balance sheet for retention bonuses because no additional retention bonuses will be paid due to termination/departure of the employees and termination of the consulting agreement with Lifestyles Integration, Inc.

Reporting Requirements

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

Off-Balance Sheet Arrangements.

None.


ITEM 7 .		FINANCIAL STATEMENTS

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


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

None.


Item 8A(T).		CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our President, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, with the participation of the President, evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, with the participation of the President, concluded that, as of June 30, 2008, our internal control over financial reporting was not effective. The Company’s material weaknesses in internal control are (a) insufficient entity level controls caused by a lack of senior management oversight and absence of corporate governance structure and (b) lack of segregation of duties and the lack of sufficient accounting expertise in the financial reporting process to support sufficient review and approval procedures and timely filing of financial statements. However, the Company believes the costs of remediation outweigh the benefits given the limited operations of the Company.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

(b) Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


ITEM 8B .		OTHER INFORMATION

None.

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


Names:	Ages		Titles:	Board of Directors
Michael P. Piazza (1)		50	Chief Executive Officer, President and Treasurer	Director
Geoffrey Evett		68	Interim President, Chief Executive Officer and Treasurer	Director
Shawn L. Clift (2)		51	Chief Financial Officer and Secretary
Geoffrey Long		45	Chief Financial Officer
James Dorman		74		Director
Roger 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.

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

Michael P. Piazza resigned as a Director of the Company on December 19, 2007. On the same day, Mr. Piazza resigned as Chief Executive Officer, President and Treasurer effective December 31, 2007. Mr. Piazza joined our board of directors effective June 5, 2005. Since May 25, 2005, Mr. Piazza has been our Chief Executive Officer, President, and Treasurer. From May 25, 2005 until October 5, 2005, Mr. Piazza was also our Chief Financial Officer. From March 2005 to April 2005, Mr. Piazza was unemployed. From August 2003 to February 2005 Mr. Piazza was Senior Vice President and Chief Financial Officer of Ranger Enterprises, Inc., a petroleum corporation located in Rockford, Illinois. From May 2001 to July 2003, Mr. Piazza was a principal with Elan Capital, LLC, a management and financial consulting firm located in Houston, Texas. From February 1996 to April 2001, Mr. Piazza was a senior manager with McKinsey & Company, Inc., a management consulting firm located in Houston, Texas. Mr. Piazza received a Bachelor of Science degree in engineering from the Massachusetts Institute of Technology; a Master of Science degree in engineering from the University of California at Berkeley; and a Master of Business Administration degree from the Stern School at New York University. Mr. Piazza also is a Certified Management Accountant.

Shawn L. Clift resigned her position as Chief Financial Officer on December 10, 2007, but agreed to stay with the Company until a replacement was named. On December 19, 2007, the Company named Mr. Geoffrey Long as CFO. Ms. Clift was appointed as Chief Financial Officer on November 17, 2006. From August 2005 to September 2006, Ms. Clift served as Vice-President of Finance of CDX Gas, LLC, an independent coalbed methane extraction company, where she directed financing activities and managed private equity acquisitions. From 2001 to July 2005, Ms. Clift served as Director of Finance for Olympus America Inc. — Diagnostic Systems Group, an international company specializing in medical equipment and consumer products. From 1998 to 2001, Ms. Clift served as Senior Coordinator of International Controls in the New York office of Amerada Hess Corporation, an integrated international oil and gas company with annual sales of $12 billion. Ms Clift was a controller for two oil and gas companies for 15 years. Ms. Clift holds a Bachelor of Science degree in Accounting from Regis University.

Geoffrey Evett joined our board of directors on August 30, 2005. On December 19, 2007, Mr. Evett was elected by the Board to become interim Chief Executive Officer, President and Treasurer of the Company, replacing Mr. Michael P. Piazza. Mr. Evett is still a Director of the Company. Mr. Evett is a former banker with 33 years of experience. During the past five years, Mr. Evett has acted as a finance consultant to a major property development in the Czech Republic. He has also been involved with the development of a mixed commercial development in Prague. Mr. Evett serves as Chairman of Themis MN Fund Limited, a hedge fund listed on the Dublin Stock Exchange and serves as a partner in Capital Management Solution, a fund management company. He is also an agent for Banque SCS Alliance, a Swiss bank based in Geneva.

Geoffrey Long was appointed Chief Financial Officer on December 19, 2007, replacing Shawn Clift. Mr. Long is Account Executive & Corporate Finance member for EuroHelvetia Trust Co, S.A. in Geneva, Switzerland where he works with corporate clients especially those wishing to list their company on a UK stock market. From July 2001 through August 2004, Mr. Long was Group Chief Accountant for CalciTech Group Services sarl in Ferney-Voltaire, France where he was responsible for all accounting and financial aspects of the parent and all its subsidiaries based around the world. Mr. Long served as Financial Controller for Gessien Business Development S.A., in Ferney-Voltaire, France from July 1989 to June 2001. Prior to this position, Geoff was Accountant and Data Processing Manager for EMSO Group Services SARL in Ferney-Voltaire, France from July 1988 to June 1989. From February 1983 to June 1988, Geoff was Accounts Clerk and Insolvency Assistant with Prestborough Group Limited in Malvern, United Kingdom. Mr. Long is a Certified Accounting Technician and a member of the Chartered Association of Certified Accountants (UK).

