UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-Q


(Mark
One)





R
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THESECURITIES EXCHANGEACT OF
    1934





For
the quarterly period ended December 31, 2009





Or





£
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the transition period
from  _____  to _____





Commission
file number: 000-51152





PETROHUNTER
ENERGY CORPORATION


(Exact
name of registrant as specified in its charter)





Maryland
            
            98-0431245(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)1600
      Stout Street
            
            80202Suite
      450, Denver, Colorado
            
            (Zip
    Code)(Address
      of principal executive offices)





Registrant’s
telephone number, including area code:


(303)
572-8900





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 R     No
£





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).Yes £No £ (not
required)





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and ”smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
accelerated filer £                                                                                     Accelerated
filer £


Non-accelerated
filer £                                                                                     Smaller
reporting company R





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





As of
January 31, 2010, the registrant had 380,468,544 shares of common stock
outstanding.











FORWARD-LOOKING
STATEMENTS





Certain
statements contained in this Quarterly Report constitute “forward-looking
statements”. These statements, identified by words such as “plan”, “anticipate”,
“believe”, “estimate”, “should”, “expect” and similar expressions include our
expectations and objectives regarding our future financial position, operating
results and business strategy. These statements reflect the current views of
management with respect to future events and are subject to risks, uncertainties
and other factors that may cause our actual results, performance or
achievements, or industry results, to be materially different from those
described in the forward-looking statements. Such risks and uncertainties
include those set forth under the caption “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and elsewhere in this
Quarterly Report. We do not intend to update the forward-looking information to
reflect actual results or changes in the factors affecting such forward-looking
information. We advise you to carefully review the reports and documents we file
from time to time with the Securities and Exchange Commission (the
“SEC”).





CURRENCIES





All
amounts expressed herein are in U.S. dollars unless otherwise
indicated.








2


PETROHUNTER
ENERGY CORPORATION





FORM
10-Q





FOR
THE THREE-MONTH PERIOD ENDED


DECEMBER
31, 2009





INDEX





PagePART
      I — FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements
            4Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            11Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            15Item
      4.
            Controls
      and Procedures
            16PART
      II — OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            17Item
      1A.
            Risk
      Factors
            17Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            17Item
      3.
            Defaults
      Upon Senior Securities
            17Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            17Item
      5.
            Other
      Information
            17Item
      6.
            Exhibits
            17SIGNATURES


3


PETROHUNTER
ENERGY CORPORATION


CONDENSED
CONSOLIDATED BALANCE SHEETS




December
      31,
              2009
            
            
            September
      30,
              2009(unaudited)(
      $ in thousands)ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            142
            
            
            $
            235Marketable
      securities, available for sale
            
            
            290
            
            
            
            455Restricted
      marketable securities
            
            
            2,799
            
            
            
            2,925Prepaid
      expenses and other assets
            
            
            130
            
            
            
            222TOTAL
      CURRENT ASSETS
            
            
            3,361
            
            
            
            3,837Property
      and Equipment, at costOil
      and gas properties under full cost method, net
            
            
            1,821
            
            
            
            1,427Furniture
      and equipment , net
            
            
            100
            
            
            
            1221,921
            
            
            
            1,549Other
      AssetsRestricted
      cash
            
            
            101
            
            
            
            101Deposits
      and other assets
            
            
            50
            
            
            
            50TOTAL
      ASSETS
            
            $
            5,433
            
            
            $
            5,537LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesAccounts
      payable and accrued expenses
            
            $
            4,694
            
            
            $
            4,104Notes
      payable — short-term
            
            
            81
            
            
            
            81Notes
      payable — related party — short term
            
            
            43,479
            
            
            
            43,479Convertible
      notes payable  — net
            
            
            6,956
            
            
            
            6,956Accrued
      interest payable
            
            
            625
            
            
            
            457Accrued
      interest and fees payable — related parties
            
            
            6,376
            
            
            
            5,409Other
      accrued liabilities
            
            
            7,273
            
            
            
            7,273Asset
      retirement obligation
            
            
            1,033
            
            
            
            1,012TOTAL
      CURRENT LIABILITIES
            
            
            70,517
            
            
            
            68,771Long-Term
      LiabilitiesOther
      long-term liabilities
            
            
            26
            
            
            
            29TOTAL
      LIABILITIES
            
            
            70,543
            
            
            
            68,800Stockholders’
      DeficitPreferred
      stock, $0.001 par value; authorized 100,000,000 shares; none
      issued
            
            
            —
            
            
            
            —Common
      stock, $0.001 par value; authorized 1,000,000,000 shares;
      380,468,544 shares issued and outstanding
            
            
            380
            
            
            
            380Additional
      paid-in-capital
            
            
            215,643
            
            
            
            215,576Accumulated
      deficit
            
            
            (281,133
            )
            
            
            (279,219
            )TOTAL
      STOCKHOLDERS’ DEFICIT
            
            
            (65,110
            )
            
            
            (63,263
            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
            
            $
            5,433
            
            
            $
            5,537





See
accompanying notes to these unaudited condensed consolidated financial
statements.


