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 March 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
      2000, 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).    Yeso  No  o





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
April 30, 2009, the registrant had 375,468,544 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 SIX MONTH PERIOD ENDED


MARCH
31, 2009





INDEX





PagePART
      I — FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements
            4Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            18Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            23Item
      4.
            Controls
      and Procedures
            24PART
      II — OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            26Item
      1A.
            Risk
      Factors
            26Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            26Item
      3.
            Defaults
      Upon Senior Securities
            26Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            26Item
      5.
            Other
      Information
            26Item
      6.
            Exhibits
            26SIGNATURES
            27


3


PETROHUNTER
ENERGY CORPORATION


CONSOLIDATED
BALANCE SHEETS


(unaudited)





March
      31,
                                  2009
                                
                                
                                September
      30,
                                  2008(
      $ in thousands)ASSETSCurrent
      AssetsCash
      and cash equivalents
                                
                                $
                                874
                                
                                
                                $
                                967ReceivablesOil
      and gas receivables, net
                                
                                
                                —
                                
                                
                                
                                193GST
      receivable
                                
                                
                                240
                                
                                
                                
                                504Other
      receivables
                                
                                
                                —
                                
                                
                                
                                12Due
      from related parties
                                
                                
                                1,430
                                
                                
                                
                                1,840Marketable
      securities, available for sale
                                
                                
                                2,788
                                
                                
                                
                                6,638Restricted
      marketable securities
                                
                                
                                3,485
                                
                                
                                
                                7,495Assets
      held for sale
                                
                                
                                712
                                
                                
                                
                                —Joint
      interest billings
                                
                                
                                51
                                
                                
                                
                                —Prepaid
      expenses and other assets
                                
                                
                                62
                                
                                
                                
                                273TOTAL
      CURRENT ASSETS
                                
                                
                                9,642
                                
                                
                                
                                17,922Oil
      and Gas Properties, at cost under full cost methodUnevaluated
      properties
                                
                                
                                2,576
                                
                                
                                
                                84,576Evaluated
      properties
                                
                                
                                149,799
                                
                                
                                
                                69,704Accumulated
      depreciation, depletion amortization, and impairment
                                
                                
                                (149,799
                                )
                                
                                
                                (56,928
                                )Net
      Oil and Gas Properties
                                
                                
                                2,576
                                
                                
                                
                                97,352Property
      and Equipment, at costFurniture
      and equipment, net
                                
                                
                                616
                                
                                
                                
                                737Other
      AssetsRestricted
      cash
                                
                                
                                524
                                
                                
                                
                                524Deposits
      and other assets
                                
                                
                                130
                                
                                
                                
                                130Deferred
      financing costs
                                
                                
                                776
                                
                                
                                
                                1,388Intangible
      asset
                                
                                
                                —
                                
                                
                                
                                4,832TOTAL
      ASSETS
                                
                                $
                                14,264
                                
                                
                                $
                                122,885LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable and accrued expenses
                                
                                $
                                6,070
                                
                                
                                $
                                11,981Notes
      payable — short-term
                                
                                
                                202
                                
                                
                                
                                329Notes
      payable — related party — short term-net
                                
                                
                                47,440
                                
                                
                                
                                3,572Accrued
      interest payable
                                
                                
                                1,098
                                
                                
                                
                                166Accrued
      interest payable — related parties
                                
                                
                                2,403
                                
                                
                                
                                969Contingent
      obligations
                                
                                
                                8,805
                                
                                
                                
                                4,832TOTAL
      CURRENT LIABILITIES
                                
                                
                                66,018
                                
                                
                                
                                21,849Long-Term
      LiabilitiesNotes
      payable – related parties — net of discount
                                
                                
                                106
                                
                                
                                
                                38,035Convertible
      notes payable — net of discounts
                                
                                
                                611
                                
                                
                                
                                325Asset
      retirement obligation
                                
                                
                                612
                                
                                
                                
                                114Other
                                
                                
                                120
                                
                                
                                
                                —TOTAL
      LIABILITIES
                                
                                
                                67,467
                                
                                
                                
                                60,323Stockholders’
      EquityPreferred
      stock, $0.001 par value; authorized 100,000,000 shares; none
      issued
                                
                                
                                —
                                
                                
                                
                                —Common
      stock, $0.001 par value; authorized 1,000,000,000 shares; issued and
      outstanding  375,468,544 and 373,343,54 at March 31, 2009 and
      September 30, 2008, respectively
                                
                                
                                375
                                
                                
                                
                                374Additional
      paid-in-capital
                                
                                
                                214,630
                                
                                
                                
                                212,308Other
      comprehensive loss
                                
                                
                                (7,298
                                )
                                
                                
                                (632
                                )Accumulated
      deficit
                                
                                
                                (260,910
                                )
                                
                                
                                (149,488
                                )TOTAL
      STOCKHOLDERS’EQUITY (DEFICIT)
                                
                                
                                (53,203
                                )
                                
                                
                                62,562TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                
                                $
                                14,264
                                
                                
                                $
                                122,885


See
accompanying notes to these unaudited consolidated financial
statements.





4





PETROHUNTER
ENERGY CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)


Three
      Months Ended March 31, 2009
                              
                              
                              Three
      Months Ended March 31, 2008
                              
                              
                              Six
      Months Ended March 31, 2009
                              
                              
                              Six
      Months Ended March 31, 2008($ in
      thousands)RevenueOil
      and gas revenue
                              
                              $
                              -
                              
                              
                              $
                              496
                              
                              
                              $
                              120
                              
                              
                              $
                              1,003Other
      revenue
                              
                              
                              -
                              
                              
                              
                              150
                              
                              
                              
                              1
                              
                              
                              
                              150Total
      Revenue
                              
                              
                              -
                              
                              
                              
                              646
                              
                              
                              
                              121
                              
                              
                              
                              1,153Costs
      and ExpensesLease
      operating expenses
                              
                              
                              188
                              
                              
                              
                              140
                              
                              
                              
                              586
                              
                              
                              
                              240General
      and administrative
                              
                              
                              3,370
                              
                              
                              
                              2,469
                              
                              
                              
                              5,488
                              
                              
                              
                              4,787Impairment
      of oil and gas properties
                              
                              
                              83,094
                              
                              
                              
                              -
                              
                              
                              
                              93,362
                              
                              
                              
                              -Depreciation,
      depletion, amortization and accretion
                              
                              
                              63
                              
                              
                              
                              221
                              
                              
                              
                              130
                              
                              
                              
                              483Impairment
      of intangible asset
                              
                              
                              6,092
                              
                              
                              
                              -
                              
                              
                              
                              6,092
                              
                              
                              
                              -Total
      operating expenses
                              
                              
                              92,807
                              
                              
                              
                              2,830
                              
                              
                              
                              105,658
                              
                              
                              
                              5,510(Loss)
      From Operations
                              
                              
                              (92,807
                              )
                              
                              
                              (2,184
                              )
                              
                              
                              (105,537
                              )
                              
                              
                              (4,357
                              )Other
      Income(Expense)Loss
      on conveyance of property
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (181
                              )
                              
                              
                              (11,875
                              )Gain
      on foreign exchange
                              
                              
                              -
                              
                              
                              
                              11
                              
                              
                              
                              -
                              
                              
                              
                              11Interest
      income
                              
                              
                              5
                              
                              
                              
                              2
                              
                              
                              
                              11
                              
                              
                              
                              27Interest
      expense
                              
                              
                              (2,355
                              )
                              
                              
                              (2,574
                              )
                              
                              
                              (4,839
                              )
                              
                              
                              (5,359
                              )Loss
      on sale of securities
                              
                              
                              -
                              
                              
                              
                              (2,987
                              )
                              
                              
                              -
                              
                              
                              
                              (2,987
                              )Transaction  loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (122
                              )
                              
                              
                              -Total
      Other Income (Expense)
                              
                              
                              (2,350
                              )
                              
                              
                              (5,548
                              )
                              
                              
                              (5,131
                              )
                              
                              
                              (20,183
                              )Net
      (Loss)
                              
                              $
                              (95,157
                              )
                              
                              $
                              (7,732
                              )
                              
                              $
                              (110,668
                              )
                              
                              $
                              (24,540
                              )Net
      (loss) per common share — basic and diluted
                              
                              $
                              (0.25
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.30
                              )
                              
                              $
                              (0.08
                              )Weighted
      average number of common shares outstanding — basic and
      diluted
                              
                              
                              375,446
                              
                              
                              
                              316,978
                              
                              
                              
                              375,011
                              
                              
                              
                              312,610




See
accompanying notes to these unaudited consolidated financial
statements.


