UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**Form
      10-Q/A**


**Amendment
        No. 2**





(Mark
      One)


[**X**]
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


For
      the
      quarterly period ended: **March 31, 2007**





[  ]
            **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.)





**1875
      Lawrence Street, Suite 1400, Denver, Colorado 80203**


(Address
      of principal executive
      offices)                (Zip
      Code)





Registrant’s
      telephone number:  **(303) 572-8900**





**Not
      applicable**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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 [X]   No
      [  ]





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


Large
      accelerated filer
      [  ]                                                                Accelerated
      filer
      [  ]                                                      Non-accelerated
      filer [X]





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:


**222,928,734****shares of Common Stock, $.001 par value, as
      of**


**May
      15, 2007**





EXPLANATORY
      NOTE





We
        are
        filing this Amendment No. 2 to Form 10-Q for the quarterly period ended March
        31, 2007, as originally filed with the SEC on May 21, 2007 and as amended
        on
        June 13, 2007, to restate our financial statements and corresponding financial
        information for the quarterly period ended March 31, 2007.





We
        are
        restating the financial statements and corresponding financial information
        to
        appropriately account for the operating results associated with certain
        agreements.  During February and March 2007, the Company received
        notice it was in default for failure to make timely payments of amounts due
        for
        drilling and completion operations, under the terms of a Joint Operating
        Agreement with an oil and gas operator and certain Well Participation and
        Farmout Agreements with a different third party oil and gas
        operator.  The Company had recorded, through March 31, 2007,
        $2,470,100 of oil and gas sales revenue, $420,994 of lease operating and
        production tax expense, $426,566 of depreciation, depletion and
        amortization;  and at March 31, 2007 had recorded $1,165,651 of oil
        and  gas receivables, $4,509,977 in oil and gas properties, and
        $3,388,352 in accounts payable and accrued expenses from the six wells in
        which
        it had held a contractual interest This restatement reverses the related
        operational results recorded during the period.





A
        more
        complete discussion of this restatement is set forth in Note 1 to the
        consolidated financial statements included in Part I, Item 1 of this Amendment
        No. 2.  Changes also have been made to Part I, Item 2*—
Management’s Discussion and Analysis of Financial Condition and Results of
        Operations*in this Amendment No. 2, as a result of the
        restatement.





This
        Amendment No. 2 continues to speak as of the date of Amendment No. 1 to Form
        10-Q for the quarterly period ended March 31, 2007 and we have not updated
        or
        amended the disclosures contained herein to reflect events that have occurred
        since the filing of Amendment No. 1 to Form 10-Q, or modified or updated
        those
        disclosures in any way other than as described in the preceding
        paragraphs.  Accordingly, this Amendment No. 2 to Form 10-Q should be
        read in conjunction with our filings made with the SEC subsequent to the
        filing
        of the original Form 10-Q on May 21, 2007 and Amendment No. 1 to Form
        10-Q.


2


**PETROHUNTER
      ENERGY CORPORATION**


**(A
      Development Stage Company)**


**CONSOLIDATED BALANCE
      SHEETS**




**ASSETS****March
                31,****2007**
            
            
            **September
                30****(unaudited)**
            
            
            **2006****Current
                Assets**Cash
                and cash equivalents
            
            $
            1,702,427
            
            
            $
            10,631,776Oil
                and gas receivables
            
            
            968,106
            
            
            
            -Oil
                and gas receivables - related party
            
            
            73,616
            
            
            
            35,656Other
                receivables
            
            
            558,401
            
            
            
            22,290Due
                from related parties
            
            
            -
            
            
            
            921,344Prepaid
                expenses and other assets
            
            
            7,382
            
            
            
            30,960**Total
                current assets**
            
            
            3,309,932
            
            
            
            11,642,026**Property
                and Equipment, at cost**Oil
                and gas properties under full cost, net
            
            
            160,363,026
            
            
            
            45,972,784Deposit
                on pending oil and gas property acquistion
            
            
            2,243,777
            
            
            
            -Furniture
                and equipment, net
            
            
            746,559
            
            
            
            550,213163,353,362
            
            
            
            46,522,997**Other
                Assets**Due
                from joint interest owner
            
            
            10,618,987
            
            
            
            -Restricted
                cash
            
            
            1,101,793
            
            
            
            1,076,793Deferred
                financing costs
            
            
            162,016
            
            
            
            -**Total
                Assets**
            
            $
            178,546,090
            
            
            $
            59,241,816**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable and accrued expenses
            
            $
            17,949,333
            
            
            $
            9,644,236Note
                payable - related party - current portion
            
            
            2,925,000
            
            
            
            -Accrued
                interest payable
            
            
            350,379
            
            
            
            124,474Accrued
                interest payable - related party
            
            
            178,814
            
            
            
            -Due
                to shareholder and related parties
            
            
            889,283
            
            
            
            197,785Contracts
                payable - oil and gas properties
            
            
            2,600,000
            
            
            
            -Convertible
                notes payable - in default
            
            
            350,000
            
            
            
            -Convertible
                notes payable
            
            
            50,000
            
            
            
            400,000**Total
                current liabilities**
            
            
            25,292,809
            
            
            
            10,366,495**Non
                Current Obligations**Notes
                payable - related party
            
            
            10,125,000
            
            
            
            -Notes
                payable - net
            
            
            10,687,121
            
            
            
            -Asset
                retirement obligation
            
            
            326,103
            
            
            
            522,05421,138,224
            
            
            
            522,054**Total
                Liabilities**
            
            
            46,431,033
            
            
            
            10,888,549**Common
                stock subscribed**
            
            
            3,067,500
            
            
            
            -**Commitments
                and Contingencies (Notes 4, 5, 8, 9, 10 and 13)****Stockholders'
                Equity**Preferred
                stock, $.001 par valueAuthorized
                - 1,000,000 shares, issued, none
            
            
            -
            
            
            
            -Common
                stock, $.001 par valueAuthorized
                - 500,000,000 sharesIssued
                and outstanding - 222,928,734 and 219,928,734 shares
            
            
            222,929
            
            
            
            219,929Capital
                in excess of par value
            
            
            81,623,051
            
            
            
            70,944,172Common
                stock issuable
            
            
            81,732,450
            
            
            
            -Deficit
                accumulated during the development stage
            
            
            (34,530,873
            )
            
            
            (22,810,834
            )**Total
                Stockholders' Equity**
            
            
            129,047,557
            
            
            
            48,353,267**Total
                Liabilities and Stockholders' Equity**
            
            $
            178,546,090
            
            
            $
            59,241,816





3


**PETROHUNTER
                  ENERGY CORPORATION****(A
                  Development Stage Company)****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****Three**
              
              
              **Three****Months
                  Ended**
              
              **Months
                  Ended****March
                  31**
              
              
              **March
                  31****2007**
              
              
              **2006****(unaudited)**
              
              **(unaudited)****Revenues**Oil
                  and gas revenues
              
              $
              889,498
              
              
              $
              -**Costs
                  and Expenses**Lease
                  operating expenses
              
              
              223,834
              
              
              
              -General
                  and administrative
              
              
              4,331,209
              
              
              
              1,157,998Property development - related
              
              
              -
              
              
              
              820,000Consulting fees  - related party
              
              
              75,000Depreciation, depletion, amortization and accretion
              
              
              126,604**Total
                  operating expenses**
              
              
              4,756,647
              
              
              
              1,977,998**Other
                  Income (Expense)**Interest
                  income
              
              
              6,330Interest
                  expense
              
              
              (2,004,412
              )
              
              
              (499,225
              )**Total other income (expense)**
              
              
              (1,998,082
              )
              
              
              (499,225
              )**Net
                  Loss**
              
              $
              (5,865,231
              )
              
              $
              (2,477,223
              )**Net
                  loss per common share -****basic
                  and diluted**
              
              $
              (0.03
              )
              
              $
              (0.02
              )**Weighted
                  average number of common shares****outstanding - basic and diluted**
              
              
              222,562,067
              
              
              