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

James H. Dorman joined our board of directors on December 27, 2007, replacing the position vacated by Mr. Piazza. Mr. Dorman has almost 50 years of experience in exploration and development, as a professional geologist and as an oil and gas executive. Since 2001, he has been involved in various advisory projects for Platinum Energy Corporation. Since 2002, he has been a member of the Board of Directors of Transmeridian Exploration, Inc., a publicly-held exploration and production company. In 1996, Mr. Dorman founded Doreal Energy Corporation, also a publicly-held exploration and production company, and served as President, Chief Executive Officer and a Director until retiring in 2001. Since May 2007, Mr. Dorman has been a manager and principal of KD Resources, LLC, a privately owned oil and gas exploration company that Mr. Dorman founded along with other senior executives and directors of Platinum Energy Corporation.

In addition, for fiscal year 2007 and until or about December 1, 2007, we had an advisory board that provided consulting services to us. Typically, our advisors worked up to five days a month, depending on our activity, except for Eric Hanlon who provided consulting services to us approximately three (3) days per week. Members of our advisory board until December 1, 2007 were:

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

On September 10, 2007, we issued Mr. Gittelman 43,750 shares of common stock, valued at $4,375 or $0.10 per share, the fair market value of our common stock at the date of grant, in conjunction with agreement for his advisory services. On or about December 1, 2007, Mr. Gittelman resigned from the advisory board and no additional common shares, except those aforementioned shares have been issued. For the year ended June 30, 2008 we recorded advisory expenses to Mr. Gittelman $6,830 for advisory services.

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

On September 10, 2007, we issued 75,000 shares of common stock valued at $7,500 or $0.10 per share, the fair market value of our common stock at the date of grant, in conjunction with the agreement for his advisory services. In addition, from July 2007 through November 2007, we recorded advisory service fees of $8,250 for advisory. On or about December 1, 2007, Mr. Stein resigned from our advisory board and no additional common shares or advisory service payments, except the aforementioned amounts have been issued for the fiscal year ended June 30, 2008.

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

On September 10, 2007, we issued 59,375 shares of common stock valued at $5,937 or $0.10 per share, the fair market value at the date of grant, in conjunction with the agreement for his advisory services. On or about December 1. 2007, Mr. Kulpecz resigned from our advisory board and no additional common shares, except the aforementioned shares have been issued for the year ended June 30, 2008. In addition, we have not made any monthly retainer payments, in accordance with the above description, to Mr. Kulpecz for the year ended June 30, 2008.

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

On July 27, 2007 and September 10, 2007 we issued a total of 60,000 shares of common stock valued at $4,500 or $0.075 per share for advisory services. On October 25, 2007 we issued 90,000 shares of common stock valued at $4,500, or $0.05 per share, the fair market value of our common stock at the date of grant, for additional advisory services. For the year ended June 30, 2008, we also recorded expenses under the advisory services agreement with Lifestyles Integration, Inc., of $168,944 for advisory services. On or about December 1, 2007, Mr. Hanlon resigned from our advisory board.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Compliance with Section 16(a) of the Securities Exchange Act of 1934 Act, as amended, requires our officers and directors, and persons who own more than ten percent of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission, or SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us during, and with respect to, the fiscal year ending June 30, 2008, we believe that during such fiscal year all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were in compliance with Section 16(a).

CODE OF ETHICS

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

AUDIT COMMITTEE

Due to the size of the Company, the Company does not have a separate audit committee. Instead, the Board of Directors performs the functions of the audit committee. Further, no member of the Board of the Directors is deemed to be an audit committee financial expert. The Chief Financial Officer, Geoff Long, is not a member of the Board of Directors.


ITEM 10 .		EXECUTIVE COMPENSATION

The following table set forth certain information regarding our CEO and each of our most highly-compensated executive officers for the fiscal years ending June 30, 2008 and 2007:

SUMMARY COMPENSATION TABLE


Name and Principal			Salary and Bonuses		Stock Awards
Position	Fiscal Year		($)		($)		TOTAL($)
Geoffrey Evett, President,		2008		176,000		0		176,000
Chief Executive Officer		2007		0		0		0
and Treasurer (1)
Michael P. Piazza,		2008		180,000		20,000		200,000
President , Chief		2007		172,500		0		172,500
Executive Officer and Treasurer (2)
Geoff Long, Chief		2008		0		0		0
Financial Officer (3)		2007		0		0		0
Shawn Clift, Chief		2008		150,000		17,200		167,200
Financial Officer and		2007		92,700		25,500		118,200
Secretary (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.

On December 19, 2007, Mr. Piazza resigned as a Director and his position with the Company. For the year ended June 30, 2008, only 500,000 shares vested and were issued to Mr. Piazza. Due to Mr. Piazza’s resignation from the Company, no additional common shares are owed under his employment agreement and there are no unvested shares outstanding.


(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.


(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.

The amount shown as the 2007 value of Ms. Clift’s restricted stock award in the table above is based upon the fair value of 170,000 shares of our common stock awarded on November 20, 2006 determined in accordance with FAS 123R and excludes the unvested portion of the shares of our common stock issuable under her employment agreement. If we declare any dividends on our common stock, Ms. Clift would only be entitled to receive dividends on the vested portion of the restricted common stock described above.

The amount shown as the 2008 value of Ms. Clift’s restricted stock awards in the table above is based on the fair value of 430,000 shares of our common stock awarded on November 20, 2007. Of the common shares issued, 170,000 shares were awarded based six-month grant and 260,000 shares as an annual bonus. The awards were determined in accordance with FAS 123R and exclude the unvested portion of the shares of our common stock issuable under her employment agreement. Since Ms. Clift resigned from the Company on December 19, 2007, no additional common shares have been issued nor are any unvested restricted shares owed.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

At June 30, 2008 there were no outstanding equity awards as the persons receiving such awards, Michael P. Piazza and Shawn L. Clift, terminated their employment with the Company.

Director Compensation

DIRECTOR COMPENSATION


	Fees Earned or Paid in Cash	Total
Name	($)	($)
Geoff Evett (1)	27,000	27,000
Roger Leopard (1)	18,000	18,000
James 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.