5


PETROHUNTER
ENERGY CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(unaudited)





Six
      Months Ended March 31, 2009
                                    
                                    
                                    Six
      Months Ended March 31, 2008($
      in thousands)Cash
      flows from operating activitiesNet
      loss
                                    
                                    $
                                    (110,668
                                    )
                                    
                                    $
                                    (24,540
                                    )Adjustments
      used to reconcile net loss to net cash used in operating
      activities:Stock
      based compensation
                                    
                                    
                                    2,105
                                    
                                    
                                    
                                    1,072Depreciation,
      depletion, amortization and accretion
                                    
                                    
                                    130
                                    
                                    
                                    
                                    483Impairment
      of oil and gas properties
                                    
                                    
                                    93,362
                                    
                                    
                                    
                                    -Amortization
      of deferred financing costs
                                    
                                    
                                    612
                                    
                                    
                                    
                                    1,020Impairment
      of contingent asset
                                    
                                    
                                    6,092
                                    
                                    
                                    
                                    -Amortization
      of debt discount and beneficial conversion feature
                                    
                                    
                                    1,377
                                    
                                    
                                    
                                    1,180Loss
      on marketable securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,987Loss
      on conveyance of property
                                    
                                    
                                    181
                                    
                                    
                                    
                                    11,875Warrants
      issued to settle interest costs
                                    
                                    
                                    37
                                    
                                    
                                    
                                    163Other
      adjustments to reconcile to net loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    45Changes in assets and
      liabilities:Receivables
                                    
                                    
                                    469
                                    
                                    
                                    
                                    (315
                                    )Prepaid
      expenses and other assets
                                    
                                    
                                    (226
                                    )
                                    
                                    
                                    70Accounts
      payable and accrued expenses
                                    
                                    
                                    (150
                                    )
                                    
                                    
                                    1,898Due
      to shareholder and related parties
                                    
                                    
                                    410
                                    
                                    
                                    
                                    -Net
      cash used in operating activities
                                    
                                    
                                    (6,269
                                    )
                                    
                                    
                                    (4,062
                                    )Cash
      flows from investing activitiesAdditions
      to oil and gas properties
                                    
                                    
                                    (1,628
                                    )
                                    
                                    
                                    (8,707
                                    )Proceeds
      from sale of oil and gas properties
                                    
                                    
                                    2,320
                                    
                                    
                                    
                                    7,500Proceeds
      from sale of marketable securities
                                    
                                    
                                    683
                                    
                                    
                                    
                                    2,541Additions
      to furniture and equipment
                                    
                                    
                                    (6
                                    )
                                    
                                    
                                    (277
                                    )Restricted
      cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    50Net
      cash provided by investing activities
                                    
                                    
                                    1,369
                                    
                                    
                                    
                                    1,107Cash
      flows from financing activitiesProceeds
      from the issuance of notes payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,250Borrowing
      on short-term notes payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    850Payments
      on short-term notes payable
                                    
                                    
                                    (93
                                    )
                                    
                                    
                                    (4,654
                                    )Proceeds
      from related party borrowings
                                    
                                    
                                    5,210
                                    
                                    
                                    
                                    (519
                                    )Payments
      on related party borrowing
                                    
                                    
                                    (310
                                    )
                                    
                                    
                                    1,170Proceeds
      from issuance of convertible notes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,330Net
      cash provided by financing activities
                                    
                                    
                                    4,807
                                    
                                    
                                    
                                    4,427Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    (93
                                    )
                                    
                                    
                                    1,472Cash
      and cash equivalents, beginning of period
                                    
                                    
                                    967
                                    
                                    
                                    
                                    120Cash
      and cash equivalents, end of period
                                    
                                    $
                                    874
                                    
                                    
                                    $
                                    1,592Supplemental
      schedule of cash flow informationCash
      paid for interest
                                    
                                    $
                                    422
                                    
                                    
                                    $
                                    16





See
accompanying notes to these unaudited consolidated financial
statements.


6


PETROHUNTER
ENERGY CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





Note
1 - Organization and Business Activities





The
interim 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. 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,
2008.





We are a
global oil and gas exploration and production company committed
to developing primarily unconventional natural gas and oil prospects.
 As of March 31, 2009, we owned properties in Rio Blanco, Garfield and Mesa
Counties Colorado, and in the Northern Territory, Australia.  We have
drilled five wells on our 20,000 acre Buckskin Mesa property located in Rio
Blanco County, Colorado. All five wells are drilled and cased, and three of the
five are completed and shut in. In the Southern Piceance Basin, we own 1,074
gross acres and 402 net acres located in Garfield and Mesa Counties,
Colorado.  During the six months ended March 31, 2009, we sold our working
interests in eight wells which were operated by EnCana Oil & Gas USA
(“EnCana”) with an effective date of December 1, 2008. In March, 2009 we sold
our land position in Montana which included 15,991 net undeveloped acres in the
Bear Creek area.   In Australia, we have an undivided 50% working
interest in four exploration permits that comprise 7.0 million net acres. We
have drilled one test well on our property in the Northern
Territory.





Note
2 - Summary of Significant Accounting Policies





Basis of Accounting and
Estimates – The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“GAAP”) and include the accounts of PetroHunter Operating Company and
its wholly-owned subsidiaries. Inter-company accounts and transactions have been
eliminated. In preparing the accompanying financial statements, management has
made certain estimates and assumptions that affect reported amounts in the
financial statements. 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. For the unevaluated properties, the Company evaluates
the possibility of potential impairment on a quarterly basis.  The
computation of share based compensation expense requires assumptions such as
volatility, expected life and the risk-free interest rate. Our estimates related
to changes in the market value of securities held by the us requires reliance on
several input variables including fluctuations in value of the US dollar versus
foreign currencies,  and  it is at least reasonably possible
these estimates could be revised in the near term, and these revisions could be
material.





Going Concern -As reported in
the accompanying consolidated financial statements, as of March 31, 2009,
we have an accumulated deficit of $261 million and a working capital deficit of
$56.4 million. As of March 31, 2009 we had no revenue producing assets. As noted
in the report of the independent registered public accounting firm on our
September 30, 2008 financial statements, these factors raise substantial doubt
about the Company's ability to continue as a going concern.





Contingencies – In accounting
for legal matters and other contingencies we follow the guidance in Statement of
Financial Accounting Standards (“SFAS”) No. 5,Accounting for Contingencies
, under which loss contingencies are accounted for based upon the likelihood of
an impairment of an asset or the occurrence of a liability. If a loss
contingency is “probable” and the amount of the loss can be reasonably
estimated, it is accrued.  If a loss contingency is “probable” but the
loss cannot be reasonably estimated, disclosure is made. If a loss contingency
is “reasonably possible” disclosure is made, including a potential range of
loss, if determinable. Loss contingencies that are “remote” are neither
accounted for nor disclosed. Gain contingencies are given no accounting
recognition until realized, but are disclosed if material.





7


Comprehensive Loss –Comprehensive loss consists of net loss and foreign currency translation
adjustments and unrealized gains or losses on restricted and unrestricted
marketable securities held by us. Comprehensive loss is presented net of income
taxes in the consolidated statements of stockholders’ equity and comprehensive
loss.