4




PETROHUNTER
ENERGY CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)







Three
      Months
              Ended
              December
      31,
              2009
            
            
            Three
      Months
              Ended
              December
      31,
              2008($
      in thousands except per share and share data)RevenueOil
      and gas revenue
            
            $
            —
            
            
            $
            122Other
      revenue
            
            
            —
            
            
            
            1Total
      Revenue
            
            
            —
            
            
            
            123Costs
      and ExpensesLease
      operating expenses
            
            
            —
            
            
            
            399General
      and administrative
            
            
            820
            
            
            
            2,118Impairment
      of oil and gas properties
            
            
            —
            
            
            
            10,268Depreciation,
      depletion, amortization and accretion
            
            
            41
            
            
            
            68Total
      operating expenses
            
            
            861
            
            
            
            12,853(Loss)
      From Operations
            
            
            (861
            )
            
            
            (12,730
            )Other
      Income (Expense)Loss
      on conveyance of property
            
            
            —
            
            
            
            (181
            )Interest
      income
            
            
            1
            
            
            
            6Interest
      expense
            
            
            (1,250
            )
            
            
            (2,484
            )Other
      income (expense)
            
            
            194
            
            
            
            (122
            )Total
      Other Income (Expense)
            
            
            (1,055
            )
            
            
            (2,781
            )Net
      (Loss)
            
            $
            (1,916
            )
            
            $
            (15,511
            )Net
      (loss) per common share — basic and diluted
            
            $
            (0.01
            )
            
            $
            (0.04
            )Weighted
      average number of common shares outstanding — basic and
      diluted
            
            
            380,468,544
            
            
            
            373,990,219





See
accompanying notes to these unaudited condensed consolidated financial
statements.





5


PETROHUNTER
ENERGY CORPORATION


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)





Three
      Months
              Ended
              December
      31,
              2009
            
            
            Three
      Months
              Ended
              December
      31,
              2008($
      in thousands)Cash
      flows from operating activitiesNet
      (loss)
            
            $
            (1,916
            )
            
            $
            (15,511
            )Adjustments
      used to reconcile net( loss) to net cash used in operating
      activities:Stock
      based compensation
            
            
            67
            
            
            
            481Depreciation,
      depletion, amortization and accretion
            
            
            41
            
            
            
            68Impairment
      of oil and gas properties
            
            
            —
            
            
            
            10,268Amortization
      of deferred financing costs
            
            
            —
            
            
            
            309Amortization
      of debt discount and beneficial conversion feature
            
            
            —
            
            
            
            681Gain
      on conveyance of property
            
            
            —
            
            
            
            181Gain
      on sale of marketable securities
            
            
            (146
            )
            
            
            —Changes
      in assets and liabilities:
              Receivables
            
            
            17
            
            
            
            419Prepaid
      expenses and other assets
            
            
            74
            
            
            
            100Accounts
      payable and accrued expenses
            
            
            1,330
            
            
            
            (3,818
            )Due
      from related party
            
            
            —
            
            
            
            237Net
      cash (used in) operating activities
            
            
            (533
            )
            
            
            (6,585
            )Cash
      flows from investing activitiesAdditions
      to oil and gas properties
            
            
            —
            
            
            
            (125
            )Proceeds
      from sale of oil and gas properties
            
            
            —
            
            
            
            2,320Proceeds
      from sale of marketable securities
            
            
            440
            
            
            
            —Additions
      to furniture and equipment
            
            
            —
            
            
            
            (6
            )Net
      cash provided by investing activities
            
            
            440
            
            
            
            2,189Cash
      flows from financing activitiesProceeds
      from the issuance of notes payable
            
            
            —
            
            
            
            100Proceeds
      from related party borrowings
            
            
            —
            
            
            
            5,200Payments
      on related party borrowing
            
            
            —
            
            
            
            (93
            )Net
      cash provided by financing activities
            
            
            —
            
            
            
            5,207Net
      increase (decrease) in cash and cash equivalents
            
            
            (93
            )
            
            
            811Cash
      and cash equivalents, beginning of period
            
            
            235
            
            
            
            967Cash
      and cash equivalents, end of period
            
            $
            142
            
            
            $
            1,778Supplemental
      schedule of cash flow informationCash
      paid for interest
            
            $
            —
            
            
            $
            5








See
accompanying notes to these unaudited condensed consolidated financial
statements.


6


PETROHUNTER
ENERGY CORPORATION


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





Note 1 - Organization and Basis of
Presentation





The
interim condensed consolidated financial statements of PetroHunter Energy
Corporation (“we,” “us,” “our,” or the “Company”) are unaudited and contain all
adjustments necessary for a fair statement of the results for the interim period
presented. Results for interim period are not necessarily indicative of results
to be expected for a full year or for previously reported periods due in part,
but not limited to, the volatility in crude oil and natural gas commodity
prices, interest rates, estimates of reserves, drilling risks, geological risks,
transportation restrictions, the timing of acquisitions, product demand, market
competition,  and our ability to obtain additional capital to sustain
operations. You should read these consolidated interim financial statements in
conjunction with the audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended September 30,
2009.