See also the related party transactions with directors disclosed in Item 12 below.


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

EQUITY COMPENSATION PLANS

Plan Category

Column (a)

Column (b)

Column (c)

Number of securities

remaining available

for future

Number of Securities to be

issuance under equity

issued upon exercise of

compensation plans

outstanding options,

Weighted-average exercise

(excluding

warrants

price of outstanding options,

securities reflected in

and rights

warrants and rights

Column (a)

Equity compensation plans approved by stockholders (1)

N/A

5,000,000

Equity compensation plans not approved by stockholders (2)

N/A

4,393,125

TOTAL

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

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

Agreements with Advisors

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

On or about December 1, 2007 the members of the advisory board either resigned from the Company or their agreements were terminated. From July 2007 through November 2007 (part of the fiscal year ended June 30, 2008), we made cash payments to the advisory board members in accordance with their consulting agreements and we issue stock to the members in accordance with their consulting agreements. After December 1, 2007 the Company did not make any payments or issue any additional shares of common stock to the advisory board members. We have not replaced the advisory board, but we did enter into a separate consulting agreement with Eric Hanlon, through Lifestyles Integration, Inc., for consulting services.


	Maximum
	Number			Total Shares
Name of Advisor	of Shares			Issued **		Vesting Schedule
Alexander 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.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our common stock as of September 23, 2008

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

	•		by each of our officers and directors; and

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

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


Name and Address of Owner	Title of Class	Number of Shares Owned (1)			Percent of Class (2)
Michael P. Piazza 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.


(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.

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

Mr. Timothy Hart, our former Chief Financial Officer, provided accounting and financial advisory services to us through his certified public accounting firm, Ullman & Hart CPAs, from February 2005 through December 31, 2006. For the year ended June 30, 2007, we paid fees totaling approximately $58,277 to Mr. Hart’s firm and issued 10,000 shares of our common stock to Mr. Hart for services provided by Mr. Hart and his firm. No payments were made to Mr. Hart’s firm for the year ended June 30, 2008.

On December 22, 2005 we borrowed $100,000 from a shareholder, Petrofinanz GmbH. The loan accrued interest at 12% annually and originally was due on June 20, 2006. On August 28, 2006 we entered into an amended and restated agreement extending the maturity date and increasing our debt by $500,000. On March 6, 2007 we entered into the second amended and restated agreement increasing our debt $400,000. As of June 30, 2008 and 2007, the total principal amount is $1,000,000. The loan accrues interest at 10% annually and the maturity date was extended to June 30, 2009.

On June 11, 2008, we entered into a Consulting Agreement with Lifestyles Integration, Inc. for the consulting services of Mr. Hanlon related to the Company’s current position in Ignis Barnett Shale LLC and assist the Company in analyzing potential performance of this asset as well as reviewing the Company’s current position and assist the Company in analyzing potential performance of other existing assets and potential acquisition of assets identified by the Company. For these services, Mr. Hanlon will receive a monthly retainer of $6,800 for up to three hours per week and $700 per hour in any given week for work performed that exceeds the three-hour per week maximum. We made payment of $6,900 under this agreement to Liftstyles Integration, Inc. for the year ended June 30, 2008.

During the year, we engaged Metlera Capital, S.L., a consulting company owned by or affiliated with Geoff Evett, our interim President and Chief Operating Officer, for strategic consulting services. During the year ended June 30, 2008, we have paid or accrued expenses for Metlera Capital S.L. of $120,000. This amount is included in the Salary and Bonus calculation shown in Executive Compensation above.

Transactions involving Directors

For the period ended June 30, 2007 we accrued expenses on behalf of our Directors for pursuing financing opportunities for us. As of June 30, 2007, we had accrued $161,528. For the year ended June 30, 2008, we accrued or paid expenses on behalf of our Directors of $52,975.

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

Director Independence

We have determined that Roger Leopard and James Dorman, our non-employee directors, are independent as defined by the listing requirements of the American Stock Exchange for “independence” of directors. Geoff Evett was a non-employee director until December 19, 2007 at which time he was given the title of interim Chief Executive Officer and President and is no longer considered independent.


ITEM 13 .		EXHIBITS

(a)

EXHIBITS

The following are exhibits to this report:


Exhibit No.		Description

3.1		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


Exhibit No.		Description

		May 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.


Exhibit No.		Description

10.9		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 . PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

For the years ended June 30, 2008 and 2007, our principal accountant billed $78,770 and $133,857, respectively, for the audit of our annual financial statements and review of the Securities and Exchange Commission filings. In the fiscal year ended June 30, 2007, we incurred additional audit fees related to the re-audit and restatement of the June 30, 2006 financial statements. These additional fees were not incurred in fiscal year 2008 resulting in the decrease compared to the prior year.

AUDIT-RELATED FEES

There were no fees billed for services related to the performance of the audit or review of our financial statements outside of those fees disclosed above under “Audit Fees” for the years ended June 30, 2008 and 2007.

TAX FEES

For the fiscal years ended June 30, 2008 and 2007, our principal accountant billed services for the preparation of the 2006 US Corporation Income Tax return and the 2004 and 2005 US Corporation Income Tax returns in the amount of $7,560 and $7,052, respectively.

ALL OTHER FEES

There were no other fees billed by our principal accountants other than those disclosed above for the years ended June 30, 2008 and 2007.