Fair Value Measurements -In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurements in order to establish a single definition of fair value and
a framework for measuring fair value in GAAP that is intended to result in
increased consistency and comparability in fair value measurements. SFAS No. 157
also expands disclosures about fair value measurements. SFAS No. 157 applies
whenever other authoritative literature requires (or permits) certain assets or
liabilities to be measured at fair value, but does not expand the use of fair
value. SFAS No. 157 was originally effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
years with early adoption permitted.




In early
2008, the FASB issued Staff Position (FSP) FAS-157-2, “Effective Date of FASB
Statement No. 157,” which delays by one year, the effective date of SFAS No. 157
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The delay pertains to items including, but
not limited to, non-financial assets and non-financial liabilities initially
measured at fair value in a business combination, non-financial assets recorded
at fair value at the time of donation, and long-lived assets measured at fair
value for impairment assessment under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.




The
Company has adopted the portion of SFAS No. 157 that has not been delayed by FSP
FAS-157-2 as of the beginning of its 2009 fiscal year, and plans to adopt the
balance of its provisions as of the beginning of its 2010 fiscal year. Items
carried at fair value on a recurring basis (to which SFAS No. 157 applies in
fiscal 2009) consist of available for sale securities based on quoted prices in
active or brokered markets for identical as well as similar assets.




Fair
values of assets and liabilities measured on a recurring basis as of March 31,
2009 included available for sale securities unrestricted and restricted,
recorded at a fair value of $6.3 million which had quoted prices in active
markets for identical assets (level 1) of $6.3 million.




Guarantees – As part of a Gas
Gathering Agreement we have with CCES Piceance Partners I, LLC (“CCES”), we have
guaranteed that, should there be a mutual failure to execute a formal agreement
for long-term gas gathering services in the future, we will repay CCES for
certain costs they have incurred in relation to the development of a gas
gathering system and repurchase certain gas gathering assets we sold to
CCES.  We have accounted for this guarantee using FASB Interpretation
No. 45 as amended,Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others  (“FIN 45”),  which requires
us to recognize a liability for the obligations undertaken upon issuing the
guarantee in order to have a more representative and faithful depiction of the
guarantor’s liabilities.  As of March 31, 2009, we have recognized a
$6.8 million contingent purchase obligation related to this guarantee. (See Note
11.)





Impairment –SFAS No. 144,
Accounting for the Impairment
and Disposal of Long-Lived Assets,requires
long-lived assets to be held and used to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. We use the full cost method of accounting for our oil
and gas properties. Properties accounted for using the full cost method of
accounting are excluded from the impairment testing requirements under SFAS No.
144. Properties accounted for under the full cost method of accounting are
instead subject to SEC Regulation S-X Rule 4-10, Financial Accounting and Reporting
for Oil and Gas Producing Activities Pursuant to the Federal Securities
Laws and the Energy Policy and Conservation Act of 1975(“Rule 4-10”).
Rule 4-10 requires that each regional cost center’s (by country) capitalized
cost, less accumulated amortization and related deferred income taxes not exceed
a cost center “ceiling”. The ceiling is defined as the sum of:





•
            The
      present value of estimated future net revenues computed by applying
      current prices of oil and gas reserves to estimated future production of
      proved oil and gas reserves as of the balance sheet date less






8


estimated
      future expenditures to be incurred in developing and producing those
      proved reserves to be computed using a discount factor of 10%;
      plus




•       The
cost of properties not being amortized; plus





•       The
lower of cost or estimated fair value of unproven properties included in the
costs being amortized; less





•       Income
tax effects related to differences between the book and tax basis of the
properties.





If
unamortized costs capitalized within a cost center, less related deferred income
taxes, exceed the cost center ceiling, the excess is charged to expense. During
the three and six months ended March 31, 2009, $83.1 million and $93.4
million in impairment was charged to expense. During the three and six
months ended March 31, 2008, we recorded no impairment charge.





Loss Per Common Share –Basic
loss per 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 ofcommon shares
outstanding excluded potential common shares from stock options and warrants of
approximately 180 million
shares and 140 million shares for the periods ended March 31, 2009 and 2008,
respectively.





Liquidity -We hold working
interests in undeveloped leases, and foreign exploration permits and we have
participated in seismic surveys and the drilling of test wells on undeveloped
properties. Based on our current financial position,  only seismic and
drilling activity that is necessary to maintain current status on our licenses
in Australia are planned for the remainder of 2009. We anticipate future
exploration activities may impose financial requirements which may exceed our
existing working capital. We may need to raise additional equity or enter into
new borrowing arrangements to finance our continued participation in planned
activities. Further, we have farmed-out certain of our projects.  However,
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 forfeit our interest in proposed wells, farm-out our
interest in proposed wells, sell a portion of our interests in prospects and use
the sale proceeds to fund participation for a lesser interest, reduce general
and administrative expenses, or a combination of all of these
factors.





Marketable Securities –
We have received marketable equity securities as consideration from the
sale of certain of interests in our oil and gas properties, and account for them
in accordance with SFAS No. 115,Accounting for Certain Investments
in Debt and Equity Securities.  As the shares we have received
are available for sale in the short term, or may be used as collateral for
future borrowings, we have accounted for them 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, when 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, and 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 consolidated financial statements to
conform with current period presentation. Such reclassifications have had no
effect on the net loss.





Restricted Cash – Consists of
certificates of deposit underlying letters of credit for exploration permits,
state and local bonds and guarantees to vendors, as well as amounts received
from a related party restricted for use in completing drilling on our Buckskin
Mesa project.








9





Recently
Issued Accounting Pronouncements





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2— “Recognition and Presentation
of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. The
FSP shall be effective for interim and annual reporting periods ending after
June 15, 2009. Management is currently evaluating the impact that the adoption
of this FSP will have on our financial statements.





In April
2009, the FASB issued FSP FAS 157-4— “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
“Fair Value Measurements,” when the volume and level of activity for the asset
or liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
shall be effective for interim and annual reporting periods ending after June
15, 2009, and shall be applied prospectively. Management is currently evaluating
the impact that the adoption of this FSP will have on our financial
statements.








Supplemental Cash Flow
Information.Supplemental cash flow information for the six
months ended March 31, 2009 and 2008, respectively, is as follows: (unaudited) (
in $ thousands)




Six
      Months
                Ended
      March 31,
                2009
              
              
              Six
      Months
                Ended
                March
      31,
                2008Supplemental
      disclosures of non-cash investing and financing activitiesContracts
      for oil and gas properties
              
              $
              —
              
              
              $
              (1,500
              )Shares
      issued for debt conversion
              
              $
              —
              
              
              $
              6,834Shares
      issued for commissions on offerings
              
              $
              —
              
              
              $
              56Shares
      issued in connection with investor relations
              
              $
              22
              
              
              $
              —Shares
      issued for property
              
              $
              —
              
              
              $
              9,000Shares
      returned on property conveyance
              
              $
              —
              
              
              $
              (1,408
              )Warrants
      issued for debt
              
              $
              —
              
              
              $
              3,757Discount
      associated with beneficial conversion and detachable
    warrants
              
              $
              —
              
              
              $
              6,956Marketable
      securities received from sale of oil and gas properties
              
              $
              —
              
              
              $
              5,529Acquisition
      of oil and gas properties by exchange of joint
                interest
      billings, oil and gas receivables and accounts payable
              
              $
              —
              
              
              $
              12,707














10








Note
3 – Restricted Cash and Marketable Securities





As of
March 31, 2009, long term restricted cash consists of $0.5 million in
certificates of deposit underlying letters of credit for exploration permits,
state and local bonds and guarantees to vendors.





As of
March 31, 2009, we have recorded $2.8 million in available for sale marketable
securities, and $3.5 million in restricted marketable securities on
our consolidated balance sheet. Included in these amounts are 26.1 million
shares of Falcon Oil and Gas Ltd. (“Falcon”) common stock received in connection
with the sale of a 50% interest in our four exploration permits in Australia in
October 2008.