              103,271,111**Cumulative
                  from****Inception****Six**
              
              
              **Six**
              
              
              **(June
                  20, 2005)****Months
                  Ended**
              
              **Months
                  Ended**
              
              **to****March
                  31**
              
              **March
                  31**
              
              **March
                  31****2007**
              
              
              **2006**
              
              
              **2007****(unaudited)**
              
              **(unaudited)**
              
              **(unaudited)****Revenues**Oil
                  and gas revenues
              
              $
              1,338,374
              
              
              $
              -
              
              
              $
              1,374,030**Costs
                  and Expenses**Lease
                  operating expenses
              
              
              385,634
              
              
              
              -
              
              
              
              389,306General
                  and administrative
              
              
              8,002,207
              
              
              
              1,869,252
              
              
              
              22,875,799Property development - related
              
              
              1,815,000
              
              
              
              1,520,000
              
              
              
              7,205,000Consulting fees  - related party
              
              
              75,000
              
              
              
              -
              
              
              
              75,000Depreciation, depletion, amortization and accretion
              
              
              763,531
              
              
              
              -
              
              
              
              836,668**Total
                  operating expenses**
              
              
              11,041,372
              
              
              
              3,389,252
              
              
              
              31,381,773**Other
                  Income (Expense)**Interest
                  income
              
              
              14,389
              
              
              
              -
              
              
              
              17,022Interest
                  expense
              
              
              (2,031,430
              )
              
              
              (686,660
              )
              
              
              (4,540,152
              )**Total other income (expense)**
              
              
              (2,017,041
              )
              
              
              (686,660
              )
              
              
              (4,523,130
              )**Net
                  Loss**
              
              $
              (11,720,039
              )
              
              $
              (4,075,912
              )
              
              $
              (34,530,873
              )**Net
                  loss per common share -****basic
                  and diluted**
              
              $
              (0.05
              )
              
              $
              (0.04
              )**Weighted
                  average number of common shares****outstanding - basic and diluted**
              
              
              221,245,401
              
              
              
              101,635,556
  The
                accompanying notes are an integral part of the consolidated financial
                statements.
 4
 **PETROHUNTER
        ENERGY CORPORATION**
 **(A
        Development Stage Company)**
 **CONSOLIDATED STATEMENTS
        OF CASH FLOWS**
 
 **Cumulative
                  from****Inception****Six**
              
              
              **Six**
              
              
              **(June
                  20, 2005)****Months
                  Ended**
              
              
              **Months
                  Ended**
              
              
              **to****March
                  31,**
              
              
              **March
                  31,**
              
              
              **March
                  31,****2007**
              
              
              **2006**
              
              
              **2007****(unaudited)**
              
              
              **(unaudited)**
              
              
              **(unaudited)****Cash
                  flows used in operating activities**Net
                  loss
              
              $
              (11,720,039
              )
              
              $
              (4,075,911
              )
              
              $
              (34,530,873
              )Adjustments
                  to reconcile net loss tonet
                  cash (used) in operating activitiesStock
                  for expenditures advanced
              
              
              -
              
              
              
              -
              
              
              
              100,000Stock
                  based compensation
              
              
              3,616,724
              
              
              
              411,356
              
              
              
              13,628,768Depreciation,
                  depletion, amotization, impairment and accretion
              
              
              763,531
              
              
              
              -
              
              
              
              836,668Stock
                  for financing costs
              
              
              1,440,918
              
              
              
              95,000
              
              
              
              2,863,619Amortization
                  of discount on notes payable and deferredfinancing
                  costs
              
              
              148,122
              
              
              
              4,822
              
              
              
              148,122Changes
                  in assets and liabilitiesAccounts
                  receivable
              
              
              (1,468,562
              )
              
              
              (19,814
              )
              
              
              (1,526,508
              )Due
                  from related party
              
              
              921,344
              
              
              
              (1,510,428
              )
              
              
              -Prepaids
                  and other
              
              
              23,578
              
              
              
              7,699
              
              
              
              14,627Accounts
                  payable and accrued expenses
              
              
              (855,451
              )
              
              
              (12,595
              )
              
              
              524,336Due
                  to shareholder and related parties
              
              
              617,883
              
              
              
              568,105
              
              
              
              815,668**Net
                  cash used in operating activities**
              
              
              (6,511,952
              )
              
              
              (4,531,766
              )
              
              
              (17,125,573
              )**Cash
                  flows used in investing activities**Additions
                  to oil and gas properties
              
              
              (4,008,194
              )
              
              
              (7,847,782
              )
              
              
              (36,789,535
              )Due
                  from joint interest owner
              
              
              (10,618,987
              )
              
              
              -
              
              
              
              (10,618,987
              )Deposit
                  on oil and gas property acquisition
              
              
              (2,243,777
              )
              
              
              -
              
              
              
              (2,243,777
              )Property
                  and equipment
              
              
              (94,641
              )
              
              
              (3,774
              )
              
              
              (647,852
              )Restricted
                  cash
              
              
              (525,000
              )
              
              
              (30,000
              )
              
              
              (1,601,793
              )**Net
                  cash used in investing activities**
              
              
              (17,490,599
              )
              
              
              (7,881,556
              )
              
              
              (51,901,944
              )**Cash
                  flows from financing activities**Proceeds
                  from the sale of common stock
              
              
              -
              
              
              
              
              
              
              
              35,442,500Proceeds
                  from common stock subscribed
              
              
              3,067,500
              
              
              
              
              
              
              
              3,067,500Proceeds
                  from the sale of notes payable
              
              
              12,500,000
              
              
              
              
              
              
              
              12,500,000Payment
                  of notes payable - related party
              
              
              (450,000
              )
              
              
              
              
              
              
              (450,000
              )Proceeds
                  from the exercise of warrants
              
              
              -
              
              
              
              
              
              
              
              1,000,000Cash
                  received upon recapitalization and merger
              
              
              -
              
              
              
              
              
              
              
              20,949Proceeds
                  from issuance of convertible notes
              
              
              -
              
              
              
              11,150,752
              
              
              
              20,831,667Offering
                  and financing costs
              
              
              (44,298
              )
              
              
              (4,753
              )
              
              
              (1,682,672
              )**Net
                  cash provided by financing activities**
              
              
              15,073,202
              
              
              
              11,145,999
              
              
              
              70,729,944**Net
                  increase in cash and cash equivalents**
              
              
              (8,929,349
              )
              
              
              (1,267,323
              )
              
              
              1,702,427**Cash
                  and cash equivalents, beginning of period**
              
              
              10,631,776
              
              
              
              1,250,242
              
              
              
              -**Cash
                  and cash equivalents, end of period**
              
              $
              1,702,427
              
              
              $
              (17,081
              )
              
              $
              1,702,427




5
 **PETROHUNTER
          ENERGY CORPORATION**
 **(A
          Development Stage Company)**
 **CONSOLIDATED STATEMENTS
          OF CASH FLOWS**
 **Supplemental
                  schedule of cash flow information**Cash
                  paid for interest
              
              $
              -
              
              
              $
              -
              
              
              $
              1,028,353Cash
                  paid for income taxes
              
              $
              -
              
              
              $
              -
              
              
              $
              -**Supplemental
                  disclosures of non-cash investing and financing
                  activities**Stock
                  issued for expenditures advanced
              
              $
              -
              
              
              $
              -
              
              
              $
              100,000Contracts
                  for oil and gas properties
              
              $
              -
              
              
              $
              -
              
              
              $
              11,773,960Common
                  stock issued for debt conversion
              
              $
              -
              
              
              $
              -
              
              
              $
              22,031,667Common
                  stock issued for commissions on offerings
              
              $
              200,000
              
              
              $
              -
              
              
              $
              3,100,201Common
                  stock issued for property and finders fee on property
              
              $
              4,127,770
              
              
              $
              1,700,000
              
              
              $
              6,327,770Debt
                  issued for property, related party
              
              $
              13,500,000
              
              
              $
              -
              
              
              $
              13,500,000Interest
                  capitalized to oil and gas properties
              
              $
              394,803
              
              
              $
              -
              
              
              $
              394,803Convertible
                  debt issued for property
              
              $
              -
              
              
              $
              -
              
              
              $
              1,200,000Common
                  stock issuable for property and finders fee on property
              
              $
              81,275,200
              
              
              $
              -
              
              
              $
              81,275,200Common
                  stock issuable
              
              $
              457,250
              
              
              $
              -
              
              
              $
              457,250


































The
            accompanying notes are an integral part of the consolidated financial
            statements.
 6
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      1 — RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS**




In
        February and March 2007, the Company received notice it was in default for
        failure to make timely payments of amounts due for drilling and completion
        operations under the terms of a Joint Operating Agreement with an oil and
        gas
        operator (the “Operator”) and certain Well Participation and Farmout Agreements
        (the “Farmouts”) with a different third party oil and gas operator (the
“Farmor”).  On March 29, 2007, the Farmor notified the Company it was
        exercising its rights under the Farmouts to terminate the Farmouts and resume
        ownership of the working interests in six wells drilled on the farmout
        acreage.  The Farmor refunded all amounts paid by the Company to drill
        the wells, and credited the Company for the remaining balance due to the
        Operator.  The Company had recorded, through March 31, 2007,
        $2,470,100 of oil and gas sales revenue, $420,994 of lease operating and
        production tax expense, $426,566 of depreciation, depletion and amortization
        expense; and at March 31, 2007 had recorded $1,165,651 of oil and gas
        receivables, $4,509,977 in oil and gas properties, and $3,388,352 in accounts
        payable and accrued expenses from the six wells in which it had held a
        contractual interest.