PRE-APPROVAL POLICIES AND PROCEDURES

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

SIGNATURES

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


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

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


Signature	Title	Date

/s/ Geoffrey Evett Geoffrey Evett	Interim President, Chief Executive Officer, Treasurer and Director	October 13, 2008


/s/ Geoffrey Long	Chief Financial Officer	October 13, 2008
Geoffrey Long

	Director
James Dorman

/s/ Roger Leopard	Secretary and Director	October 13, 2008
Roger Leopard

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Ignis Petroleum Group, Inc.
Plano, Texas

We have audited the accompanying consolidated balance sheets of Ignis Petroleum Group, Inc. and subsidiary (the “Company”) as of June 30, 2008 and 2007, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years ended June 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ignis Petroleum Group, Inc. and subsidiary as of June 30, 2008 and 2007, and the results of its operations and its cash flows for the years ended June 30, 2008 and 2007, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and its total liabilities exceeds its total assets. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We were not engaged to examine management’s assessment of the effectiveness of Ignis Petroleum Group, Inc. and subsidiary’s internal control over financial reporting as of June 30, 2008, included in the Company’s Item 8(A)(T) “Controls and Procedures” in the Annual Report on Form 10-KSB and, accordingly, we do not express an opinion thereon.

Hein & Associates LLP
Dallas, Texas
October 13, 2008

F-1

Ignis Petroleum Group, Inc. and Subsidiary
Consolidated Balance Sheets


	For the Years
	Ended June 30,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	267,275		$	315,935
Accounts receivable		259,415			222,311
Prepaid expenses and other current assets		65,685			68,701

Total current assets		592,375			606,947


Property and equipment:
Oil and gas properties, net (successful efforts method)		45,444			315,928

Other assets		300,086			652,908


Total assets	$	937,905		$	1,575,783


LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	344,420		$	260,501
Accrued interest		997,014			1,557,673
Current portion of long-term debt		5,630,900			5,890,000
Current portion of debt discount		(4,537,527	)		(4,889,454	)
Current portion of derivative liability		311,943			366,568
Current portion of contingent liability		1,600,000			—
Current portion of warrant liability		—			627,387

Total current liabilities		4,346,750			3,812,675


Long-term liabilities:
Asset retirement obligation		25,662			48,598

Total long-term liabilities		25,662			48,598


Stockholders’ 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			53,254
Additional paid-in capital		12,771,185			8,346,425
Accumulated 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

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

F-2

Ignis Petroleum Group, Inc. and Subsidiary
Consolidated Statement of Operations


	For the Years
	Ended June 30,
	2008			2007
Oil and gas product sales	$	2,006,319		$	1,267,948
Management fees		90,000			142,500

Total revenue		2,096,319			1,410,448


Operating expenses:
Lease operating expense		209,769			30,771
Production an ad valorem taxes		107,213			89,041
Depreciation, depletion and amortization		297,716			835,879
Accretion of asset retirement obligation		3,435			16,585
Exploration expenses, including dry holes		—			825,737
General and administrative expenses		2,028,791			2,583,463

Total operating expenses		2,646,924			4,381,475


Loss from operations		(550,605	)		(2,971,028	)

Other income (expense)
Gain from valuation of derivative liability		54,625			5,127,252
Interest 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	)		3,315,179


Net income/(loss)	$	(1,301,705	)	$	344,151


Basic income (loss) per common share	$	(0.02	)	$	0.01


Weighted average number of common shares outstanding		56,707,350			50,809,288


Diluted income (loss) per common share	$	(0.02	)	$	—


Diluted weighted average number of common shares outstanding		56,707,350			58,838,192

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

F-3

Ignis Petroleum Group, Inc. and Subsidiary
Consolidated Statement of Stockholder’s Deficit
For the years ended June 30, 2008 and 2007


					Additional
	Common Stock				Paid-in		Accumulated
	Shares		Par value		Capital		Deficit			Total
Balance 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		—			477,814

Conversion of convertible notes		942,937		943		109,057		—			110,001

Loss on conversion of debt into common stock		—		—		2,234		—			2,234

Employee restricted stock plan exposure		—		—		17,112		—			17,112

Net income		—		—		—		344,151			344,151


Balance 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	$	—		$	30,812

Issuance of common stock to officers		930,000		930		41,801		—			42,731

Conversion of convertible notes		43,191,931		43,192		8,566		—			51,758

Effect of change in accounting principle		—		—		4,343,959		(4,316,572	)		27,387

Net 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	)

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

F-4

Ignis Petroleum Group, Inc. and Subsidiary
Consolidated Statement of Cash Flows


	For the Years
	Ended June 30,
	2008			2007
Cash flow from operating activities
Net income/(loss)	$	(1,301,705	)	$	344,151

Adjustments to reconcile net income(loss) to net cash used in operating activities
Depreciation and depletion		297,716			835,879
Amortization of debt cost		322,860			312,617
Amortization of debt discount		144,585			544
Loss from valuation adjustment of oil and gas properties		—			825,517
Loss from contingent liability		1,000,000			—
Stock issued for compensation and services		73,542			617,890
Gain 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			164,693
Accounts payable and accrued expenses		(476,740	)		725,413


Cash used in operating activities		(108,660	)		(1,433,010	)


Cash flow from investing activities
Purchase of oil and gas properties		—			(23,626	)
Sale of oil and natural gas property		60,000


Cash provided by (used in) investing activities		60,000			(23,626	)


Cash flow from financing activities
Proceeds from note payable		—			900,000

Cash provided by financing activities		—			900,000


Net decrease in cash		(48,660	)		(556,637	)

Cash at beginning of period		315,935			872,572


Cash at end of period	$	267,275		$	315,935


Supplemental non-cash financing transactions:
Warrant liability reversal	$	600,000			—

Conversion of debenture into equity	$	259,100		$	110,000

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

F-5

Ignis Petroleum Group, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2008

Note 1
Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation

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

Use of Estimates

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

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

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

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

Income Taxes

We apply SFAS No. 109, Accounting for Income Taxes . Pursuant to SFAS No. 109 we are required to compute tax asset benefits for net operating losses carried forward. Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The potential benefit of net operating losses has not been recognized in these financial statements because we cannot be assured it is more likely than not we will utilize the net operating losses carried forward in future years. Our accumulated net operating loss for income tax purposes as of June 30, 2008 is approximately $11,900,000.