The
Falcon shares have been classified as follows as of March 31, 2009:





14.5
million shares are held in escrow at the direction of Falcon, and serve as
collateral against $5 million we have borrowed from Falcon.





11.6
million shares have been made available for use as collateral against future
borrowings.





Note 4 — Oil and Gas
Properties





Oil and
gas properties consisted of the following ($ in thousands):





March
      31,
                          2009
                        
                        
                        September
      30,
                          2008Oil
      and gas properties, at cost, full cost method
                        
                        (unaudited)Unproved
      United States
                        
                        $
                        -
                        
                        
                        $
                        82,040Unproved
      Australia
                        
                        
                        2,576
                        
                        
                        
                        2,536Proved,
      United States
                        
                        
                        149,799
                        
                        
                        
                        69,704152,375
                        
                        
                        
                        154,280Less
      accumulated  depreciation, depletion, amortization and
      impairment
                        
                        
                        (149,799
                        )
                        
                        
                        (56,928
                        )Total
                        
                        $
                        2,576
                        
                        
                        $
                        97,352





During
the three-and six-month fiscal periods ended March 31, 2009, we have
reclassified approximately $71.9 million in costs from unproved to proved
properties within the US full cost pool.  The costs are associated
with the Jolley and Buckskin Mesa areas.  The Company’s partner in the
five Buckskin Mesa, Falcon chose not to exercise its option to participate in an
additional 50% interest in the play rendering us unable to meet the capital
obligations necessary to develop the acreage for mineral extraction. Thus we
have recorded additional impairment in the amount of $83.1 million during the
period ended March 31, 2009.





The
following is a summary of depreciation, depletion, amortization and accretion,
as reflected in the consolidated statements of operations (including
depletion and amortization of oil and gas properties per thousand cubic feet of
natural gas equivalent) for the six months ended ($ in thousands, except per
thousand cubic feet):





March
      31, 2009
                    
                    
                    March
      31, 2008Depletion
      and amortization of oil and gas properties
                    
                    $
                    8
                    
                    
                    $
                    351Depreciation
      of furniture and equipment
                    
                    
                    121
                    
                    
                    
                    131Accretion
      of asset retirement obligation
                    
                    
                    4
                    
                    
                    
                    2Gain
      on asset retirement obligation
                    
                    
                    (3
                    )
                    
                    
                    -Total
                    
                    $
                    130
                    
                    
                    $
                    484Depletion
      and amortization per thousand cubic feet of natural gas
      equivalent
                    
                    $
                    2.59
                    
                    
                    $
                    1.86





Due to
our lack of working capital our ability to extract minerals associated with the
assets in the US full cost pool became non-feasible.  As of March 31,
2009 the US full cost pool was fully impaired; therefore no depletion
calculation was necessary. We recorded an impairment of $83.0 million and $93.4
million for the three and six months ended March 31, 2009.  For the
six months ended March 31, 2008 there was no impairment loss
recorded.





11


Included
below is the description of significant oil and gas properties and their current
status.





PICEANCE BASIN,
COLORADO





Buckskin Mesa
Project.  As of March 31, 2009, we have drilled five wells
within our 20,000-acre Buckskin Mesa Project area.  All five wells are
drilled and cased, and three of the five are completed and shut in. The first
PetroHunter operated well, the Anderson 6-16, was drilled to a total depth of
10,785 feet through the Williams Fork, Cozzette, Corcoran, and Sego sands into
the Cretaceous Mancos Shale. The initial well was followed in close succession
with the drilling of the Anderson 13-10, the Lake 16-21, Anderson 4-21, and the
Lake 6-22 wells. Completion operations have begun on the Lake 16-21, Lake 6-22,
and the Anderson 6-16 wells.  Due to our financial position this play
was deemed economically unfeasible as of March 31, 2009.





Piceance Project. We own an
additional 1,074 gross acres and 402 net acres in the Piceance Basin. During the
six months ended March 31, 2009, we sold our 50% working interests in our 8
producing wells located in this area of Garfield, and Mesa Counties, Colorado
for $2.3 million.  Related to this sale, we have recorded a loss on
the conveyance during the six months ended March 31, 2009 of approximately
$0.2 million.





AUSTRALIA





Northwest Shelf Project. In
March 2007, Sweetpea Petroleum (“Sweetpea”) acquired Exploration Permit
#WA-393-P in the Barrow Sub-Basin of the Carnavon Basin on the Northwest Shelf
of Australia.  Subsequently, Sweetpea acquired the available
seismic on and adjacent to the permit and mapped four stratigraphic horizons.
Initial seismic mapping of the permit area demonstrates three structures: one
structure entirely on the block and two partially on the block in water depths
of approximately 600 feet. These structures are within about 80 kilometers of
the major discovery in the Triassic Mungaroo Formation at the Chevron Clio-1
well on the Northwest Shelf in this basin, which occur in deeper water depths of
about 3,000 feet. Additional geophysical analysis and mapping are ongoing on the
block. As of March 31, 2009, our permit has expired, we have requested a two
year extension and are currently awaiting a response from the Australian
government.





Beetaloo Basin Project.
Sweetpea also has four exploration permits in the Northern Territory, comprising
the Beetaloo Basin Project. In September 2007, Sweetpea drilled and cased one
well the Shenandoah #1 to a total depth of 1,555 meters (4,740 feet) in the area
covered by Exploration Permit (“EP”) 98 in the Beetaloo Basin. The test was a
twin (50 meter distance) from the Balmain #1 well and was designed to test the
Bessie Creek Formation at a depth of approximately 3,000 meters. The well was
completed to the drilled depth of 1,555 meters and cased, in anticipation of
later completing the well to the targeted total depth.  It is expected
that this well will be deepened to evaluate the petroleum potential
there.  Subject to available capital we are obligated to attempt to
drill four wells prior to December 31, 2009, to fulfill our obligations under EP
98 and EP 117, with additional activity planned for EP 76 and EP
99.  We have requested that our current drilling commitments be
reduced by the Australian government, we have not received confirmation that our
obligations under these permits will be reduced.





During
the six months ended March 31, 2009, we sold a 50% interest in our exploration
permits to Falcon, a related party.  Subsequent to the end of the period we
entered into a non-binding letter of intent to sell an additional 25% interest
in our four exploration permits.  (See Note 12.)





In
addition to the Beetaloo Basin and Northwest Shelf projects, we have also
applied for two additional exploration permits in the Northern Territory in
Australia covering an additional 1.5 million acres, which are adjacent to our
Beetaloo Basin Project acreage.





Note 5 — Asset Retirement
Obligation





The
Company recognizes an estimated liability for future costs associated with the
abandonment of its oil and gas properties. A liability for the fair value of an
asset retirement obligation and a corresponding increase to the carrying value
of the related long-lived asset are recorded at the time a well is completed or
acquired. The increase in carrying value is included in proved oil and gas
properties in the consolidated balance sheets. The Company depletes






12




the
amount added to proved oil and gas property costs and recognizes accretion
expense in connection with the discounted liability over the remaining estimated
economic lives of the respective oil and gas properties.





The
Company’s estimated asset retirement obligation liability is based on estimated
economic lives, estimates as to the cost to abandon the wells in the future, and
federal and state regulatory requirements. The liability is discounted using a
credit-adjusted risk-free rate estimated at the time the liability is incurred
or revised. The credit-adjusted risk-free rates used to discount the Company’s
abandonment liabilities range from 8% to 22%. Revisions to the liability are due
to increases in estimated abandonment costs and changes in well economic lives,
or in changes to federal or state regulations regarding the abandonment of
wells.





A
reconciliation of the Company’s asset retirement obligation liability is as
follows ($ in thousands):





March
      31, 2009
                
                
                September
      30, 2008Beginning
      asset retirement obligation
                
                $
                108
                
                
                $
                136Liabilities
      settled
                
                
                —
                
                
                
                (16
                )Revisions
      to estimates
                
                
                504
                
                
                
                (14
                )Accretion
      expense
                
                
                —
                
                
                
                8Ending
      asset retirement obligation
                
                $
                612
                
                
                $
                114





As the
five Buckskin Mesa wells proved to be uneconomic, a revised estimate has been
calculated for plugging fees and the liability was updated.