**CONSOLIDATED
                  STATEMENT OF OPERATIONS - SIX MONTHS ENDED MARCH 31,
                  2007**As
                  Reported
              
              
              Adjustments
              
              
              RestatedRevenue
              
              $
              3,808,474
              
              
              $
              (2,470,100
              )
              
              $
              1,338,374Lease
                  operating expenses
              
              
              806,628
              
              
              
              (420,994
              )
              
              
              385,634General
                  and Administrative
              
              
              7,998,571
              
              
              
              3,636
              
              
              
              8,002,207Depreciation,
                  depletion, amortization and accretion
              
              
              1,190,097
              
              
              
              (426,566
              )
              
              
              763,531Interest
                  expense
              
              
              (1,909,012
              )
              
              
              122,418
              
              
              
              (2,031,430
              )Net
                  Income (Loss)
              
              
              (9,971,445
              )
              
              
              (1,748,594
              )
              
              
              (11,720,039
              )**CONSOLIDATED
                  STATEMENT OF OPERATIONS - THREE MONTHS ENDED MARCH 31,
                  2007**As
                  Reported
              
              
              Adjustments
              
              
              RestatedRevenue
              
              $
              3,359,598
              
              
              $
              (2,470,100
              )
              
              $
              889,498Lease
                  operating expenses
              
              
              644,828
              
              
              
              (420,994
              )
              
              
              223,834General
                  and Administrative
              
              
              4,327,573
              
              
              
              3,636
              
              
              
              4,331,209Depreciation,
                  depletion, amortization and accretion
              
              
              553,170
              
              
              
              (426,566
              )
              
              
              126,604Interest
                  expense
              
              
              (1,881,994
              )
              
              
              122,418
              
              
              
              (2,004,412
              )Net
                  Income (Loss)
              
              
              (4,116,637
              )
              
              
              (1,748,594
              )
              
              
              (5,865,231
              )**CONSOLIDATED
                  BALANCE SHEET AS OF MARCH 31, 2007**As
                  Reported
              
              
              Adjustments
              
              
              RestatedOil
                  and gas receivables
              
              $
              2,133,757
              
              
              $
              (1,165,651
              )
              
              $
              968,106Other
                  receivables
              
              
              19,719
              
              
              
              538,682
              
              
              
              558,401Oil
                  and gas properties under full cost, net
              
              
              164,873,003
              
              
              
              (4,509,977
              )
              
              
              160,363,026Total
                  Assets
              
              
              183,683,036
              
              
              
              (5,136,946
              )
              
              
              178,546,090Accounts
                  payable and accrued expenses
              
              
              21,337,685
              
              
              
              (3,388,352
              )
              
              
              17,949,333Deficit
                  accumulated during the development stage
              
              
              (32,782,278
              )
              
              
              (1,748,595
              )
              
              
              (34,530,873
              )Total
                  Liabilities and Stockholders' Equity
              
              
              183,683,037
              
              
              
              (5,136,947
              )
              
              
              178,546,090







7
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      2 — ORGANIZATION AND BASIS OF PRESENTATION**




PetroHunter
      Energy Corporation, formerly known as Digital Ecosystems Corp., (“Digital”) was
      incorporated on February 21, 2002 under the laws of the State of
      Nevada.  On February 10, 2006, Digital entered into a Share Exchange
      Agreement (the “Agreement”) with GSL Energy Corporation (“GSL”) and certain
      shareholders of GSL pursuant to which Digital acquired more than 85% of the
      issued and outstanding shares of common stock of GSL, in exchange for shares
      of
      Digital’s common stock.  On May 12, 2006, the parties to the Agreement
      completed the share exchange, and Digital changed its business to the business
      of GSL.  Subsequent to the closing of the Agreement, Digital acquired
      all the remaining outstanding stock of GSL, and effective August 14, 2006,
      Digital changed its name from Digital Ecosystems Corp. to PetroHunter Energy
      Corporation (“PetroHunter”).




GSL
      was
      incorporated under the laws of the State of Maryland on June 20, 2005 for the
      purpose of acquiring, exploring and developing oil and gas
      properties.  GSL is considered a development stage company as defined
      by Statement of Financial Accounting Standards (“SFAS”) No. 7, and its principal
      activities since inception have been raising capital through the sale of common
      stock and convertible notes and the acquisition of oil and gas properties in
      the
      Western United States and Australia.  In October 2006, GSL changed its
      name to PetroHunter Operating Company.  On November 8, 2005, GSL
      formed Paleotechnology, Inc. (“Paleo”) as a wholly owned subsidiary for the
      purpose of exploring and developing new products and processes using by-products
      of petroleum extraction environments.  On September 11, 2006,
      PetroHunter formed PetroHunter Heavy Oil Ltd. (“Heavy Oil”), as a wholly owned
      subsidiary for the purpose of holding and developing the Company’s heavy oil
      assets.  Effective September 30, 2006, PetroHunter acquired 50% of the
      outstanding common shares of Sweetpea Corporation Pty Ltd (“Sweetpea”), an
      Australian corporation; and effective January 1, 2007 acquired the remaining
      50%.  Sweetpea is the record owner of four exploration permits issued
      by the Northern Territory of Australia.  On October 20, 2006,
      PetroHunter formed PetroHunter Energy NT Ltd., now known as PetroHunter
      Australia Ltd. (“PetroHunter Australia”), as a wholly owned subsidiary, for the
      purpose of holding and developing its assets in
      Australia.  Collectively, PetroHunter and its subsidiaries are
      referred to herein as the “Company”.




As
      a
      result of the Agreement, GSL became a wholly owned subsidiary of
      PetroHunter.  Since this transaction resulted in the former
      shareholders of GSL acquiring control of PetroHunter, for financial reporting
      purposes the business combination was accounted for as an additional
      capitalization of PetroHunter (a reverse acquisition with GSL as the accounting
      acquirer).




**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




The
      unaudited financial statements included herein were prepared from the records
      of
      the Company in accordance with generally accepted accounting principles in
      the
      United States applicable to interim financial statements and reflect all
      adjustments which are, in the opinion of management, necessary to provide a
      fair
      statement of the results of operations and financial position for the interim
      periods.  Such financial statements conform to the presentation
      reflected in the Company’s Form 10-KSB filed with the Securities and Exchange
      Commission for the year ended September 30, 2006.  The current interim
      period reported herein should be read in conjunction with the Company’s Form
      10-KSB for the year ended September 30, 2006.  The results of
      operations for the three and six months ended March 31, 2007 are not necessarily
      indicative of the results that may be expected for the full fiscal year ending
      September 30, 2007.