Cash and Cash Equivalents

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

Concentration of Credit Risk

Financial instruments that potentially subject us to credit risk consist principally of cash. Cash was deposited with a

F-6

high quality credit institution. At times, such deposits may be in excess of the FDIC insurance limit.

Accounts Receivable

Accounts receivable principally consists of crude oil and natural gas sales proceeds receivable and are typically due within 30 and 60 days of their respective production. We require no collateral for such receivables, nor do we charge interest on past due balances. We periodically review accounts receivable for collectability and reduce the carrying amount of the accounts by an allowance. No such allowance was indicated at June 30, 2008.

Revenue Recognition and Concentration of Credit Risks

We recognize revenue when crude oil and natural gas quantities are delivered to or collected by the respective purchaser. Title to the produced quantities transfers to the purchaser at the time the purchaser receives or collects the quantities. Prices for such production are defined in sales contracts and are readily determinable based on certain publicly available indices. The purchasers of such production have historically made payment for crude oil and natural gas purchases within thirty days of the end of each production month. We periodically review the difference between the dates of production and the dates we collect payment for such product to ensure that accounts receivable from those purchasers are collectible. For the years ended June 30, 2008 and 2007, one purchaser represented 99.8% and 97.0% of our revenues, respectively. We believe that we would be able to locate an alternate customer in the event of the loss of this customer.

Property and Equipment — Oil and Gas Properties

We follow the successful efforts method of accounting, capitalizing costs of successful exploratory wells and expensing costs of unsuccessful exploratory wells. All developmental costs are capitalized. The property costs reflected in the accompanying consolidated balance sheet resulted from drilling on developed acreage.

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

Our units-of-production amortization rates are revised on a quarterly basis. Our development costs and lease and wellhead equipment are depleted based on proved developed reserves. Our leasehold costs are depleted based on total proved reserves. Significant unproved properties are assessed for impairment individually and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that we expect to hold the properties. The valuation allowances are reviewed at least annually. Other exploratory expenditures, including geological, geophysical and 3-D seismic survey costs are expensed as incurred.

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

Impairment of Developed Oil and Natural Gas Properties

We review our oil and natural gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. We estimate the expected future cash flows of our oil and natural gas properties and compare such future cash flows to the carrying amount of our oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds undiscounted future cash flows, we will adjust the carrying amount of the oil and natural gas properties to its fair value. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, commodity pricing, future production estimates, anticipated capital expenditures, and a discount rate commensurate with the risk associated with realizing the expected cash flows projected. For the twelve months ended June 30, 2007 we recorded an impairment in the amount of $149,187 on the Inglish Sisters #3 well in Cooke County, Texas. On September 30, 2008 we sold the Inglish Sisters #3 well and recorded a gain, net of taxes, of $87,837. No impairment was indicated for the year ended June 30, 2008.

Asset Retirement Obligation

Our financial statements reflect the fair value for any asset retirement obligation that can be reasonably estimated. The retirement obligation is recorded as a liability at its estimated present value at the asset’s inception, with an

F-7

offsetting increase to producing properties on the consolidated balance sheets. Periodic accretion of the discount of the estimated liability is recorded as an expense in the consolidated statements of operations. As of June 30, 2008 and 2007 we recorded expense of $3,435 and $16,585 and our asset retirement obligation at June 30, 2008 is $25,662.

We apply SFAS No.143 Accounting for Asset Retirement Obligations, which 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.


	2008			2007
Asset retirement obligation at June 30,		48,598			—
Liabilities incurred
Liabilities assumed		—			32,013
Liabilities settled due to property sale		(26,371	)
Accretion expense		3,435			16,585


Asset retirement obligation at June 30,		25,662			48,598

Environmental Costs

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

Advertising

Advertising costs are expensed as incurred. Advertising expense was $0 in 2008 and $160,582 in 2007.

Basic and Diluted Net Loss per Share

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

As of June 30, 2007, the senior convertible debentures diluted earnings per share to $0.00. The net income attributed to common stock was reduced by $127,106 represented by interest expense, debt discount amortization and changes in the derivative liability. The weighted average shares were increased by approximately 8,000,000 shares assuming conversion of the senior convertible debentures.

Any of our warrants which were outstanding in all periods presented were also excluded from the calculation of diluted earnings per share as their effect would have been antidilutive. Since we incurred net losses attributed to common stock for 2008, no dilution of the net losses per share would have resulted from the assumed conversion of the senior convertible debentures, discussed above. As of June 30, 2008, the total potentially dilutive shares upon conversion totaled 1,131,678,487 shares based upon a conversion price of approximately $0.004 per common share.

Stock-based Compensation

We adopted SFAS 123(R), Share Based Payments , on July 1, 2006, under which compensation expense is recognized immediately for past services and pro-rata for future services over the option-vesting period. As of June 30, 2008, we have not granted any stock options.

We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18. Costs

F-8

are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

New Pronouncements

In September 2006 the FASB issued Statement of Accounting Standards No. 157. The statement is effective for Financial Statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management has not yet examined the effect on the financial statements for subsequent years.