Note 6 —
Notes Payable





Notes
payable as of March 31, 2009 and September 30, 2008 are summarized below ($ in
thousands):


March
      31, 2009
                
                
                September
      30, 2008Short-term
      notes payable
                
                (unaudited)Installment
      loan
                
                $
                125
                
                
                $
                199Other
                
                
                25
                
                
                
                —Vendor
                
                
                52
                
                
                
                130Notes
      payable – short-term
                
                $
                202
                
                
                $
                329Note
      payable – related party – short termFalcon
      Energy
                
                $
                5,000
                
                
                $
                —Bruner
      Family Trust
                
                
                2,722
                
                
                
                2,722Global
      Project Finance
                
                
                40,650
                
                
                
                850Discount
      on notes payable
                
                
                (932
                )
                
                
                —Notes
      payable – related party – short, term
                
                $
                47,440
                
                
                $
                3,572Long-term
      notes payable – related party — netBruner
      Family Trust
                
                
                106
                
                
                
                106Global
      Project Finance
                
                
                —
                
                
                
                39,800Other
                
                
                —
                
                
                
                146Discount
      on notes payable
                
                
                —
                
                
                
                (2,017
                )Long-term
      notes payable – related party — net
                
                $
                106
                
                
                $
                38,035Convertible
      debt
                
                
                6,956
                
                
                
                6,956Discount
      on convertible debt
                
                
                (6,345
                )
                
                
                (6,631
                )Convertible
      debt — net
                
                
                611
                
                
                
                325OtherCapital
      lease
                
                $
                120
                
                
                $
                —







13




During
the three months ended March 31, 2009, we issued an 18% subordinated debenture
in the amount of $0.03 million to a shareholder of the Company in exchange for
the relief of amounts due the shareholder. The subordinated debenture is
collateralized by an interest in .01 million shares of Falcon common stock held
by us as unrestricted marketable securities. In connection with the issuance of
the debenture, we issued 0.07 million warrants to purchase our common stock at
$0.15 per share, which expire in January 2010.  The debenture was
initially due on April 15, 2009 and has been extended by the lender through May
15, 2009.




During
the six months ended March 31, 2009, we issued three subordinated convertible
debentures totaling $0.2 million to two related parties. These debentures bore
interest at 15% per annum and were due in May 2009. We issued 0.5 million
warrants to purchase our common stock at $0.15 per share in connection with
these debentures. (See Note 9)   These debentures along with all
related accrued interest were repaid in January 2009.





During
the six months ended March 31, 2009, we issued a promissory note in the amount
of $0.1 million to a related party. This note bore interest at 15% per annum as
of March 31, 2009 we have repaid this note and all accrued
interest.





During
the six months ended March 31, 2009, we entered into a secured loan agreement
with Falcon (“Falcon Loan”). Under the terms of the loan agreement, Falcon
agreed to advance to us $5.0 million.  The loan is secured by 14.5
million shares of Falcon common stock we had received as consideration in
relation to the sale of a 50% working interest in our four exploration permits
in Australia to Falcon. The shares have been pledged under a Pledge and Security
Agreement and are classified as restricted marketable securities on the
accompanying consolidated balance sheet. The Falcon Loan is also secured by a
first position security interest in our five well bores in our Buckskin Mesa
project.





As of
March 31, 2009, we received waiver and release from the Bruner Family Trust
related to our covenant violations and in relation to our default and failure to
make scheduled interest payments.





Our
largest creditor, Global, had previously granted us waiver of covenant
violations and default and failure to make interest payments. This waiver
remains in effect through January 1, 2010.





Subsequent
to March 31, 2009, we have received a waiver of covenant violations and default
and failure to make interest payments from the holders of our 8.5% convertible
debentures. (See Note 12.)





Note
7 — Stockholders’ Equity





We have
authorized 1 billion shares of common stock and 100 million shares of preferred
stock. No preferred stock was issued or is outstanding as of March 31,
2009.





During
the six months ended March 31, 2009,  we issued 1.9 million shares of
our common stock at $0.22 cents per share in connection with the receipt of an
amendment to a letter of understanding between Clear Creek Energy Services
“CCES” and us, related to our property interests. Under the terms of the
agreement CCES agreed to allow Falcon to exercise an additional option for and
additional working interest in our Buckskin Mesa project, should Falcon choose
to do so.





During
the three months ended March 31, 2009, we issued 0.25 million shares of our
common stock at $0.09 cents per share in connection with investor relation
services.





Note
8 — Share-Based Compensation





During
the six months ended March 31, 2009, we granted an extension allowing for the
continuation of the vesting of options related to a consultant of the Company
whose tenure with the Company was terminated in December 2008.





During
the six months ended March 31, 2009, we granted the acceleration of the vesting
of 0.1 million unvested options granted to a consultant in August
2008.





14


During
the three months ended March 31, 2009, we granted continuance of 8.4 million
options for employees and consultants of the Company who were to be separated
from the Company as of March 31, 2009.





The fair
value of each share-based award under all plans is estimated on the date of
grant or amendment using a Black-Scholes pricing model that incorporates the
assumptions noted in the following table for the six months ended March 31,
2009:





Expected
      option term – years
                  1.75-3.5Risk-free
      interest rate
                  1%-1.69%Expected
      dividend yield
                  0Weighted
      average volatility
                  98.84%





The
following table sets forth stock options outstanding under our 2005 stock option
plan as of March 31, 2009   (shares in thousands):





Number
      of
                                      Shares
                                    
                                    
                                    Weighted-Average
                                      Exercise PriceOptions
      Outstanding – September 30, 2008
                                    
                                    
                                    34,170
                                    
                                    
                                    $
                                    0.90Granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Forfeited
                                    
                                    
                                    (170
                                    )
                                    
                                    $
                                    1.87Expired
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Options
      outstanding  — March 31, 2009
                                    
                                    
                                    34,000
                                    
                                    
                                    $
                                    .90Options
      exercisable — March 31, 2009
                                    
                                    
                                    20,454
                                    
                                    
                                    $
                                    .99





Compensation Expense –Stock-based employee and non-employee compensation expense of $1.6 and
$2.1 million was charged to operations during the three months and six months
ended March 31, 2009.  Stock based employee and non-employee
compensation expense of $0.5 million
and $1.1 million was charged to operations during the three and six months ended
March 31, 2008.  Stock-based compensation has been included in general and
administrative expenses in the consolidated statements of
operations.





Note
9 — Common Stock Warrants





During
the six months ended March 31, 2009, 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 (see Note 6). The warrants issued
have a one year term and the total value of $0 million as calculated
under the Black-Scholes method.





During
the six months ended March 31, 2009,  we issued a total
of  0.92 million warrants to purchase our common stock at prices
ranging $0.24 to $0.28 per share to the holders of our Series A 8.5% convertible
debentures in connection with our default and failure to make scheduled interest
payments. In addition these warrants were issued as consideration for the
receipt of waivers related to our violation of certain debt covenants. These
warrants expire in November 2012 and had a total value of $0 million as
calculated under the Black-Scholes method.





During
the three months ended March 31, 2009, we issued .07 million warrants to
purchase our common stock at $0.15 per share, which expire in January 2010 in
connection with a convertible debenture issued to a shareholder of the Company.
(See Note 6.)








15




The
following stock purchase warrants were outstanding at March 31, 2009 and
September 30, 2008 (warrants in thousands):





March
      31,
                  2009
                
                September
      30,
                  2008Number
      of warrants
                137,282
                
                135,754Exercise
      price
                $0.15
      - $2.10
                
                $0.21
      - $2.10Expiration
      date
                2009
      - 2012
                
                2011
      - 2012








Note 10 — Related Party
Transactions





During
the six months ended March 31, 2009, we issued three subordinated debentures in
the total amount of $0.2 million to related parties. These debentures bore
interest at 15% per annum and were due in May 2009. We issued 0.5 million
warrants to purchase our common stock at $0.15 per share in connection with
these debentures. (See Notes  6 and 9.)  These debentures
and all related accrued interest have been repaid as of March 31,
2009.