Note
2 - Summary of Significant Accounting Policies





Basis of Accounting–The accompanying financial
statements have been prepared on the basis of accounting principles applicable
to a going concern, which contemplates the realization of assets and
extinguishment of liabilities in the normal course of business. The report of
our independent registered public accounting firm on our financial statements
for the year ended September 30, 2009 includes an explanatory paragraph
relating to substantial doubt or uncertainty of our ability to continue as a
going concern.  As shown in the accompanying statements of operations,
we have an accumulated deficit of $281 million and a working capital deficit of
$67 million as of December 31, 2009.





Estimates –We have used
certain estimates and assumptions in preparing the accompanying condensed
consolidated financial statements. Those estimates and assumptions may affect
the reported amounts of assets and liabilities, the disclosures of contingent
assets and liabilities, and reported revenues and expenses. Significant
estimates used in preparing these condensed consolidated financial statements
include those assumed in computing the asset retirement
obligation,  share based compensation, and in accruing for certain
liabilities.





Loss Per Common Share –Basic
loss per common share is based on the weighted average number of common shares
outstanding during the period. Diluted loss per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. Convertible equity instruments
such as stock options and convertible debentures are excluded from the
computation of diluted loss per share, as the effect of the assumed exercises
would be anti-dilutive. The diluted weighted-average number of common shares
outstanding excluded potential common shares from stock options and warrants of
approximately 140 million shares and 179 million shares for the three months
ended December 31, 2009 and 2008, respectively.





Marketable Securities –
We account for marketable securities in accordance with FASB ASC 320,“Accounting for Certain Investments
in Debt and Equity Securities.” We account for marketable securities by
marking them to market with unrealized gains and losses reflected as a component
of Other Comprehensive Income, until such gains or losses become realized, at
which time they are then recognized in our statement of operations. In addition,
in circumstances where significant price declines are experienced subsequent to
the balance sheet date, we consider whether such declines are other than
temporary. After considering our expected holding period, we may record a
provision for impairment in the event we do not expect the value of the
securities to recover from such a decline in market value. We consider our
accounting for marketable securities to involve significant management judgment
that is subject to estimation.





Reclassifications–Certain prior period
amounts have been reclassified in the condensed consolidated financial
statements to conform with current period presentation. Such reclassifications
have had no effect on the net loss.








7








Recently
Issued Accounting Pronouncements




Interim Disclosures about Fair Value of Financial
Instruments Financial Instruments




In
October 2009, we adopted certain accounting principles within FASB ASC 470,
“Debt with Conversion and
Other Options” that requires the proceeds from the issuance of certain
convertible debt instruments to be allocated between a liability component
(issued at a discount) and an equity component. The resulting debt discount is
amortized over the period the convertible debt is expected to be outstanding as
additional non-cash interest expense. The change in accounting treatment is
effective for us in fiscal 2010, and it is required to be applied
retrospectively to prior periods. Adoption of  ASC 470 did not
have any  impact on our financial statements.





In
October 2009, we adopted certain accounting principles within FASB ASC 805,
“Business
Combinations,” which requires an acquirer to recognize the assets
acquired, the liabilities assumed, including those arising from contractual
contingencies, any contingent consideration, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions specified in the statement.  It also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full
amounts of their fair values (or other amounts determined in accordance with
this accounting principle).  In addition, the accounting principle’s
requirement to measure the noncontrolling interest in the acquiree at fair value
will result in recognizing the goodwill attributable to the noncontrolling
interest in addition to that attributable to the acquirer. ASC 805 also requires
the acquirer to recognize changes in the amount of its deferred tax benefits
that are recognizable because of a business combination either in income from
continuing operations in the period of the combination or directly in
contributed capital, depending on the circumstances. It also provides guidance
on the impairment testing of acquired research and development intangible assets
and assets that the acquirer intends not to use.  ASC 805 applies
prospectively to business combinations for which the acquisition date on or
after October 1, 2009; therefore, the adoption of ASC 805 did not have any
impact on our historical financial statements.





In
October 2009, we adopted certain accounting principles within FASB ASC 810,
“Consolidation,” which
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  ASC 810 also changes the way the consolidated
income statement is presented by requiring consolidated net income to be
reported at amounts that include the amounts attributable to both the parent and
the noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. ASC 810 requires
that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated and requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent owners and the interests of the noncontrolling owners of a
subsidiary.  The adoption of ASC 810 did not have any impact on our
financial statements.





In
January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-03
“Oil and Gas Reserve
Estimation and Disclosures.”The ASU aligns the current oil and gas
reserve estimation and disclosure requirements of FASB Accounting Standards
Codification Topic 932, Extractive Activities — Oil and
Gas, with those in SEC Final Rule Release No. 33-8995, Modernization of
Oil and Gas Reporting.
The ASU will be effective for reporting periods ending on or after December 31,
2009. The adoption of ASC 810 will not have any impact on our financial
statements.