8
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**




BASIS
      OF
      ACCOUNTING




The
                  accompanying financial statements have been prepared on the basis
                  of
                  accounting principles applicable to a going concern, which contemplates
                  the realization of assets and extinguishment of liabilities in
                  the normal
                  course of business.  As shown in the accompanying balance sheet
                  the Company has incurred a cumulative net loss of $34,530,873 for
                  the
                  period from inception (June 20, 2005) to March 31, 2007, has a
                  working
                  capital deficit of $21,982,877 at March 31, 2007 and has significant
                  capital expenditure commitments.  As of March 31, 2007, the
                  Company has received oil and gas revenue from its initial wells,
                  and will
                  require significant additional funding to sustain its operations
                  and
                  satisfy its contractual obligations for its planned oil and gas
                  exploration and development operations.  These factors, among
                  others, may indicate that the Company may be unable to continue
                  in
                  existence.  The Company’s financial statements do not include
                  any adjustments related to the realization of the carrying value
                  of assets
                  or the amounts and classification of liabilities that might be
                  necessary
                  should the Company be unable to continue in existence.  The
                  Company’s ability to establish itself as a going concern is dependent upon
                  its ability to obtain additional financing, in order to fund its
                  planned
                  operations and ultimately, to achieve profitable
                  operations.  Management believes that they can be successful in
                  obtaining equity and/or debt financing which will enable the Company
                  to
                  continue in existence and establish itself as a going
                  concern.  The Company has sold approximately $72.5 million of
                  notes, convertible notes and common stock through March 31,
                  2007.  Subsequent to March 31, 2007 the Company has received an
                  additional $2,500,000 under a mezzanine financing arrangement,
                  and
                  $1,500,000 from a private investor pursuant to a loan
                  commitment.  (See Notes 10 and 14.)  Management
                  believes that the Company will be successful in raising additional
                  funding
                  to have sufficient capital to meet its obligations for its planned
                  operations.





DEVELOPMENT
      STAGE




The
      Company is considered a development stage company as defined by Statement of
      Financial Accounting Standards (“SFAS”) No. 7, and its principal activities
      since inception have been raising capital through the sale of common stock
      and
      convertible notes and the acquisition of oil and gas properties in the Western
      United States and Australia.  The Company has commenced initial test
      production from its first wells in the Piceance Basin of Colorado; however,
      management does not consider that the Company has commenced principal operations
      as of March 31, 2007.




BASIS
      OF
      PRESENTATION




The
      accompanying consolidated financial statements include PetroHunter for the
      three
      and six months ended March 31, 2007.  For the three and six months
      ended March 31, 2006, the consolidated financial statements are those of
      GSL.  All significant intercompany transactions have been eliminated
      upon consolidation.




9
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**




OIL
      AND
      GAS PROPERTIES




The
      Company utilizes the full cost method of accounting for oil and gas
      activities.  Under this method, subject to a limitation based on
      estimated value, all costs associated with property acquisition, exploration
      and
      development, including costs of unsuccessful exploration, are capitalized within
      a cost center on a country basis.  No gain or loss is recognized upon
      the sale or abandonment of undeveloped or producing oil and gas properties
      unless the sale represents a significant portion of oil and gas properties
      and
      the gain significantly alters the relationship between capitalized costs and
      proved oil and gas reserves of the cost center.  Depreciation,
      depletion and amortization of oil and gas properties is computed on the units
      of
      production method based on proved reserves.  Amortizable costs include
      estimates of future development costs of proved undeveloped
      reserves.




Capitalized
      costs of oil and gas properties may not exceed 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, an
      impairment is recognized.  The present value of estimated future net
      cash flows is computed by applying year end prices of oil and natural gas to
      estimated future production of proved oil and gas reserves as of year end,
      less
      estimated future expenditures to be incurred in developing and producing the
      proved reserves and assuming continuation of existing economic
      conditions.  As of March 31, 2007, the Company has no proved reserves,
      has received revenue from testing and production on its initial wells, and
      all
      oil and gas property costs are considered to be unevaluated and are recorded
      at
      the lower of cost or estimated fair market value.




ASSET
      RETIREMENT OBLIGATION




The
      Company applies SFAS 143, “Accounting for Asset Retirement Obligations,” which
      addresses financial accounting and reporting for obligations associated with
      the
      retirement of tangible long-lived assets and the associated asset retirement
      costs.  This statement requires companies to record the present value
      of obligations associated with the retirement of tangible long-lived assets
      in
      the period in which it is incurred.  The liability is capitalized as
      part of the related long-lived asset’s carrying amount.  Over time,
      accretion of the liability is recognized as an operating expense and the
      capitalized cost is depreciated over the expected useful life of the related
      asset.  Asset retirement obligations (“ARO”) relate primarily to the
      plugging, dismantlement, removal, site reclamation and similar activities of
      its
      oil and gas properties.




REVENUE
      RECOGNITION




The
      Company recognizes oil and gas revenues from its interests in producing wells
      as
      oil and gas is produced and sold from these wells.  The Company may
      have an interest with other producers in certain properties, in which case
      the
      Company uses the sales method to account for gas imbalances.  Under
      this method, revenue is recorded on the basis of gas actually sold by the
      Company.  In addition, the Company records revenue for its share of
      gas sold by other owners that cannot be volumetrically balanced in the future
      due to insufficient remaining reserves.  The Company also reduces
      revenue for other owners’ gas sold by the Company that cannot be volumetrically
      balanced in the future due to insufficient remaining reserves.  The
      Company’s remaining over- and under-produced gas balancing positions will be
      considered in the Company’s proved reserves.  The Company has no gas
      balancing arrangements in place at March 31, 2007.  Oil and gas sold
      is not significantly different from the Company’s product
      entitlement.




10
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**




IMPAIRMENT




The
      Company applies SFAS 144, “Accounting for the Impairment and Disposal of
      Long-Lived Assets,” which requires that long-lived assets to be held and used be
      reviewed for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable.  Oil and
      gas properties accounted for using the full cost method of accounting, the
      method utilized by the Company, are excluded from this requirement, but will
      continue to be subject to the ceiling test limitations.  The Company’s
      unproved properties are evaluated periodically for the possibility of potential
      impairment.  During the three months ended December 31, 2006,
      management of the Company determined not to proceed with further evaluation
      or
      exploration of its South Bronco project in the Piceance Basin of Colorado and
      charged to operations an impairment expense of $550,790.  There was no
      impairment expense recognized for the three-month period ended March 31,
      2007.




INCOME
      TAXES




The
      Company has adopted the provisions of SFAS 109, “Accounting for Income
      Taxes.”  SFAS 109 requires recognition of deferred tax liabilities and
      assets for the expected future tax consequences of events that have been
      included in the financial statements or tax returns.  Under this
      method, deferred tax liabilities and assets are determined based on the
      difference between the financial statement and tax basis of assets and
      liabilities using enacted tax rates in effect for the year in which the
      differences are expected to reverse.




Temporary
      differences between the time of reporting certain items for financial and tax
      reporting purposes consist primarily of exploration and development costs on
      oil
      and gas properties, and stock based compensation of options
      granted.




USE
      OF
      ESTIMATES




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and reported amounts of revenues and expenses during
      the reporting period.  Actual results could differ from those
      estimates.




The
      Company’s financial statements are based on a number of significant estimates,
      including oil and gas reserve quantities, which are the basis for the
      calculation of depreciation, depletion and impairment of oil and gas properties,
      and timing and costs associated with its retirement obligations.




The
      oil
      and gas industry is subject, by its nature, to environmental hazards and
      clean-up costs.  At this time, management knows of no substantial
      costs from environmental accidents or events for which the Company may be
      currently liable.  In addition, the Company’s oil and gas business
      makes it vulnerable to changes in wellhead prices of crude oil and natural
      gas.  Such prices have been volatile in the past and can be expected
      to be volatile in the future.  By definition, proved reserves are
      based on current oil and gas prices and estimated reserves.  Price
      declines reduce the estimated quantity of proved reserves and increase annual
      amortization expense (which is based on proved reserves).




11
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**




**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**




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 dilutive weighted average number of common shares
      outstanding excluded potential common shares from stock options and warrants
      of
      approximately 48,701,500 for the period ended March 31, 2007.




SHARE
      BASED COMPENSATION




The
      Company had followed Accounting Principles Board (“APB”) Opinion No.
      25,”Accounting for Stock Issued to Employees,” and related interpretations,
      through September 30, 2005 which resulted in the accounting for grants of awards
      to employees at their intrinsic value in the consolidated financial
      statements.  Additionally, the Company has recognized compensation
      expense in the financial statements for awards granted to non-employees, which
      must be re-measured each period under the mark-to-market, as required under
      EITF
      96-18, “Accounting for Equity Instruments That Are Issued to Other Than
      Employees for Acquiring or in Conjunction with Selling, Goods or
      Services.”  The Company previously adopted the provisions of SFAS No.
      123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148,
“Accounting for Stock-Based Compensation --Transition and Disclosure,” through
      disclosure only.