During
the six months ended March 31, 2009, we issued a promissory note in the amount
of $0.1 million to a related party. This note bore interest at 15% per annum. As
of March 31, 2009, the note and all accrued interest have been
repaid.





During
the six months ended March 31, 2009, we entered into a loan agreement with
Falcon for proceeds of $5.0 million.  The Falcon Loan is secured by a
mortgage on our Buckskin Mesa Wells as defined in the Buckskin Mesa Purchase and
Sale Agreement dated August 22, 2008, as well as a pledge of shares of Falcon
common stock received in connection with our sale of a 50% interest in our
Beetaloo Basin property.





During
the six months ended March 31, 2009, we sold a 25% interest in five drilled but
uncompleted wells in our Buckskin Mesa Project to Falcon. Under the terms of the
agreement, Falcon deposited $7.0 million into escrow, of which $5.3 million was
to be used for testing and completion costs on these wells.  In
February 2009, Falcon elected to not participate in an additional 50% of our
Buckskin Mesa project. (See Note 4.)





As of
March 31, 2009 we have recorded both restricted and unrestricted marketable
securities totaling $6.3 million in aggregate on our consolidated 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.





Note 11 — Commitments and
Contingencies





CCES - On April 11, 2008, we
closed the sale of certain natural gas gathering assets for $0.7 million in cash
consideration, and simultaneously entered into a Gas Gathering Agreement with
CCES Piceance relating to the initial phase of our gas gathering system
project.  These agreements formalize and expand upon a Letter of
Understanding (“LOU”) between the parties which contemplates a dedicated
relationship with CCES in the development of a gas gathering system and the
provision of Gas Gathering Services within our Buckskin Mesa Project area (the
“CCES Agreements”). In addition to customary terms and conditions, the CCES
Agreements include a guarantee (the “Guarantee”) from us to CCES regarding their
increasing financial commitments as they are incurred in relation to the
development of the gas gathering system, including our contingent repurchase of
the gas gathering assets we sold to CCES.  The triggering event for
the Guarantee is contingent upon our mutual failure to execute a formal
agreement for long-term gas gathering services in the future (the “Second Phase
Midstream Services Agreement”).  The resolution of this contingency is
dependent upon, among other things, gas production levels from the initial phase
gas gathering system for our Buckskin Mesa Project. Per the agreement should we
fail to execute a mutually agreeable long-term contract, CCES had the right to
invoice us for their incurred costs and demand repayment within 20 days of our
receipt of the Demand Invoice.  To secure our Guarantee, we have
executed a Promissory Note for an amount up to $11.5 million, secured by second
deeds of trust on our Colorado properties.  The amount of the
Guarantee is variable, based upon the underlying incurred costs by CCES as
defined in the CCES Agreements.





16


As of
March 31, 2009, the liabilities associated with the construction of this
gathering system amounted to approximately $6.8 million. We have accounted for
our Guarantee under the requirements of FASB Interpretation (“FIN”)
45.  As of March 31, 2009, we have recorded all amounts due as current
contingent liabilities in our financial statements, to reflect our Contingent
Purchase Obligation relating to the Guarantee. In February 2009, completion of
this gathering system became economically unfeasible for us. We are currently in
negotiations with CCES and other third parties to address this
liability.





As we
have deemed that the completion of this gathering system is economically
unfeasible for us as of March 31, 2009, we have impaired approximately $6.1
million in value related to the asset component of the gathering system. We have
deemed there to be approximately $0.7 million in assets for which we may recoup
some value either through a sale to a third party or for which CCES may find an
alternate use.  These costs been classified as assets held for sale in
accordance with FASB No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”.





Daniels Petroleum –In
September 2008, our August 2005 Exploration and Development agreement with
Daniels Petroleum was amended.  In accordance with this latest
amendment, we committed to drill and or commence drilling four wells in the
Buckskin Mesa no later than July 2009.  The penalty for failing to
commence drilling by July 31, 2009 was prescribed to be no less than $0.5
million per well. As a result of our current liquidity issues, it appears highly
unlikely that we will be able to commence the drilling of the wells prior to
July 2009, therefore we have recorded the maximum penalty of $2.0 million as a
current liability as of March 31, 2009.





Note 12 — Subsequent
Events





In April
2009, we entered into a non-binding letter of intent with Falcon to sell an
additional 25% interest in our four exploration permits in the Beetaloo Basin in
Australia. In consideration for the sale of the 25% interest Falcon would
relieve a $5 million note payable we currently owe to them. The relief of this
note allows us to access the shares of Falcon that currently serve as collateral
on this note.  As a component of the transaction, Falcon will also
assume certain trade liabilities related to these permits and become the
operator of record on the project.




In April
2009, we received several demand letters from creditors, asserting demands for
payments of which we were in default.




In May
2009, we received waiver of default and covenant violations from the holders of
our 8.5% convertible debentures. In connection with the receipt of this waiver
we will grant to the noteholders 1.85 million warrants to purchase our common
stock.




In May
2009, we received a final invoice from CCES, indicating amounts recorded as a
contingent liabilities as of March 31, 2009 were due within 20 days of the
receipt of the demand invoice. We have not resolved this issue but continue
negotiations with CCES.  The management of CCES has indicated that no
further definitive action will be taken until the ongoing negotiations have been
completed.






17





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 a
global oil and gas exploration and production company committed
to developing primarily unconventional natural gas and oil prospects.
 As of March 31, 2009, we owned properties in Rio Blanco Garfield and Mesa
Counties , Colorado, and in the Northern Territory, Australia.  We have
drilled five wells on our 20,000 acre Buckskin Mesa property located in Rio
Blanco County, Colorado. All five wells are drilled and cased, and three of the
five are completed and shut in. In the Southern Piceance Basin, we own 1,074
gross acres and 402 net acres located in Garfield and Mesa Counties,
Colorado.  During the six months ended March 31, 2009, we sold our working
interests in eight wells which were operated by EnCana Oil & Gas USA
(“EnCana”) with an effective date of December 1, 2008. In March, 2009 we sold
our land position in Montana which included 15,991 net undeveloped acres in the
Bear Creek area.   In Australia, we have an undivided 50% working
interest in four exploration permits that comprise 7.0 million net acres. We
have drilled one test well on our property in the Northern
Territory.





During
the six months ended March 31, 2009, Falcon our working interest partner in our
Buckskin Mesa property, decided not to exercise its option to obtain an
additional 25% interest in the prospect. Falcon’s decision not to exercise this
option resulted in our recognition of significant impairment expense as the play
became economically non-feasible for us. Additionally, Falcon’s decision not to
exercise this option limited our opportunities, and compelled us to turn our
focus on our prospects in Australia.





Results
of Operations





The
financial information with respect to the three and six months ended March
31, 2009 and March 31, 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 March 31, 2009




The three
months ended March 31, 2009 saw weaker natural gas prices. The index price
prevailing in the locale of our Piceance Basin project in Colorado, as quoted in
Gas Daily as of March 31, 2009, was $3.94 per Mcf versus $10.84 per Mcf as of
March 31, 2008 (assuming a BTU factor of 1.1).  Natural gas prices
have been very volatile during 2009 year to date due to supply concerns earlier
in the year, and more recently due to recession concerns arising from the
current worldwide financial crisis.





In the
future, we may need to raise 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, only seismic and drilling activity that is
necessary to maintain current licenses in Australia is planned for the remainder
of 2009. It is anticipated that these exploration activities together with
others that may impose financial requirements which will exceed our






18




existing
working capital. We may raise additional equity and/or debt capital, and we may
farm-out certain of our projects to finance our continued participation in
planned activities. However, 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.