Note 2
Joint Venture

For the years ended June 30, 2008 and June 30, 2007, we did not engage in any acquisitions. However, on November 15, 2006, we entered into a joint venture with affiliates of Silver Point Capital, L.P. through a limited liability company named Ignis Barnett Shale, LLC. The joint venture acquired 45% of the interests in the acreage, oil and natural gas producing properties and natural gas gathering and treating system located in the St. Jo Ridge Field in the North Texas Fort Worth Basin then held by W.B. Osborn Oil & Gas Operations, Ltd. and St. Jo Pipeline, Limited. The purchase price for the acquisition was $17,600,000, subject to certain adjustments, plus $850,000 payable by Ignis Barnett Shale in thirty-six monthly installments of $23,611, beginning one month after closing. In addition, Ignis Barnett Shale agreed to fund additional lease acquisitions up to a total of $5,000,000 for a period of two years.

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

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

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

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

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

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

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

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

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

F-9

(ix)

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

Under the partnership agreement we are paid a management fee to handle day-to-day operations. For the year ended June 30, 2008 we recorded $90,000 in revenue for management fees. Until we earn our equity share in the Ignis Barnett Shale, LLC entity we do not consolidate or record the financial impact of the partnership in our records. As of June 30, 2008, there was no financial impact on our financial statements.

On December 21, 2007, our Services Agreement, dated November 15, 2006, with Ignis Barnett Shale, LLC (“IBS”) was automatically terminated pursuant to its term upon our removal as the B Manager of the Amended and Restated Limited Liability Company Agreement of IBS, dated November 15, 2006 (the “LLC Agreement”), by Silver Point Capital L.P. (“Sliver Point”). The Services Agreement was entered into on November 15, 2006 for the purpose of providing management and administrative services to IBS in exchange for payment of $50,750 per month during the initial 12 months and $43,250 per month thereafter. The LLC Agreement remains in effect and unchanged.

Note 3
Going Concern

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

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

We do not expect any capital expenditures through the remainder of the calendar year or in the foreseeable future. If current market conditions and our existing production levels of oil and natural gas continues we have sufficient funds to conduct our operations for a limited amount of time which includes no capital expenditures, We anticipate that we will need external funding to continue our current and planned operations for the next 12 months. 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 either slow or cease operations.

F-10

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 or cease our operations.

Note 4
Property and equipment

Oil and gas properties consisted of the following at June 30, 2008 and 2007:


Oil and gas properties:	2008			2007
Proved	$	1,608,710		$	1,608,710
Unproved		—			—

		1,608,710			1,608,710
Less accumulated depletion and depreciation		(1,563,266	)		(1,292,782	)

	$	45,444		$	315,928

Note 5
Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. We have incurred net operating losses for income taxes of approximately $11,900,000 as of June 30, 2008. Pursuant to SFAS No. 109 we are required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because we cannot be assured it is more likely than not we will utilize the net operating losses carried forward in future years.

The components of the net deferred tax asset at June 30, 2008, and the effective tax rate and the amount of the valuation allowance are indicated below:


Net operating tax loss	$	11,900,000
Effective tax rate		34	%

Deferred tax asset	$	4,046,000
Valuation allowance	$	(4,046,000	)

Net deferred tax asset	$	—

Note 6
Long term debt

$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

•

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

F-11

	•		$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

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. See further discussion in Note 9- Subsequent Events. Accordingly, there is no limit on the number of shares into which the secured convertible debentures may be converted. except under Section 3(b)(i) limits the number of shares issuable to Cornell Capital Partners, LP upon conversion to 4.99% of the outstanding stock at time of conversion. Under section 39(a)(ii) of the same agreement, we are required to pay cash in lieu of shares for the portion greater than 4.99%. The amount of cash is determined by the number of shares issuable upon conversion and the current market price of our stock. Since the number of shares issuable is calculated using 94% of the market price, the cash conversion results in approximately a 6% premium paid on conversion. The conversion price of the secured convertible debentures will be adjusted in the following circumstances:

F-12

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.

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

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

Under the Secured Convertible Debenture, Section 3(b)(i) limits the number of shares issuable to Cornell Capital Partners, LP upon conversion to 4.99% of the outstanding stock at time of conversion. Under section 39(a)(ii) of the same agreement, we are required to pay cash in lieu of shares for the portion greater than 4.99%. The amount of cash is determined by the number of shares issuable upon conversion and the current market price of our stock. Since the number of shares issuable is calculated using 94% of the market price, the cash conversion results in approximately a 6% premium paid on conversion. As a result, the value of the derivative liability related to the conversion in excess of 4.99% will be based on the Cash Premium Method rather than using the Black-Scholes model. The conversion option is assumed to be converted via a cash payment since the January 5, 2006 derivative would use the entire 4.99% cap upon conversion any such additional conversions would be subsequent using the Black-Scholes method to mark-to-market. As of June 30, 2008 and 2007 we recorded a liability of $104,410 and $366,568, respectively.

The holders of the secured convertible debentures and warrants have registration rights that required us to file a registration statement with the Securities and Exchange Commission to register the resale of the common stock issuable upon conversion of the debenture or the exercise of the warrants. Under (“EITF No. 00-19”), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock , the ability to register stock was deemed to be outside of our control. Accordingly, the initial aggregate fair value of the warrants were recorded as a derivative liability in

F-13

the consolidated balance sheet, and is marked to market at the end of each reporting period. Utilizing the Black-Scholes method we marked-to-market the warrants on a quarterly basis which resulted in a liability at June 30, 2008 and 2007 of zero and $627,387, respectively. In accordance with EITF No. 00-19, EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments , the values assigned to both the debenture, conversion feature and the warrants were allocated based on their fair values. The fair market value of the warrants and conversion option at issuance exceeded the principal balance of the secured convertible debentures by $4,933,880. The excess value was expensed to interest expense at issuance. The amount allocated as a discount on the secured convertible debentures for the value of the warrants and conversion option will be amortized to interest expense, using the effective interest method, over the term of the secured convertible debentures. For the years ended June 30, 2008 and 2007 the balance of convertible debt less debt discount was $93,393 and $546, respectively. We accrue interest on the Convertible Debentures at the rate of 7% per annum. For the years ended June 30, 2008 and 2007 accrued interest was $997,014 and $484,912, respectively.