Effective
      October 1, 2005, the Company adopted SFAS123(R), “Accounting  for
      Stock-Based Compensation,” using the modified prospective method, which results
      in the provisions of SFAS 123(R) being applied to the consolidated financial
      statements on a going-forward basis.  Prior periods have not been
      restated.  SFAS 123(R) requires companies to recognize share-based
      payments to employees as compensation expense on a fair value
      method.  Under the fair value recognition provisions of SFAS 123(R),
      stock-based compensation cost is measured at the grant date based on the fair
      value of the award and is recognized as expense over the service period, which
      generally represents the vesting period.  The expense recognized over
      the service period is required to include an estimate of the awards that will
      be
      forfeited.  Previously, no such forfeitures have
      occurred.  The Company is assuming no forfeitures going forward based
      on the Company’s historical forfeiture experience.  The fair value of
      stock options is calculated using the Black-Scholes option-pricing
      model.




12
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**




SHARE
      BASED COMPENSATION (Continued)




As
      of
      March 31, 2007, options to purchase an aggregate of 33,295,000 shares of the
      Company’s common stock were outstanding, of which 10,759,000 are
      exercisable.  These options were granted to the Company’s officers,
      directors and consultants in August of 2005 and 2006, and February 2007,
      generally vesting 20% at grant date and 20% per year on the anniversary of
      the
      grant date for the next four years.  Each option has an exercise price
      equal to the fair market value per share of the Company’s common stock at the
      date of grant and each option expires and terminates, if not exercised sooner,
      five years from the grant date.  Stock-based compensation expense of
      $2,055,591 and $3,616,724 before tax, was charged to operations as compensation
      expense for the three and six months ended March 31, 2007.





CASH
      AND
      CASH EQUIVALENTS





For
      purposes of reporting cash flows, the Company considers as cash equivalents
      all
      highly liquid investments with a maturity of three months or less at the time
      of
      purchase.  Restricted cash at March 31, 2007 consists of certificates
      of deposit underlying letters of credit for exploration permits, state and
      local
      plugging and abandonment bonds and guarantees to vendors.




CONCENTRATION
      OF CREDIT RISK




Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist of cash.  The Company maintains cash accounts at one
      financial institution.  The Company periodically evaluates the credit
      worthiness of financial institutions, and maintains cash accounts only in large
      high quality financial institutions, thereby minimizing exposure for deposits
      in
      excess of federally insured amounts.  On occasion, the Company may
      have cash in banks in excess of federally insured amounts.  The
      Company believes that credit risk associated with cash is remote.




FAIR
      VALUE




The
      carrying amount reported in the balance sheet for cash, receivables, prepaids,
      accounts payable and accrued liabilities approximates fair value because of
      the
      immediate or short-term maturity of these financial instruments.




Based
      upon the borrowing rates currently available to the Company for loans with
      similar terms and average maturities, the fair value of convertible notes
      approximates their carrying value.




OFF
      BALANCE SHEET ARRANGEMENTS




The
      Company has no off balance sheet arrangements.









13
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      4 — AGREEMENT WITH MAB RESOURCES LLC**




Effective
      January 1, 2007, the Company and MAB Resources LLC (“MAB”) entered into an
      Acquisition and Consulting Agreement (the “MAB Consulting Agreement”), as
      amended, which replaced in its entirety the Management and Development Agreement
      (the “Development Agreement”) entered into July 1, 2005, and materially revised
      the relationship between MAB and the Company.  MAB is a Delaware
      limited liability company and the largest shareholder of the
      Company.  MAB is in the business of oil and gas exploration and
      development.  Under the terms of the Consulting
      Agreement:




·
            The
                Company’s working interest in all its oil and gas properties doubled (from
                50% undivided interest in the properties to
                100%);


·
            The
                Company’s prior obligation to carry MAB for its 50% portion of the first
                $700 million in capital costs was
                eliminated;


·
            The
                Company’s aggregate monthly payments to MAB related to the existing
                properties were reduced from $600,000 to (i) $25,000 for consulting,
                plus
                (ii) $225,000 for payments under a $13.5 million promissory note
                as
                partial consideration for MAB’s assignment of its previous undivided 50%
                working interest in the properties;


·
            MAB’s
                3% overriding royalty was increased to 5% (the “Override”), but the
                Override does not apply to the Company’s Piceance II properties, and does
                not apply to the extent that the Override would cause the Company’s net
                revenue interest under an oil and gas lease to be less than
                75%;


·
            MAB
                will receive 7% of the issued and outstanding shares of PetroHunter
                Australia, as of the date that the Company receives PetroHunter Australia
                shares in consideration for the Company’s assignment of its rights and
                obligations in the Northern Territory (Australia) permits to PetroHunter
                Australia.





The
      MAB
      Consulting Agreement also provides for the issuance of 50,000,000 shares of
      the
      Company’s common stock to MAB.  MAB has the right and opportunity to
      receive up to an additional 50,000,000 shares, to be issued over a five-year
      period in specified numbers of shares that are tied to the Company’s performance
      in booking reserves.  The MAB Consulting Agreement, including the
      monthly payments to MAB, terminates after five years, except MAB’s overriding
      royalty continues for the life of the properties.





The
      Company has accounted for the acquisition component of the MAB Consulting
      Agreement in accordance with the purchase accounting provisions of SFAS 141
      “Business Combinations.”  Accordingly, the Company has capitalized as
      oil and gas properties the $13,500,000 promissory note and the $81,000,000
      fair
      market value of the 50,000,000 shares issued to MAB, based on the trading price
      of the Company’s common stock on the trading date immediately preceding the
      effective date of the transaction.  The $25,000 per month consulting
      fees are charged to operations as incurred.





Commencing
      July 1, 2005 and continuing through December 31, 2006, the Company and MAB
      operated pursuant to the Development Agreement, and a series of individual
      property agreements (collectively, the “EDAs”).  The Development
      Agreement sets forth: (a) MAB’s obligation to assign to the Company a
      minimum 50% undivided interest in any and all oil and gas assets which MAB
      acquires from third parties in the future; and (b) MAB’s and the Company’s
      long-term relationship regarding the ownership and operation of all
      jointly-owned properties.  Each of the Properties acquired was covered
      by a property-specific EDA that is consistent with the terms of the Development
      Agreement.




14
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      5 — OIL AND GAS PROPERTIES**




Commencing
      effective July 1, 2005 and continuing through December 31, 2006, the Company
      entered into a Management and Development Agreement (the
“Development  Agreement”) and a series of property-specific
      Exploration and Development Agreements (collectively, the “EDAs”) pursuant to
      the Development Agreement with MAB.  Effective January 1, 2007, the
      Development Agreement and the EDA’s were replaced in their entirety by the
      Consulting Agreement with MAB as discussed in Note 4 above.




The
      following description of the Company’s oil and gas property acquisitions for the
      period from October 1, 2006 to December 31, 2006 is pursuant to the original
      Development Agreement and related EDA’s.  All references to the
      Company’s obligations to pay “project development costs” pertaining to the
      following properties means the specified amount of capital expenditures (for
      each such property), which were credited against the Company’s obligation to
      carry MAB for MAB’s 50% portion of such expenditures.




On
      November 28, 2006, MAB entered into an agreement with Maralex Resources, Inc.
      and Adelante Oil & Gas, LLC (collectively, “Maralex”) for the acquisition
      and development of the Jack’s Pocket Prospect in Garfield County, Colorado (the
“Maralex Agreement”).  Under the terms of the Maralex Agreement, an
      initial payment of $100,000 was made upon execution and the balance of $2.9
      million cash and issuance of 2,428,100 shares of the Company’s common stock was
      due on January 15, 2007.  The Company has recorded the $2.9 million
      obligation as a contract payable and the fair market value of the shares to
      be
      issued of $4,127,770, based on the closing price of the Company’s common stock
      as of the date of the Maralex Agreement.  Effective January 12, 2007,
      the Maralex Agreement was amended to extend the payment terms of the cash due
      through March 15, 2007, and increase the number of shares to be issued by
      571,900, to a total of 3,000,000 shares.  On January 16, 2007, the
      Company issued 3,000,000 shares to the sellers and recorded as interest expense,
      transaction finance costs of $983,668 representing the market value of the
      571,900 incremental shares.  On January 17, 2007, the Company made a
      payment of  $500,000 on the amount due.  Effective March 26,
      2007, the Maralex Agreement was further amended to increase the amount of cash
      due under the Agreement  by $200,000 and to amend the payment terms to
      $325,000 due on April 20, 2007 and $2,275,000 due on April 30,
      2007.  The incremental $200,000 has been recorded as interest expense
      in the three months ended March 31, 2007.  The Company is currently
      negotiating to further extend the terms.  In the event the Company is
      not able to reach an agreement to extend the terms, the Company might become
      subject to a penalty or damages related to its failure to timely meet its
      obligations.