In
December 2008, the SEC issued revised reporting requirements for oil and natural
gas reserves that a company holds. Included in the new rule entitled “Modernization
of Oil and Gas Reporting Requirements,”are the following changes: 1)
permitting use of new technologies to determine proved reserves, if those
technologies have been demonstrated with reasonable certainty to lead to
reliable conclusions about reserve volumes; 2) enabling companies to
additionally disclose their probable and possible reserves to investors, in
addition to their proved reserves;








8





3)
allowing previously excluded resources, such as oil sands, to be classified as
oil and natural gas reserves rather than mining reserves; 4) requiring companies
to report the independence and qualifications of a preparer or auditor, based on
current Society of Petroleum Engineers criteria; 5) requiring the filing of
reports for companies that rely on a third party to prepare reserve estimates or
conduct a reserve audit; and 6) requiring companies to report oil and natural
gas reserves using an average price based upon the prior 12-month period, rather
than year-end prices. The new requirements are effective for registration
statements filed on or after January 1, 2010, and for annual reports on Form 10K
for fiscal years ending on or after December 31, 2009. Early adoption is not
permitted. We are currently assessing the impact that adoption of this rule will
have on our financial disclosures.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future consolidated
financial statements.





Supplemental Cash Flow
Information.Supplemental cash flow information for the three
months ended December 31, 2009 and 2008, respectively is as
follows:




Three
      Months
              Ended
              December
      31,
              2009
            
            
            Three
      Months
              Ended
              December
      31,
              2008($
      in thousands)Supplemental
      disclosures of non-cash investing and financing activitiesShares
      issued for property
            
            $
            —
            
            
            $
            150Warrants
      value associated with waiver and amendments on debt
      instruments
            
            $
            —
            
            
            $
            42







Note
3 – Marketable Securities




As of
December 31, 2009, we have recorded $0.3 million in available for sale
marketable securities and  $2.8 million in restricted marketable
securities on our condensed consolidated balance sheet. Included in these
amounts are 21.1 million shares of the common stock of  Falcon Oil and
Gas Ltd. (“Falcon”), a related party.




Note 4 — Oil and Gas
Properties




As of
December 31, 2009, our oil and gas properties consisted of $1.8 million in
unevaluated properties. This amount relates to our 25% ownership interest in the
Shenandoah #1A well, located in the Beetaloo Basin in Australia.




There are
no significant changes to our asset retirement obligation from those amounts as
disclosed in the audited annual consolidated financial statements for the year
ended September 30, 2009.





Note
5 — Share-Based Compensation





Compensation Expense -Stock-based employee and non-employee compensation expense of $0.1
million was charged to operations during the three months ended December 31,
2009. Stock-based compensation expense of $0.5 million was recognized during the
three months ended December 31, 2008. Stock-based compensation has been included
in general and administrative expense in the consolidated statements of
operations.





9





Note
6 — Common Stock Warrants





The
following stock purchase warrants were outstanding at December 31, 2009 and
September 30, 2009 (warrants in thousands):





December
      31,
              2009
            
            September
      30,
              2009Number
      of warrants
            106,603
            
            139,136Exercise
      price
            $0.12-$2.10
            
            $0.12
      - $2.10Expiration
      date
            2010-2012
            
            2010
      - 2012





During
the three months ended December 31, 2009,  32 million warrants to
purchase our common stock at $0.50  per share held by a related party
expired. During this same period 0.5 million warrants to purchase our common
stock at $0.15 per share held by various parties expired.





During
the three months ended December 31, 2008, we issued 0.5 million warrants to
purchase our common stock at $0.15 per share to three related parties, in
connection with sale of $0.2 million in convertible debentures The warrants
issued have a one year term and the total value of $0.0 million as calculated
under the Black-Scholes  method.





Note 7 — Related Party
Transactions





Accounts Payable  -
As of December 31, 2009, included in accounts payable  is $1.8 million
due to Falcon related to our share of expenses and GST taxes incurred in
drilling the Shenandoah #1A well in the Beetaloo Basin in
Australia.





Marketable
Securities  - As of December 31, 2009, we have recorded both
restricted and unrestricted marketable securities totaling $3.1 million in the
aggregate on our consolidated condensed balance sheet. These securities were
received from a related party, Falcon,  pursuant to the sale of a 50%
interest in four exploration permits in Australia during fiscal year ended
September 30, 2008.





Bruner Family Trust –As of December 31, 2009, we
owe $2.9 million in principal and $0.3 million in accrued interest to the Bruner
Family Trust related to seven outstanding notes payable. We have recorded
interest expense in the amount of $0.0 during the three months ended December
31, 2009 related to these notes. As of December 31, 2009, we are in default on
all seven notes related to failure to make principal and interest payments, as
well various debt covenant violations.