In connection with the second amended and restated securities purchase agreement, we also entered into a second amended and restated registration rights agreement providing for the filing, within five days of April 28, 2006, of a registration statement with the Securities and Exchange Commission registering the common stock issuable upon conversion of the secured convertible debentures and warrants. We are obligated to use our best efforts to cause the registration statement to be declared effective no later than 130 days after filing and to insure that the registration statement remains in effect until the earlier of (i) all of the shares of common stock issuable upon conversion of the secured convertible debentures have been sold or (ii) January 5, 2008. In the event of a default of our obligations under the registration rights agreement, including our agreement to file the registration statement no later than May 3, 2006, or if the registration statement is not declared effective by September 5, 2006, we are required pay to Cornell Capital, as liquidated damages, for each month that the registration statement has not been filed or declared effective, as the case may be, either a cash amount or shares of our common stock equal to 2% of the liquidated value of the secured convertible debentures. As of June 30, 2008 the registration statement has not been declared effective, therefore we accrued liquidated damages in the amount of $1,000,000 for the 2007 fiscal year. Due to the failure of the registration statement to be declared effective we are considered in default and have recorded the debt as a current liability in these financial statements.

In December 2006, the FASB approved FASB Staff Position (“FSP”) No. EITF 00-19-2, “Accounting for Registration Arrangements” (“FSP EITF 00-19-2”), which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies”. FSP EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. The guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, “ Accounting for Derivative Instruments and Hedging Activities”, and No. 150, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, to include scope exceptions for registration payment arrangements.

FSP EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the issuance date (December 21, 2006) of this FSP, or for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years, for registration payment arrangements entered into prior to the issuance date of this FSP. We adopted FSP EITF 00-19-2 effective July 1, 2007 and recorded $600,000 to contingent liability for the remaining probable payments we will incur prior to expiration of the registration rights agreement in January 2008. We also reclassified accrued liquidated damages in the amount of $1,000,000 from accrued interest to contingent liabilities. In addition, the warrants issued in connection with the Convertible Debentures no longer qualify for liability treatment per EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). We have recorded the initial fair market value of the warrants totaling $4,343,959 to additional paid-in capital and eliminated the June 30, 2007 fair market value of the warrant liability totaling $627,387. The net effect of the changes in the contingent liability and warrant liability results in a cumulative change in accounting principle totaling $4,316,572 recorded to the opening balance of retained earnings as of July 1, 2007.

The convertible debenture liability is as follows at June 30, 2008:


Convertible debentures payable	$	4,630,900
Less: unamortized discount on debentures		(4,537,527	)


Convertible debentures, net	$	93,393

F-14

We entered into a Loan Agreement on December 22, 2005 for an amount of $100,000 from a current investor, Petrofinanz GmbH. The loan accrues interest at 12% annually and matures June 20, 2006. We entered into an Amended and Restated Loan Agreement on August 28, 2006 for an additional amount of $500,000 resulting in a total amount of $600,000. The repayment date was changed to February 28, 2008 and interest accrues at the fixed rate of 10% per annum. We entered into a Second Amended and Restated Loan Agreement on March 6, 2007 for an additional amount of $400,000 resulting in a total amount of $1,000,000 at June 30, 2007. The repayment date was extended to June 30, 2009 and interest continues to accrue at 10% per annum. For the years ended June 30, 2008 and 2007 accrued interest was $173,036 and $72,762, respectively.

Note 7
Leases

Effective May 1, 2007, we entered into a five year operating lease for our office space. The lease requires monthly payments of $10,404 plus the cost of monthly utilities in the amount of $1,070. For the years ended June 30, 2008 and 2007, $112,179 and $148,075, respectively, was charged to rent expense.

Note 8
Stockholders’ Deficit

Issuances of common stock to officers: 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.

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.

On December 19, 2007, Ms. Clift resigned from the Company. For the year ended June 30, 2008, the Company awarded 430,000 shares of our common stock on November 20, 2007. Of the common shares issued, 170,000 shares were awarded based six-month grant and 260,000 shares as an annual bonus. The awards were determined in accordance with FAS 123R and exclude the unvested portion of the shares of our common stock issuable under her employment agreement. Since Ms. Clift resigned from the Company on December 19, 2007, no additional common shares have been issued nor are any unvested restricted shares owed.

Issuance of common stock for services: 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. During the year ended June 30, 2008, the Company issued 50,000 shares valued at $0.08 per common share representing the July 17, 2007 commitment. The subsequent six month issuance of

F-15

50,000 shares was not issued to the directors.

On July 27, 2007 and September 10, 2007 we issued a total of 60,000 shares of common stock valued at $4,500 or $0.075 per share to Eric Hanlon for advisory services. On October 25, 2007 we issued 90,000 shares of common stock valued at $4,500, or $0.05 per share, the fair market value of our common stock at the date of grant, for additional advisory services. For the year ended June 30, 2008, we also recorded expenses under the advisory services agreement with Lifestyles Integration, Inc., of $168,944 for advisory services. On or about December 1, 2007, Mr. Hanlon resigned from our advisory board.

On September 10, 2007, we issued 75,000 shares of common stock to Fred Stein valued at $7,500 or $0.10 per share, the fair market value of our common stock at the date of grant, in conjunction with the agreement for his advisory services. In addition, from July 2007 through November 2007, we recorded advisory service fees of $8,250 for advisory. On or about December 1, 2007, Mr. Stein resigned from our advisory board and no additional common shares or advisory service payments, except the aforementioned amounts have been issued for the fiscal year ended June 30, 2008.