Company
Overview for the three and six months ended March 31, 2009 and 2008




Our net
losses for the three and six months ended March 31, 2009 were $95.2 million
and $110.7 million, respectively. We received only nominal revenues from our oil
and natural gas activities while incurring substantial impairment charges and
overhead expenses which have resulted in an accumulated deficit through March
31, 2009 of $261 million. We sold our only revenue producing assets during the
six months ended March 31, 2009.





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





Oil and Gas Revenue. For the
three months ended March 31, 2009, oil and gas revenue was nil as compared to
$0.65 million for the corresponding period in 2008. The decrease in
revenue relates to the sale of our 8 producing wells effective December 1,
2008.





For the
six months ended March 31, 2009, revenue was $0.1 million compared to
approximately $1.2 million for the corresponding period in 2008. The decrease in
revenue relates to the factors as discussed above as well as the natural
production decline in the wells, coupled with decreased pricing.





Costs
and Expenses





Lease Operating
Expenses. Lease operating expenses were $0.2 million and $0.6
million during the three and six month periods ended March 31, 2009, compared to
$0.1 million and $0.2 million in the comparable prior periods. This
increase is primarily attributable to compressor rental charges in the Buckskin
Mesa.





General and
Administrative.During the three and
six months ended March 31, 2009, general and administrative expense was $3.4
million and $5.5 million as compared to $2.5 million and $4.8 million in the
comparable prior period.





The
following table highlights the areas with the most significant changes ($ in
thousands):





Three
      Months ended March 31,
                      
                      
                      Six
      Months ended March 31,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Personnel
      and contract services
                      
                      $
                      1,557
                      
                      
                      $
                      909
                      
                      
                      $
                      2,996
                      
                      
                      $
                      1,793Legal
                      
                      
                      123
                      
                      
                      
                      140
                      
                      
                      
                      217
                      
                      
                      
                      392Stock
      based compensation
                      
                      
                      1,624
                      
                      
                      
                      599
                      
                      
                      
                      2,105
                      
                      
                      
                      1,072Travel
                      
                      
                      9
                      
                      
                      
                      22
                      
                      
                      
                      18
                      
                      
                      
                      74Other
                      
                      
                      57
                      
                      
                      
                      799
                      
                      
                      
                      152
                      
                      
                      
                      1,456Total
                      
                      $
                      3,370
                      
                      
                      $
                      2,469
                      
                      
                      $
                      5,488
                      
                      
                      $
                      4,787





19


The
increase in general and administrative expenses in 2009 is primarily a result of
increases in stock based compensation and rent expenses  as well
as personnel and contract services, offset by decreases in legal expense, and
other expense which had included among other items moving expenses in prior
periods.





We
anticipate that in future periods general and administrative expenses will be
significantly less. As of March 31, 2009, we began to implement significant
reductions in expense through reductions in staffing, and additional cost
cutting measures.





Impairment of Oil and Gas
Properties. Costs capitalized for properties accounted for under the full
cost method of accounting are subjected to a ceiling test limitation to the
amount of costs included in the cost pool by geographic cost center. Costs of
oil and gas properties may not exceed the ceiling which is an amount equal to
the present value, discounted at 10%, of the estimated future net cash flows
from proved oil and gas reserves plus the cost, or estimated fair market value,
if lower, of unproved properties. Should capitalized costs exceed this ceiling,
impairment is recognized.





During
the three and six months ended March 31, 2009, we recognized impairment
expense of $83.1 million and $93.4 million, respectively, as compared to Nil
million and Nil during the corresponding prior periods.





Depreciation, Depletion,
Amortization and Accretion. “DD&A” - During the three and
six months ended March 31, 2009 we recognized  $0.1 million and $0.1
million of DDA, respectively, as compared to $0.2 million and $0.5 during the
corresponding prior periods.





Interest Expense. During
the three and six months ended March 31, 2009, interest expense was
$2.4 million and $4.8 million, respectively, as
compared to $2.6 and $ 5.4 million during the corresponding prior periods.





The
following table highlights interest expense for the three and six months ended
March 31, ($ in thousands):




3
      Months ended March 31, 2009
              
              
              3
      months ended March 31, 2008
              
              
              6
      Months ended March 31, 2009
              
              
              6
      Months ended March 31, 2008Interest
      expense related to credit facility, convertible notes and other
      notes
              
              $
              1,354
              
              
              $
              1,354
              
              
              $
              2,828
              
              
              $
              2,770Amortization
      of debt discounts, deferred financing costs and
    accretion
              
              
              990
              
              
              
              885
              
              
              
              1,989
              
              
              
              2,200Interest
      on vendor obligations and other
              
              
              11
              
              
              
              335
              
              
              
              22
              
              
              
              389Total
              
              $
              2,355
              
              
              $
              2,574
              
              
              $
              4,839
              
              
              $
              5,359




We expect
that interest expense will decrease during the remainder of the fiscal year
ending September 30, 2009, due to the fact that the interest rates on the
majority of our debt portfolio are linked to indices that continue to benefit
and enjoy lower interest rates as a result of the global credit crisis. In
addition, issuances of our stock purchase warrants in connection with penalties
and defaults will continue to yield lower interest expense as the value of our
stock has continued to drop.
 
 Net Loss.For the three and six months ended March 31,
2009  we incurred net losses of $95.2 million and $110.7 million
as compared to net losses of $7.7 million and $24.5 million during the
corresponding prior periods.
 
 Going
Concern
 
 The
report of our independent registered public accounting firm on the financial
statements for the year ended September 30, 2008, includes an explanatory
paragraph relating to the uncertainty of our ability to continue as a going
concern. We have an accumulated deficit of $261 million and have a working
capital deficit of approximately $56.4 million as of March 31, 2009. We are not
in compliance with the covenants of several loan agreements, and have
significant capital expenditure commitments. We require significant additional
funding to sustain our


20




operations
and satisfy our contractual obligations for our planned oil and gas exploration
and development operations. We are in default on certain 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.





Liquidity
and Capital Resources





On
November 10, 2008, we closed the sale of an undivided 25% interest in five wells
drilled in Buckskin Mesa, in exchange for a $5.3 million cash work commitment to
complete certain of these wells. In addition, in December 2008, we completed the
sale of our working interests in our eight producing wells operated by EnCana
Oil & Gas (USA), Inc., for net cash proceeds of $2.3 million. As of March
31, 2009, we had a working capital deficit of $57 million.





As part
of the Purchase and Sale Agreement with Falcon relating to our Buckskin Mesa
property, Falcon obtained an option to acquire up to a 50% interest in our
entire Buckskin Mesa Project, for total consideration of $28.5 million in cash
or shares of Falcon common stock, and an $18.0 million work commitment. In
February 2009, Falcon elected not to exercise its option.





We have
currently entered into a non-binding letter of intent with a related party,
Falcon to sell an additional 25% interest in our four exploration permits in the
Beetaloo Basin in Australia. In consideration for the sale of the 25% interest
Falcon would relieve a $5 million note payable we currently owe to them. The
relief of this note allows us to access the shares of Falcon that currently
serve as collateral on this note.  As a component of the transaction,
Falcon will also assume certain trade liabilities related to these permits and
become the operator of record on the project.  This transaction would
allow us to continue our work in the Beetaloo Basin in Australia, and it
provides us with working capital.







Working Capital.Working
capital is the amount by which current assets exceed current liabilities. Our
working capital is impacted by changes in prices of oil and gas along with other
business factors that affect our net income and cash flows. Our working capital
is also affected by the timing of operating cash receipts and disbursements,
borrowings of and payments of debt, additions to oil and gas properties and
increases and decreases in other non-current assets.





As of
March 31, 2009, we had a working capital deficit of $56.4 million and cash
of $0.9 million, while at September 30, 2008 we had a working capital deficit of
$3.9 million and cash of $1.0 million. The decrease in working capital is
primarily attributable to the majority of our debt being reclassified from long
term to current.