Global Finance – As of
December 31, 2009, we owe $40.7 million in principal and $6.1 million in accrued
interest and fees payable to Global Finance AG. These amounts relate to an
outstanding line of credit, notes payable, and advance fees
due.  During the three months ended December 31, 2009, we recorded
interest expense in the amount of $1.0 million related to the various
instruments. As of December 31, 2009, we are in default on all of the
outstanding instruments due Global for failure to make principal and interest
payments, as well as various debt covenant violations.





Note 8 — Commitments and
Contingencies





There are
no material changes in our commitments and contingencies from those disclosed in
the audited annual consolidated financial statements for the year ended
September 30, 2009.  Amounts shown in other accrued liabilities are amounts
accrued in connection with to the Buckskin Mesa Project gas gathering
system.  The Company and the creditor are in discussions regarding this
liability and the Company believes it has adequately recorded this
liability.





Note 9 — Subsequent
Events





We have
evaluated subsequent events through February 11, 2010, the date the financial
statements were available to be issued, and we have noted no significant
subsequent events through that date.


10





ITEM 2.   MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The
following discussion and analysis should be read in conjunction with the
accompanying financial statements and related notes included elsewhere in this
report. It contains forward looking statements that reflect our future plans,
estimates, beliefs and expected performance. The forward looking statements are
dependent upon events, risks and uncertainties that may be outside our control.
Our actual results could differ materially from those discussed in these forward
looking statements.





Factors
that could cause or contribute to such differences include, but are not limited
to, market prices for natural gas and oil, economic and competitive conditions,
regulatory changes, estimates of proved reserves, potential failure to achieve
production from development drilling projects, capital expenditures and other
uncertainties, as well as those factors discussed below, all of which are
difficult to predict and which expressly qualify all subsequent oral and written
forward-looking statements attributable to us or persons acting on our behalf.
In light of these risks, uncertainties and assumptions, the forward looking
events discussed may not occur. We do not have any intention or obligation to
update forward-looking statements included in this report after the date of this
report, except as required by law.





Executive
Summary





We are an
oil and gas exploration and production company, and we currently own oil and gas
leasehold interests located in Australia (Beetaloo Basin) and in Western
Colorado (Piceance Basin).  We are incorporated in the State of
Maryland.





Results
of Operations





The
financial information with respect to the three months ended December 31, 2009
and 2008 that is discussed below is unaudited. In the opinion of management,
such information contains all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results for such
periods.  The results of operations for interim periods are not necessarily
indicative of the results of operations for the full fiscal years.





Industry
Overview for the three months ended December 31, 2009





The three
months ended December 31, 2009 continued to see weaker natural gas
prices.  Natural gas prices have been very volatile during calendar
2009 due to supply concerns earlier in the year, and more recently due to
recession concerns arising from the current worldwide financial
crisis.





We may
will need to raise more capital, and due to the global credit crisis, funds may
not be available, or if available, may be on unfavorable terms.  Based on
our current financial position for the remainder of the fiscal year, we will
participate only in drilling activity that is necessary to maintain our current
ownership interests in our Australian property. We may need to raise additional
equity or enter into new borrowing arrangements to finance our continued
participation in these planned activities. If additional financing is not
available we may be compelled to reduce the scope of our business
activities.  If we are unable to fund planned expenditures, it may be
necessary to:





1.
            
            forfeit
      our interest in wells that are proposed to be drilled;2.
            
            farm-out
      our interest in proposed wells;3.
            
            sell
      a portion of our interest in prospects and use the sale proceeds to fund
      our participation for a lesser interest; and4.
            
            reduce
      general and administrative
expenses.











11





Company
Overview for the three months ended December 31, 2009





Our net
loss for the three months ended December 31, 2009 was $1.9  million.
We had no revenues and continue to incur general and administrative and interest
expense.





Comparison
of the results of operations for the three months ended December 31, 2009 and
December 31, 2008





Oil and Gas Revenue. For the
three months ended December 31, 2009, oil and gas revenue was $0.0 as compared
to $0.1 million for the corresponding period in 2008. The decrease in
revenue relates to the sale of our only producing wells effective December
1, 2008.





Costs
and Expenses





Lease Operating Expenses. For
the three months ended December 31, 2009, lease operating expenses decreased to
$0.0 million from $0.4 million for the corresponding 2008 period. This decrease
was primarily attributable cessation of compressor lease charges in the
Buckskin  Mesa that had been incurred in the corresponding 2008
period.





General and
Administrative.During the three months ended December 31, 2009,
general and administrative expenses decreased  by $1.3 million to $0.8
million as compared to $2.1 million in the corresponding 2008 period. The
decrease in general and administrative expenses in 2009  results from
decreases in salaries, rent expense, share based compensation, travel and other
miscellaneous expenses offset by  increases in accounting, consulting
and professional fees incurred in connection with ongoing negotiations
surrounding our Buckskin Mesa acreage, and with Falcon related to our remaining
25% interest in the Beetaloo Basin in Australia.  We expect general
and administrative expenses to continue to decrease through the remainder of the
fiscal year.