On September 10, 2007, we issued 103,125 shares of common stock to various other individuals for services to us as advisors at $0.10 per share or $10,313. The company is not liable to these individuals for any further services.

Conversion of convertible notes: During the year ended June 30, 2008, YA Global Investments L.P. (formerly known as Cornell Capital Partners L.P. and referred herein as “YA Global”) elected to convert $259,100 of the convertible notes to common shares. The Company issued 43,191,931 common shares using conversion prices ranging $0.029 — $0.003. See further discussion concerning the conversion price in Note 9 — Subsequent Events.

Note 9
Subsequent Events

On July 18, 2008, we executed a forbearance agreement with YA Global under which, YA Global agreed, subject to specified limitations and conditions to forbear from exercising its rights and remedies arising from our failure to register with the Securities and Exchange Commission shares of its common stock underlying its secured convertible debentures, for the period commencing on July 17, 2008 and ending on January 5, 2009. Under the Forbearance Agreement, we agreed to make payments of $55,000 per month of the Forbearance Period to YA Global beginning with the month of August 2008.

Furthermore, pursuant to the terms and conditions of the Forbearance Agreement, contemporaneously with the execution and delivery of the Forbearance Agreement, we amended each of the following secured convertible debentures issued by us by executing amendments having the effect that the fixed conversion price (as defined in the Debentures) under each Debenture shall be $0.03: principal amount of $2,500,000, No. CCP-1, Secured Convertible Debenture issued to YA Global on February 9, 2006, in the original principal amount of $1,500,000, No. CCP-2, and Secured Convertible Debenture issued to YA Global on April 28, 2006, in the original principal amount of $1,000,000, No. CCP-3. Upon execution of the Forbearance Agreement, the effective conversion price will be the lower of $0.03 or 94% of the lowest Volume Weighted Average Price of the Common Stock during the thirty trading days immediately preceding the conversion date as quoted by Bloomberg, LP.

Note 10
Related Party Transactions

During the year, we engaged Metlera Capital, S.L., a consulting company owned by or affiliated with Geoff Evett, our interim President and Chief Operating Officer, for strategic consulting services. During the year ended June 30, 2008, we have paid or accrued expenses for Metlera Capital S.L. of $120,000. This amount is included in general & administrative expenses on the statement of operations.

Note 11
Supplemental Information For Oil and Gas Producing Activities (Unaudited)

Capitalized costs relating to oil and gas producing activities for the years ended June 30, 2008 and 2007:


Oil and gas properties:	2008		2007

Proved		1,608,710			1,608,710
Unproved		—			—

Total capitalized costs		1,608,710			1,608,710
Less accumulated depletion & depreciation		(1,563,266	)		(1,292,782	)

Net capitalized costs	$	45,444		$	315,928

F-16

Costs incurred in oil and gas producing activities for the years ended June 30, 2008 and 2007:


Oil and gas properties:	2008		2007

Acquisition of proved properties	$	—	$	—

Acquisition of unproved properties		—		23,626

Development cost		—		—

Results of operations from oil and gas producing activities for the years ended June 30, 2008 and 2007:


	Twelve Months Ended June 30,
	2008			2007
Results of oil and gas producing operations	$	1,388,184		$	(530,065	)

Management Fees		90,000			142,500

General & administrative expense		(2,028,791	)		(2,583,463	)

Gain/(loss) from valuation of derivative liability		54,625			5,127,252

Interest 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

Proved oil and gas reserves estimates were prepared by a petroleum engineer. The reserve reports were prepared in accordance with guidelines established by the Securities and Exchange Commission and, accordingly, were based on existing economic and operating conditions.

There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. Moreover, the present values should not be construed as the current market value of our natural gas and crude oil reserves or the costs that would be incurred to obtain equivalent reserves.

The following table sets forth our net proved reserves, including the changes therein, and proved developed reserves:


	Crude Oil			Natural Gas
	(Bbls)			(Mcf)
PROVED-DEVELOPED AND UNDEVELOPED RESERVES:
June 30, 2006		15,724			82,627
Revisions of previous estimates		16,232			(9,809	)
Production		(14,846	)		(44,248	)

June 30, 2007		17,110			28,570

F-17


	Crude Oil			Natural Gas
	(Bbls)			(Mcf)
Revisions of previous estimates		4,367			44,526
Sale of reserves		(42	)		(1,837	)
Production		(15,225	)		(50,269	)

June 30, 2008		6,210			20,990


PROVED DEVELOPED RESERVES
June 30, 2007		17,110			28,570
June 30, 2008		6,210			20,990

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

Under the Standardized Measure, future cash inflows were estimated by applying year-end prices, adjusted for contracts with price floors but excluding hedges, to the estimated future production of the year-end reserves.

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

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


	As of June 30,
	2008			2007
Future cash inflows	$	1,219		$	1,370
Future production costs		(330	)		(209	)
Future development costs		—			(25	)
Future income tax expense		—			—

Future net cash flows		889			1,136
10% annual discount for estimated timing of cash flows		(33	)		(215	)

Standardized measure of discounted future net cash flows related to proved reserves	$	856		$	921

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


	Years Ended June 30,
	2008			2007
Balance, beginning of period		921			1,389
Sales of oil and gas, net		(1,689	)		(1,244	)
Net change in prices and production costs		810			9
Net change in future development costs		24			(1	)
Extensions and discoveries		—			—
Sale of reserves		(18	)		—
Revisions of previous quantity estimates		603			628
Previously estimated development costs incurred		—			—
Accretion of discount		92			133
Other		113			7

Balance, end of period	$	856		$	921