On
      November 14, 2006, the Company and Lakes Oil N.L. entered into an agreement
      (the
“Lakes Agreement”) under which they will jointly develop Lakes Oil’s onshore
      petroleum prospects (focusing on unconventional gas resources) in the Gippsland
      and Otway basins in Victoria, Australia.  The arrangement is subject
      to various conditions precedent, including completion of satisfactory due
      diligence, and the satisfactory processing of certain retention lease
      applications.  Under the Lakes Agreement, the Company or its
      subsidiary company Sweetpea will initially farm into 33-1/3% of Lakes Oil’s
      permits by spending $7 million in Lakes Oil’s permits.  In addition,
      the Company will subscribe for $3 million in new shares in Lakes Oil at 1.5
      cents (Australian).  The Company will also have the right to increase
      its position in Lakes Oil’s permits with two further 16-2/3% farm-in tranches of
      $10 million each, exercisable within 12 months and 24 months, respectively,
      from
      the date of the first closing under the Agreement (the
“Closing”).  Under the Lakes Agreement, the Company has the right to
      participate in the same proportion in any permits which are non-contiguous
      to
      existing permits acquired by Lakes within two years from the Closing, and any
      contiguous permits acquired by Lakes moving forward, and the Company has a
      first
      right of refusal in other permits acquired by Lakes within five years from
      the
      Closing.  The Company is to assume Lakes Oil’s position as operator of
      the permits.


15
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**




**NOTE
      5 — OIL AND GAS PROPERTIES (Continued)**





On
      December 29, 2006, the Company entered into an agreement (“PSA”) with Galaxy
      Energy Corporation (“Galaxy”) and its wholly owned subsidiary, Dolphin Energy
      Corporation (“Dolphin”), a related party, for the Company to purchase, through
      its wholly owned subsidiary, PetroHunter Operating Company, all of Galaxy’s and
      Dolphin’s oil and gas interests in the Powder River Basin of Wyoming and
      Montana.  The controlling owner of PetroHunter’s largest single
      shareholder (MAB Resources LLC) is Marc A. Bruner.  Mr. Bruner is a
      14.3% beneficial shareholder of Galaxy and the father of the President and
      Chief
      Executive Officer of Galaxy.  Dolphin owns an average 86% working
      interest in 197 oil and gas wells in the Powder River
      Basin.  Twenty-two wells are currently selling gas at an average rate
      of 850,000 cubic feet a day.  The remaining wells are in various
      stages of dewatering, shut-in waiting on pipeline, or waiting to be
      completed.





The
      PSA
      provides for the Company to pay $45 million to acquire all of Galaxy’s and
      Dolphin’s oil and gas interests in Sheridan, Johnson, Converse and Campbell
      Counties in Wyoming, and in Big Horn, Custer, Powder River and Rosebud Counties
      in Montana.  The purchase price will be $20 million in cash and $25
      million in shares of the Company’s common stock.  Closing of the
      transaction will be subject to approval by Galaxy’s senior lenders, approval in
      its discretion of all matters by the Company’s Board of Directors, including the
      Company receiving financing on terms acceptable to it, and various other terms
      and conditions.  Closing of the transaction, which was originally
      scheduled to occur by February 28, 2007, has been extended until May 31,
      2007.  Either party may terminate the agreement if the closing has not
      occurred by May 31, 2007.  The Company has paid to Galaxy a $2 million
      earnest money payment due under the terms of the agreement and has advanced
      an
      additional $243,777 towards operating costs of the assets to be
      acquired.  In the event the sale is not consummated, the amounts
      advanced to Galaxy will be converted to unsecured notes payable by Galaxy to
      the
      Company.





On
      March
      21, 2007, the Company entered into a Partial Assignment of Contract and
      Guarantee (the “Assignment”) with MAB.  Pursuant to this Assignment,
      the Company assigned MAB its right to purchase an undivided 45% interest in
      oil
      and gas interests in the Powder River Basin of Wyoming and Montana, which right
      PetroHunter obtained in the PSA with Galaxy.  As consideration for the
      Assignment, MAB assumed the Company’s obligation under the PSA to pay Galaxy $25
      million in PetroHunter common stock.  MAB also agreed to indemnify the
      Company against costs relating to or arising out of the termination or breach
      of
      the PSA by Galaxy or Dolphin, and MAB agreed to guarantee the payment of
      principal and interest due to the Company in the event the PSA does not
      close.




The
      Company’s exploration projects continue to be evaluated, and management believes
      that the carrying costs of these projects are recoverable.  Should the
      Company be unsuccessful in its exploration activities, the carrying cost of
      these prospects will be charged to operations.  The Company charged to
      operations all property development costs incurred to MAB under the related
      EDA’s.  None of the Company’s projects had production as of the date
      of acquisition and, as of March 31, 2007, the Company had received revenues
      from
      initial testing and production on certain of its projects.





16
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**




**NOTE 6
      — DUE FROM JOINT INTEREST OWNER**




The
      Company has been in negotiations with an unrelated third party oil and gas
      operator (the “Third Party”) to exchange leasehold interests in certain oil and
      gas leases in the Piceance Basin of Colorado held by the Company for interests
      in certain  oil and gas leases held by the Third Party in the Piceance
      Basin.  During the six months ended March 31, 2007, the Company had
      drilled, as operator, seven wells on oil and gas leases which are subject to
      the
      above-described negotiations.  The Company’s record title interest in
      the leases on which the seven wells were drilled is currently
      15.4%.  As of March 31, 2007 the Company has recorded only its share
      of costs in the seven wells, based upon its 15.4% record title interest, as
      Oil
      and Gas Properties, and has recorded the 84.6% of costs incurred on behalf
      of
      the Third Party, as  Due From Joint Interest Owner.  At
      March 31, 2007, this amount totaled $10,618,987.  In the event the
      negotiations are successfully consummated, the Company’s interest in those
      leases will increase to 100% and the balance Due From Joint Interest Owner
      will
      be reclassified to Oil and Gas Properties.  In the event the
      negotiations are not successfully consummated, the Third Party will be obligated
      to reimburse the Company for all costs incurred for the Third Party’s 84.6%
      working interest.  Management believes the transaction will be
      successfully consummated in the third quarter of fiscal 2007, and that the
      amounts classified as Due from Joint Interest Owner at March 31, 2007 will
      subsequently be reclassified to Oil and Gas Properties.





**NOTE  7
      - ASSET RETIREMENT OBLIGATION**





SFAS
      143,
“Accounting for Asset Retirement Obligations,” addresses financial accounting
      and reporting for obligations associated with the retirement of tangible
      long-lived assets and the associated asset retirement costs.  This
      statement requires companies to record the present value of obligations
      associated with the retirement of tangible long-lived assets in the period
      in
      which it is incurred.  The liability is capitalized as part of the
      related long-lived asset’s carrying amount.  Over time, accretion of
      the liability is recognized as an operating expense and the capitalized cost
      is
      depreciated over the expected useful life of the related asset.  The
      Company’s asset retirement obligations relate primarily to the plugging,
      dismantlement, removal, site reclamation and similar activities of its oil
      and
      gas properties.