Impairment of Oil and Gas
Properties. During the three months ended December 31, 2009, we
recognized impairment expense of $0.0 as compared to $10.3 million during the
corresponding period in 2008 when the costs accumulated in the US full cost pool
were written off.





Depreciation, Depletion,
Amortization and Accretion. Depreciation, depletion, amortization and
accretion expense was $0.0 million in 2009
as compared to $0.1 million in the corresponding 2008 period.





Interest Expense. During the
quarter ended December 31, 2009, interest expense decreased $1.2 million to $1.3
million, as compared to $2.5 million for the corresponding 2008
period.





The
decrease in interest expense relates to the fact that indices underlying
interest rates attached to several of our debt instruments decreased during
fiscal 2009 and continue to remain at historical lows.  In addition,
in the prior period we incurred interest expense in connection with the repeated
issuance of stock purchase warrants in associated with the issuance of debt
instruments and in connection with penalties incurred in connection with late
interest payments to our debt holders or failure to make interest payments to
our debt holders.





Net Loss.During the quarter ended December 31,
2009, we incurred a net
loss of $1.9 million as compared to a net loss of $15.5 million during the
quarter ended December 31, 2008, as described above.





Going
Concern





The
report of our independent registered public accounting firm on the financial
statements for the year ended September 30, 2009, includes an explanatory
paragraph relating to the significant doubts about our ability to continue as a
going concern. We have an accumulated deficit of $281 million and have a working
capital deficit of approximately $67 million as of December 31, 2009. We are not
in compliance with, and are in default with the covenants of  several
of our loan agreements.  We require significant additional funding to
sustain our operations and satisfy our contractual obligations for our planned
development operations. We are in default on certain other obligations. Our
ability to establish the Company as a going concern is dependent upon our
ability to obtain additional funding in order to finance our planned
operations.




12




Plan
of Operation





For the
remainder of fiscal 2010, we will focus on executing and implementing a
financing strategy with Falcon Oil & Gas Australia Pty Ltd for our Beetaloo
Basin project in Australia in order to further explore and develop this acreage,
as well as to pursue opportunities to further explore our Buckskin Mesa acreage.
We will continue to reduce operating costs and attempt to reduce/renegotiate our
debt, accounts payable and other liabilities.





Liquidity
and Capital Resources





During
our most recent quarter ended December 31, 2009,  our cash flows from
operations were not sufficient for us to meet our operating
commitments.  Our cash flows from operations continue to be, and are
expected to continue to be, insufficient to meet our operating commitments
throughout the remainder of the fiscal year ending September 30,
2010.





Working Capital.As of
December 31, 2009, we had a working capital deficit of $67 million and
unrestricted cash of $0.1 million, while at September 30, 2009 we had a working
capital deficit of $64 million and cash of $0.2 million. The decreases in
working capital are primarily attributable to the fact that we have no revenues
from operations and continue to incur expenses related to drilling and
exploration.  We do not expect our working capital deficit to decrease
or cash balance to increase in the near future.





Cash Flow.Net cash used in
or provided by operating, investing and financing activities for the three
months ended December 31, 2009 and 2008 were as follows ($ in
thousands):





Three
      Months Ended
              December
      31,2009
            
            
            2008($
      in thousands)Net
      cash (used in) operating activities
            
            $
            (533
            )
            
            $
            (6,585
            )Net
      cash provided by investing activities
            
            $
            440
            
            
            $
            2,189Net
      cash provided by financing activities
            
            $
            —
            
            
            $
            5,207





Net Cash Used in Operating
Activities.The changes in net cash used in operating activities are
attributable to our net income adjusted for non-cash charges as presented in the
consolidated statements of cash flows and changes in working capital as
discussed above.





Net Cash Provided by Investing
Activities.Net cash provided by investing activities for the three
months ended December 31, 2009 was primarily related to net proceeds related to
the sale of marketable securities,  as compared to proceeds received
from the sale of our only revenue producing assets in the corresponding 2008
period.





Net Cash Provided by Financing
Activities.  We received no cash from  financing
activities for the three months ended December 31, 2009 as compared proceeds
received from issuance of notes payable in the corresponding 2008
period.





Financing





During
the quarter ended December 31, 2009 we did not enter into any financing
arrangements.





During
the quarter ended December 31, 2008, we entered into the following financing
arrangements:





In
October 2008, we entered into a secured loan agreement with Falcon, whereby
Falcon agreed to advance to us up to $5.0 million. During October and November
2008, we received advances aggregating $5.0 million. The loan was secured by
14.5 million shares of Falcon common stock we received in consideration for our
sale of a 50% working interest in four exploration permits in Australia. These
shares were pledged to Falcon under a pledge and security








13





agreement.
The loan carried interest at 10% payable in monthly installments and was due in
full on April 30, 2009. Funds were used to satisfy various vendor
obligations.