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




Six
      Months Ended
                    March
      31,2009
                  
                  
                  2008Net
      cash (used in) operating activities
                  
                  $
                  (6,269
                  )
                  
                  $
                  (4,062
                  )Net
      cash provided by investing activities
                  
                  $
                  1,369
                  
                  
                  $
                  1,107Net
      cash provided by financing activities
                  
                  $
                  4,807
                  
                  
                  $
                  4,427





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 six months
ended March 31, 2009 was primarily related to net proceeds of $2.3 million
received from the sale of our 8 producing “Jolley” wells.   Net
cash provided by investing activities for six months ended March 31, 2008
related to cash received from the sale of oil and gas properties of $7.5 million
and the sale of trading securities of $2.5 million.




21


Net Cash Provided by Financing
Activities.Net cash provided by financing activities
for the six months ended March 31, 2009 was comprised primarily of proceeds
received related to the $5.0 million note payable associated with our Beetaloo
transaction and the receipt of $0.3 million in borrowings from related parties
net of repayments $.04 million. Net cash provided by financing activities for
the six months ended March 31, 2008 was primarily comprised of borrowings of
$9.6 million net of repayments of debt in the amount of $5.2
million.





Plan
of Operation





We will
continue to seek opportunities related to our interests and or in the
acreage. We cannot say with any reasonable probability what the outcome of our
ongoing efforts will be.




We plan
to explore and develop portions of our undivided 50% working interest in our
7.0 million acre position in four exploration permits in the
Beetaloo Basin project area located in the Northern Territory of Australia.
Based on our current financial position only seismic and drilling activity that
is necessary to maintain current license status in Australia is planned for the
remainder of 2009.  We anticipate that costs related to seismic
acquisition, development of operational infrastructure, and the drilling and
completion of wells over the nine months, will aggregate approximately $18.5
million relating to our 50% working interest.  We have requested an
extension and or reduction in commitments from the Australian
government.




Capital
Requirements.





As of
March 31, 2009 and for the remainder of the calendar year 2009 we have
obligations to drill and or commence drilling a total of 8 wells in Colorado for
which, our ownership interests and corresponding obligations vary from 37.5% to
100%. Due to liquidity concerns we do not anticipate having the cash to meet
these obligations. We are currently exploring all potential opportunities
related to these commitments.





In
Australia we have commitments to drill 4 wells in our Beetaloo Basin project
during the remainder of the calendar year.





Subsequent
to March 31, 2009, we entered in negotiations with the Australian Land
authorities to reduce the drilling commitments that we had originally entered
into related to our Beetaloo Basin Project. The outcome of these negotiations is
not yet known; therefore a significant reduction in future capital expenditures
may not necessarily result.




Financing.During the six
months ended March 31, 2009, 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 is 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
have been pledged to Falcon under a pledge and security agreement. The loan
carries interest at 10% payable in monthly installments and was due in full on
April 30, 2009. Funds were used to satisfy various vendor obligations. As we
have entered into a non-binding letter of intent to sell an additional 25%
interest in our four exploration permits in the Beetaloo Basin in exchange for
the relief of this loan amount, the repayment of the loan has been suspended
until the outcome of the negotiations becomes known.





In
December 2008, we issued $0.2 million in convertible debentures to three related
parties. The debentures bore interest at 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.





In
January, 2009 we converted $.025 in trade accounts payable into a convertible
promissory note. This note bore interest at 18%. The noteholders were issued
0.07 million warrants to purchase our common stock.


22


The
continuation and future development of our business will require substantial
additional capital expenditures. Meeting capital expenditure, operational, and
administrative needs for the fiscal year ending September 30, 2009 will depend
on our success in farming out or selling portions of working interests in our
properties for cash and/or funding of our share of development expenses, the
availability of debt or equity financing, and the results of our activities. To
limit capital expenditures, we may form industry alliances and exchange an
appropriate portion of our interest for cash and/or a carried interest in our
exploration projects using farm-out arrangements. We may need to raise
additional funds to cover capital expenditures. These funds may come from cash
flow, equity or debt financings, a credit facility, or sales of interests in our
properties, although there is no assurance additional funding will be available
or that it will be available on satisfactory terms. The global credit crisis may
impact our ability to raise additional funds. If we are unable to raise capital
through the methods discussed above, our ability to execute our development
plans will be greatly impaired. See the Going Concern section
above.





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, 2008 for the description of critical
accounting policies and estimates





Recently
Issued Accounting Pronouncements





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2— “Recognition and Presentation
of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. The
FSP shall be effective for interim and annual reporting periods ending after
June 15, 2009. Management is currently evaluating the impact that the adoption
of this FSP will have on our financial statements.




In April
2009, the FASB issued FSP FAS 157-4— “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
“Fair Value Measurements,” when the volume and level of activity for the asset
or liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
shall be effective for interim and annual reporting periods ending after June
15, 2009, and shall be applied prospectively. Management is currently evaluating
the impact that the adoption of this FSP will have on our financial
statements.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Commodity
Price Risk





Because
of our 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.


23


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 production grows, we may utilize currency exchange
contracts, commodity forwards, swaps or futures contracts to manage our exposure
to foreign currency exchange rate risks.





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.





ITEM
4. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures




Based on
their evaluation as of the end of the quarter ended March 31, 2009, our Chief
Executive Officer and Principal Accounting 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, 2008, 2007 and 2006. 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. In
order to remediate these material weaknesses management retained additional
senior accounting staff and financial consultants and, during the third and
fourth quarters of fiscal 2008, and into the first quarter of fiscal 2009, the
Company 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 March 31, 2009, permitted
observation over an appropriate period of time for us to conclude that our
disclosure controls and procedures were effective as of March 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 consolidated balance sheets as of March 31, 2009 and September 30,
2008 and the related consolidated statements of operations, and cash flows
for the three and six months ended March 31, 2009 and 2008 are in conformity
with GAAP.


24


Changes
in Internal Control over Financial Reporting





There
have been no significant changes in our internal control over financial
reporting during the quarter ended March 31, 2009 that have materially affected,
or is reasonably likely to materially affect our internal control over financial
reporting.








25


PART
II. OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





As of
March 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
March 31, 2009, we have no revenue-producing assets and a working capital
deficit of approximately $57 million.  In May 2009, we received debt
covenant waivers from several of our lenders allowing us to extend the due dates
on scheduled maturities, and or to extend due dates on scheduled interest
payments.  We will need to negotiate with other lenders for similar
extensions 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





During
the three months ended March 31, 2009, we issued 0.25 million shares of our
common stock at $0.09 cents per share in connection with the investor relations
services.





During
the three months ended March 31, 2009, we issued 0.07 million warrants to
purchase our common stock at $0.15 per share in connection with the issuance of
$.025 million in convertible debentures.





During
the three months ended March 31, 2009, we issued 0.9 million warrants to
purchase our common stock at prices ranging $.024 to $0.28 per share to the
holders of our Series A 8.5% convertible debentures in connection
with  the receipt of waivers related to our violation of certain debt
covenants.





No
underwriters were used in the above stock transactions.  The Company
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act of 1933 as to these transactions, as the investors were either
deemed to be sophisticated with respect to the investment in the securities due
to their financial condition and involvement in the Company’s business or
accredited investors.  Restrictive legends were placed on the
certificates evidencing the securities issued in both of the above
transactions.





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





26


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
      OringMartin
      OringChief
      Executive Officer


By:
                    /s/
      Paul D. ManiscalcoPaul
      D. ManiscalcoPrincipal
      Accounting OfficerDate: 
      May 15, 2009


27





EXHIBIT INDEX





Regulation
                      S-K Number
                    Exhibit31.1
                    Rule
      13a-14(a) Certification of Martin Oring31.2
                    Rule
      13a-14(a) Certification of Paul D. Maniscalco32.1
                    Certification
      of Martin 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 Paul D. Maniscalco to 18 U.S.C. Section 1350, as Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act Of
2002