The
      following table summarizes activity related to the accounting for asset
      retirement obligations for the six months ended March 31, 2007 and
      2006:




2007
            
            
            2006Asset
                retirement obligations, beginning of period
            
            $
            522,054
            
            
            $
            -Liabilities
                incurred
            
            
            15,755
            
            
            
            -Revisions
                to estimates
            
            
            (213,825
            )Liabilities
                settled
            
            
            -
            
            
            
            -Accretion
                expense
            
            
            2,119
            
            
            
            -Asset
                retirement obligations, end of period
            
            $
            326,103
            
            
            $
            -





17
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      8— CONVERTIBLE NOTES**




Prior
      to
      the merger with GSL on May 12, 2006, Digital entered into five separate
      loan agreements, aggregating $400,000, due one year from issuance, commencing
      October 11, 2006.  The loans bear interest at 12% per annum, are
      unsecured, and are convertible at the option of the lender, at any time during
      the term of the loan or upon maturity, at a price per share equal to the closing
      price of the Company’s common shares on the OTC.BB market on the day preceding
      notice from the lender of its intent to convert the loan.  As of March
      31, 2007, the Company was in default on payment of an aggregate $350,000 of
      notes that matured.




In
      December 2006, PetroHunter Australia commenced the sale, pursuant to a private
      placement, of up to $50,000,000 of convertible notes.  As of January
      8, 2007, the Company had received proceeds of $1,530,000 from the
      offering.  In February 2007, the Company terminated the offering,
      agreeing to refund $30,000 to four investors, and converting $1,500,000 from
      one
      investor as the initial funding under a Credit and Security Agreement entered
      into January 9, 2007.  (See Note 10.)




**NOTE
        9— NOTE PAYABLE -- RELATED PARTY**




Effective
                January 1, 2007, in conjunction with the MAB Consulting Agreement,
                the
                Company issued a $13.5 million promissory note (the “MAB Note”) as partial
                consideration for MAB’s assignment of its undivided 50% working interest
                in the oil and gas properties (Note 4).  The MAB Note bears
                interest at a rate equal to LIBOR and requires monthly principal
                payments
                of $225,000 plus interest commencing January 31, 2007.  As of
                March 31, 2007, the outstanding balance of the MAB Note was $13,050,000
                of
                which $2,925,000 was currently due.




**NOTE
        10— NOTES PAYABLE**




On
      January 9, 2007, the Company entered into a Credit and Security Agreement (the
      “Financing”) with Global Project Finance AG, a Swiss company, for mezzanine
      financing in the amount of $15 million.  The Financing provides for an
      interest rate of 6.75% over prime, and is secured by a first perfected lien
      on
      the Company’s assets, limited to the specific portion of the assets to which the
      loan proceeds are applied by the Company.  The Company has applied
      most of the proceeds of this loan to its drilling and development operations
      in
      the Piceance Basin, Colorado.  The terms of the Financing also provide
      for the issuance of 1,000,000 warrants of the Company’s shares upon execution of
      the Financing, and an additional 200,000 warrants, for each $1 million draw
      down
      of the credit facility up to $15 million.  The warrants will be
      exercisable for five years after the date of the Financing.  The
      exercise price of the warrants will be equal to 120% of the weighted average
      price of the Company’s stock for the 30 days immediately prior to each warrant
      issuance date.  The fair value of the warrants was estimated as of
      each respective issue date under the Black-Scholes pricing model, with the
      following assumptions: common stock based on market price of at issue date,
      zero
      dividends, expected volatility of 69.6% to 71.4%, risk free interest rate of
      4.75% and expected life of 2.5 years.  The fair value of the debenture
      warrants of $1,953,719 was recorded as a discount to the note and is being
      amortized over the life of the note.  During the three months ended
      March 31, 2007, amortization of discount in the amount of $140,841 was included
      in interest expense.





Global
      Project Finance AG and its controlling shareholder were shareholders of the
      Company prior to the Financing.  The initial draw down of $1,500,000
      was converted from the PetroHunter Australia convertible note offering (see
      Note
      8).  As of March 31, 2007, the Company has drawn down $12,500,000 on
      the credit facility.


18
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**




**NOTE
      11 — STOCKHOLDERS’ EQUITY**




COMMON
      STOCK




In
      conjunction with the acquisition of properties under the Maralex Agreement
      (see
      Note 5) the Company issued 3,000,000 shares of its common stock as partial
      consideration for the acquisition.





COMMON
      STOCK SUBSCRIBED





On
      November 6, 2006, the Company commenced the sale of a maximum $125,000,000
      pursuant to a private placement of units at $1.50 per unit.  Each unit
      consisted of one share of the Company’s common stock and one-half common stock
      purchase warrant.  A whole common stock purchase warrant entitled the
      purchaser to acquire one share of the Company’s common stock at an exercise
      price of $1.88 per share through December 31, 2007.  In February 2007,
      the Board of Directors determined that the composition of the units being
      offered would be restructured, and those investors who had subscribed in the
      offering would be offered the opportunity to rescind their subscriptions or
      to
      participate on the same terms as ultimately defined for the restructured
      offering.  As of March 31, 2007, the Company has received
      subscriptions for $3,067,500 for the sale of units pursuant to the private
      placement, of which $2,250,000 was from a related party, and has recorded the
      proceeds and outstanding subscriptions from the offering as “Common Stock
      Subscribed”.





COMMON
      STOCK ISSUABLE





The
      Company has agreed to issue its common stock for certain transactions as
      described below.  As of March 31, 2007, the shares have not been
      issued and the value of the shares, calculated based upon the trading price
      of
      the stock on the commitment date, is included in “Common Stock Issuable” as of
      that date:


·
            50,000,000
                shares in connection with the MAB Consulting Agreement (see Note
                4) as
                partial consideration for the acquisition, valued at
                $81,000,000;


·
            424,528
                shares related to the cash investment of $300,000 from an unrelated
                third
                party, valued at $450,000;


·
            256,000
                shares to a unrelated consultant as partial consideration for finders
                fees
                and consulting services related to the Maralex Agreement (see Note
                5),
                valued at $382,450; and


·
            121,250
                shares to an unrelated individual, for commissions on the sale of
                the
                Company’s convertible debt offering in 2006, valued at
                $200,000.  This amount represents the settlement of a previous
                dispute regarding the amount of commission on the debt
                offering.  Accordingly, the $200,000 has been recorded as
                finance costs and charged to operations as interest expense in the
                three
                months ended March 31, 2007.





STOCK
      OPTION PLAN




The
      Company adopted the 2005 Stock Option Plan (the “Plan”), as
      amended.  Under the Plan, stock options may be granted at an exercise
      price not less than the fair market value of the Company’s common stock at the
      date of grant.  Options may be granted to key employees and other
      persons who contribute to the success of the Company.  The Company has
      reserved 40,000,000 shares of common stock for the plan.  At March 31,
      2007, options to purchase 6,705,000 shares were available to be granted pursuant
      to the stock option plan.





19
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**


**NOTE
      11 — STOCKHOLDERS’ EQUITY (Continued)**





In
      February 2007, the Company granted 500,000 options to each of two
      directors.  The options were granted at an exercise price of $1.38 per
      share and vest 50% at grant and 50% one year from grant.  There were
      no options cancelled, forfeited or exercised during the period ended March
      31,
      2007.  The fair value of options granted during the period, calculated
      using the Black Scholes option pricing model and under the following
      assumptions: expected option term, 2.75 years; risk free interest rate, 4.75%;
      dividend yield, -0- and expected volatility, 70.35%,  resulted in a
      fair value of $0.66 per share.





WARRANTS




The
      following stock purchase warrants were outstanding at March 31,
      2007:




**Number
                of Shares**
            **Exercise
                Price**
            **Expiry
                Date**34,442,500
                (1)
            $1.00
            20113,500,000
                (2)
            $1.30-$2.10
            2012




(1)
      During 2006, the Company issued 35,442,500 stock purchase warrants in
      conjunction with the unit sale of common stock.  The warrants are
      exercisable for a period of five years from date of issuance at an exercise
      price of $1.00 per share.




(2)
      Pursuant to the Credit and Security Agreement entered into on January 9, 2007
      (Note 10) the Company issued 1,000,000 stock purchase warrants upon execution
      of
      the Credit Agreement, and  an additional  2,500,000
      warrants  for draws on the facility.  The warrants are
      exercisable for five years from the date of draw.  The exercise price
      of the warrants is 120% of the weighted average price of the Company’s stock for
      the 30 days immediately prior to each warrant issuance date.