In
December 2008,  we issued $0.2 million in convertible debentures to
three related parties. The debentures bore interest at 15%. The debenture
holders were issued 0.5 million warrants to purchase our common stock. Funds
borrowed were used to fund the operations.





In
December 2008, we borrowed $0.1 million from Global, a related party, under
short term promissory notes which were unsecured and bore interest at 15%. Funds
borrowed were used to fund the operations.





Off-Balance
Sheet Arrangements





We do not
have off-balance sheet arrangements.





Critical
Accounting Policies and Estimates





Our
consolidated financial statements have been prepared by management in accordance
with U.S. GAAP. We refer you to the corresponding section in Part II Item 7 and
the notes to the consolidated financial statements of our Annual Report on Form
10K for the year ended September 30, 2009 for the description of critical
accounting policies and estimates.





Recently
Issued Accounting Pronouncements




Interim Disclosures about Fair Value of Financial
Instruments Financial Instruments


In
October 2009, we adopted certain accounting principles within FASB ASC 470,
“Debt with Conversion and
Other Options” that requires the proceeds from the issuance of certain
convertible debt instruments to be allocated between a liability component
(issued at a discount) and an equity component. The resulting debt discount is
amortized over the period the convertible debt is expected to be outstanding as
additional non-cash interest expense. The change in accounting treatment is
effective for us in fiscal 2010, and it is required to be applied
retrospectively to prior periods. Adoption of  ASC 470 did not
have any  impact on our financial statements.





In
October 2009, we adopted certain accounting principles within FASB ASC 805,
“Business
Combinations,” which requires an acquirer to recognize the assets
acquired, the liabilities assumed, including those arising from contractual
contingencies, any contingent consideration, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date, with limited exceptions specified in the statement.  It also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full
amounts of their fair values (or other amounts determined in accordance with
this accounting principle).  In addition, the accounting principle’s
requirement to measure the noncontrolling interest in the acquiree at fair value
will result in recognizing the goodwill attributable to the noncontrolling
interest in addition to that attributable to the acquirer. ASC 805 also requires
the acquirer to recognize changes in the amount of its deferred tax benefits
that are recognizable because of a business combination either in income from
continuing operations in the period of the combination or directly in
contributed capital, depending on the circumstances. It also provides guidance
on the impairment testing of acquired research and development intangible assets
and assets that the acquirer intends not to use.  ASC 805 applies
prospectively to business combinations for which the acquisition date on or
after October 1, 2009; therefore, the adoption of ASC 805 did not have any
impact on our historical financial statements.





In
October 2009, we adopted certain accounting principles within FASB ASC 810,
“Consolidation,” which
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  ASC 810 also





14





changes
the way the consolidated income statement is presented by requiring consolidated
net income to be reported at amounts that include the amounts attributable to
both the parent and the noncontrolling interest. It also requires disclosure, on
the face of the consolidated statement of income, of the amounts of consolidated
net income attributable to the parent and to the noncontrolling interest. ASC
810 requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent owners and the interests of the noncontrolling
owners of a subsidiary.  The adoption of ASC 810 did not have any
impact on our financial statements.





In
January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-03
“Oil and Gas Reserve
Estimation and Disclosures.”The ASU aligns the current oil and gas
reserve estimation and disclosure requirements of FASB Accounting Standards
Codification Topic 932, Extractive Activities — Oil and
Gas, with those in SEC Final Rule Release No. 33-8995, Modernization of
Oil and Gas Reporting.
The ASU will be effective for reporting periods ending on or after December 31,
2009. The adoption of ASC 810 will not have any impact on our financial
statements.





In
December 2008, the SEC issued revised reporting requirements for oil and natural
gas reserves that a company holds. Included in the new rule entitled “Modernization
of Oil and Gas Reporting Requirements,”are the following changes: 1)
permitting use of new technologies to determine proved reserves, if those
technologies have been demonstrated with reasonable certainty to lead to
reliable conclusions about reserve volumes; 2) enabling companies to
additionally disclose their probable and possible reserves to investors, in
addition to their proved reserves; 3) allowing previously excluded resources,
such as oil sands, to be classified as oil and natural gas reserves rather than
mining reserves; 4) requiring companies to report the independence and
qualifications of a preparer or auditor, based on current Society of Petroleum
Engineers criteria; 5) requiring the filing of reports for companies that rely
on a third party to prepare reserve estimates or conduct a reserve audit; and 6)
requiring companies to report oil and natural gas reserves using an average
price based upon the prior 12-month period, rather than year-end prices. The new
requirements are effective for registration statements filed on or after January
1, 2010, and for annual reports on Form 10K for fiscal years ending on or after
December 31, 2009. Early adoption is not permitted. We are currently assessing
the impact that adoption of this rule will have on our financial
disclosures.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on our present or future consolidated
financial statements.








ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Commodity
Price Risk





Because
of our lack of current lack of oil and gas production, we are not exposed to a
great degree of market risk relating to the pricing applicable to our oil and
natural gas production. However, our ability to raise additional capital at
attractive pricing, our generate future revenues from oil and gas operations,
our future profitability and future rate of growth all depend substantially upon
the market prices of oil and natural gas, which fluctuate considerably. We
expect commodity price volatility to continue. We do not currently utilize
hedging contracts to protect against commodity price risk. As our oil and gas
production grows, we may manage our exposure to oil and natural gas price
declines by entering into oil and natural gas price hedging arrangements to
secure a price for a portion of our expected future oil and natural gas
production.





Foreign
Currency Exchange Rate Risk





We
conduct business in Australia and are subject to exchange rate risk on cash
flows related to sales, expenses, financing and investment transactions. We do
not currently utilize hedging contracts to protect against exchange rate risk.
As our foreign oil and gas operation grows, we may utilize currency exchange
contracts, commodity forwards, swaps or futures contracts to manage our exposure
to foreign currency exchange rate risks.








15
 
 Interest
Rate Risk
 
 Interest
rates on future credit facility draws and debt offerings could be higher than
current levels, causing our financing costs to increase accordingly. This could
limit our ability to raise funds in debt capital markets.  We do not
currently utilize hedging contracts to protect against interest rate
risk.


ITEM
4.  CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





Based on
their evaluation as of the end of the first quarter ended December 31, 2009, our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) are effective to ensure that information
required to be disclosed in reports that we file or submit under the Exchange
Act are recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and in providing reasonable
assurance that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosures.





Remediation
of Material Weaknesses in Internal Control Over Financial Reporting





As
previously disclosed in our past filings with the SEC, management identified
material weaknesses in our internal control over financial reporting for the
years ended September 30, 2009, 2008 and 2007. The weaknesses that the Company
previously disclosed related to (a) our lack of adequate processes for
monitoring our financial reporting and accounting processes and our failure to
conduct a comprehensive review of our account balances and transactions; (b) our
lack of appropriate processes and procedures, including
inadequate segregation of duties; and (c) our lack of appropriate processes
and procedures in relation to the timely review of material documents and
transactions for accounting and disclosure purposes. The Company has designed
and implemented improved processes and controls to ensure that (a) all material
transactions are properly recorded, reviewed and approved; (b) all significant
accounts are reconciled on a timely basis; (c) duties are properly segregated;
and, (d) complex accounting issues are properly evaluated and accounted for in
accordance with GAAP.





Management
believes we now have sufficient individuals that collectively possess a strong
background, experience and expertise related to accounting, SEC reporting and
other finance functions. We now believe that the remediation steps taken in
previous periods and through the quarter ended December 31, 2009, permitted
observation over an appropriate period of time for us to conclude that our
disclosure controls and procedures were effective as of December 31, 2009 to
assure that the information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is appropriately recorded, processed,
summarized and reported within the periods specified in the SEC's
rules.





Notwithstanding
the existence of these past material weaknesses in internal control, we believe
that the consolidated financial statements fairly present, in all material
respects, our condensed consolidated balance sheets as of December 31 and
September 30, 2009 and the related condensed consolidated statements of
operations, and cash flows for the three months ended December 31, 2009 and 2008
are in conformity with US GAAP.





Changes
in Internal Control over Financial Reporting





Other
than as described above, there have been no significant changes in our internal
control over financial reporting during the quarter ended December 31, 2009 that
have materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.








16





PART
II.  OTHER INFORMATION





ITEM 1.  LEGAL
PROCEEDINGS





As of
December 31, 2009, the Company is not a party to any legal or administrative
actions or proceedings.





ITEM 1A.  RISK
FACTORS





Our
viability will depend upon our ability to negotiate satisfactory arrangements
with our creditors and vendors.





As of
December 31, 2009, we have no revenue-producing assets and a working capital
deficit of approximately $67 million.  We are in default on all of our
material debt instruments related to failure to make principal and interest
payments as well as debt covenant violations.  We will need to
negotiate with other lenders and with vendors for extended and/or reduced
payment terms in order to survive our existing cash shortage.  We
cannot assure you that we will be able to do so.  If we are
unsuccessful in these negotiation efforts, we may be unable to continue in
existence.





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





None.





ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES





None.





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





None.





ITEM 5.  OTHER
INFORMATION





None.





ITEM 6.  EXHIBITS





See
Exhibit Index.





17


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





PETROHUNTER ENERGY
      CORPORATIONBy:
              /s/ Martin
      B. OringMartin
      B. OringChief
      Executive OfficerDate: 
      February 11, 2010By:
              /s/
      William P. Brand, Jr.William
      P. Brand, Jr.Chief
      Financial OfficerDate: 
      February 11, 2010


18





EXHIBIT INDEX





Regulation
              S-K Number
            Exhibit31.1
            Rule
      13a-14(a) Certification of Martin B. Oring31.2
            Rule
      13a-14(a) Certification of William P. Brand, Jr.32.1
            Certification
      of Martin B. Oring Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes-Oxley Act Of 200232.2
            Certification
      of William P. Brand, Jr. Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act Of
  2002