**NOTE
      12 — RELATED PARTY TRANSACTIONS**




During
      the three months ended March 31, 2007, pursuant to the MAB Agreement and the
      $13.5 million promissory note issued thereunder (see Note 4), the Company
      incurred interest expense of $179,719 and made principal payments of
      $450,000.  As of March 31, 2007, the Company owed  MAB
      principal and accrued interest of $13,229,719 under the terms of the promissory
      note.




During
      the six months ended March 31, 2007, the Company incurred $75,000 of consulting
      fees pursuant to the MAB Agreement and $1,815,000 in property development costs
      to MAB under the Development Agreement between MAB and the
      Company.  At March 31, 2007, in addition to the amount due under the
      promissory note as discussed above, MAB was owed $779,331 by the
      Company.




On
      March
      21, 2007, the Company entered into a Partial Assignment of Contract and
      Guarantee (the “Assignment”) with MAB.  Pursuant to this Assignment,
      the Company assigned MAB its right to purchase an undivided 45% interest in
      oil
      and gas interests in the Powder River Basin of Wyoming and Montana, which right
      the Company obtained in the PSA with Galaxy (see Note 5).  As
      consideration for the Assignment, MAB assumed the Company’s obligation under the
      PSA to pay Galaxy $25 million in PetroHunter common stock.  MAB also
      agreed to indemnify the Company against costs relating to or arising out of
      the
      termination or breach of the PSA by Galaxy or Dolphin, and MAB agreed to
      guarantee the payment of principal and interest due to the Company in the event
      the PSA does not close.




20
 **PETROHUNTER
            ENERGY CORPORATION**
 **(A
            Development Stage Company)**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
            31, 2007**




**NOTE
      12 — RELATED PARTY TRANSACTIONS (Continued)**




At
      March
      31, 2007, the Company is owed $73,619 from MAB for oil and gas revenues for
      its
      share of initial production earned through December 31, 2006 pursuant to the
      Development and EDA agreements with MAB.




In
      June
      2006, the Company entered into an Office Sharing Agreement with Falcon Oil
&
Gas Ltd. (“Falcon”) for office space in Denver, Colorado, of which Falcon is the
      lessee.  Under the terms of the agreement, Falcon and the Company
      share, on an equivalent employee cost basis, all costs related to the office
      space, including rent, office operating costs, furniture and equipment and
      any
      other expenses related to the operations of the corporate
      offices.  The 75% owner of the largest single shareholder of the
      Company is also the Chief Executive Officer and a Director of
      Falcon.  At March 31, 2007, Falcon owed the Company $109,952 for
      Falcon’s share of costs incurred pursuant to the agreement.




During
      the six months ended March 31, 2006, the Company incurred consulting fees
      related to services provided by its officers in the aggregate amount of
      $420,531; and incurred $1,520,000 in property development costs to MAB under
      the
      Development Agreement between MAB and the Company.




**NOTE
      13 — COMMITMENTS AND CONTINGENCIES**




ENVIRONMENTAL




Oil
      and
      gas producing activities are subject to extensive environmental laws and
      regulations.  These laws, which are constantly changing, regulate the
      discharge of materials into the environment and may require the Company to
      remove or mitigate the environmental effects of the disposal or release of
      petroleum or chemical substances at various sites.  Environmental
      expenditures are expensed or capitalized depending on their future economic
      benefit.  Expenditures that relate to an existing condition caused by
      past operations and that have no future economic benefit are
      expensed.  Liabilities for expenditures of a noncapital nature are
      recorded when environmental assessment and/or remediation is probable, and
      the
      costs can be reasonably estimated.




CONTINGENCIES




The
      Company may from time to time be involved in various claims, lawsuits, and
      disputes with third parties, actions involving allegations of discrimination,
      or
      breach of contract incidental to the operations of its business.  The
      Company is not currently involved in any such incidental litigation which it
      believes could have a materially adverse effect on its financial condition
      or
      results of operations.




**NOTE
      - 14 - SUBSEQUENT EVENTS**





In
      April
      2007, the Company received additional advances of $2.5 million under the terms
      of the Credit and Security Agreement (see Note 10); and additional advances
      from
      the same lender of $1.5 million pursuant to another loan agreement presently
      being negotiated.



















21


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





The
      following discussion and analysis of our financial condition
      and results of operations should be read in conjunction with our Consolidated
      Financial Statements and related notes appearing elsewhere in this Form
      10-Q.





PetroHunter
      Energy Corporation (“PetroHunter”), formerly Digital Ecosystems Corp.
      (“Digital”), through the operations of its wholly owned subsidiary, PetroHunter
      Operating Company, is a global oil and gas exploration and production company
      with primary assets consisting of a working interest in oil and gas leases
      and
      related interests in various oil and natural gas prospects, including
      approximately 220,000 net acres in Colorado, Utah and Montana and approximately
      seven million net acres in the Northern Territory of Australia.  The
      properties are managed and operated in three groups: Heavy Oil, Piceance Basin,
      and Australia.




PetroHunter
      Operating Company (formerly GSL Energy Corporation) was formed in June 2005
      as a
      Maryland corporation, and on May 12, 2006 completed a stock exchange by which
      its stockholders received more than 85% of Digital’s outstanding stock (the
“Stock Exchange”).  The business of PetroHunter Operating Company
      became the business of Digital.  Subsequent to May 2006, Digital
      acquired all the remaining outstanding stock of PetroHunter Operating Company,
      and effective August 14, 2006, Digital changed its name from Digital Ecosystems
      Corp. to PetroHunter Energy Corporation and changed its domicile to
      Maryland.  Digital was incorporated on February 21, 2002 under
      the laws of the State of Nevada.




In
      October 2006, GSL Energy Corporation (“GSL”) changed its name to PetroHunter
      Operating Company.  On November 8, 2005, GSL formed Paleotechnology,
      Inc. (“Paleo”) as a wholly-owned subsidiary for the purpose of exploring and
      developing new products and processes using by-products of petroleum extraction
      environments.  On September 11, 2006, PetroHunter formed PetroHunter
      Heavy Oil Ltd. as a wholly-owned subsidiary for the purpose of holding and
      developing its heavy oil assets.  Effective September 30, 2006,
      PetroHunter acquired 50% of the outstanding common shares of Sweetpea
      Corporation Pty Ltd (“Sweetpea”), an Australian corporation; and effective
      January 1, 2007 acquired the remaining 50%.  Sweetpea is the record
      owner of four exploration permits issued by the Northern Territory of
      Australia.  On October 20, 2006, PetroHunter formed PetroHunter Energy
      NT Ltd., now known as PetroHunter Australia Ltd. (“PetroHunter Australia”) for
      the purpose of holding and developing its assets in
      Australia.  Collectively, PetroHunter and its subsidiaries are
      referred to herein as the “Company,” “we,” “us” or “our”.




As
      a
      result of the Stock Exchange, GSL, now known as PetroHunter Operating Company,
      became a wholly owned subsidiary of our Company.  Since this
      transaction resulted in the former shareholders of GSL acquiring control of
      our
      Company, for financial reporting purposes the business combination was accounted
      for as an additional capitalization of the Company (a reverse acquisition with
      GSL as the accounting acquirer).  In accounting for this
      transaction:




i.
            GSL
                was deemed to be the purchaser and parent company for financial reporting
                purposes.  Accordingly, its net assets were included in the
                consolidated balance sheet at their historical book value;
                and




ii.
            Control
                of the net assets and business of the Company was acquired effective
                May
                12, 2006 for no consideration.




22


PetroHunter
      Operating Company is considered a development stage company as defined by
      Statement of Financial Accounting Standards (“SFAS”) No. 7, and its principal
      activities since inception have been raising capital through the sale of common
      stock and convertible notes and the acquisition of oil and gas properties in
      the
      Western United States and Australia.




**MAB
      Resources LLC**





Effective
      January 1, 2007, we entered into an entered into an Acquisition and Consulting
      Agreement (the “Consulting Agreement”), as amended, with MAB Resources LLC
      (“MAB”), which replaced in its entirety the Management and Development Agreement
      (the “Development Agreement”) entered into July 1, 2005, and materially revised
      our relationship with MAB.  MAB is a Delaware limited liability
      company and our largest shareholder.  MAB is in the business of oil
      and gas exploration and development.  Under the terms of the
      Consulting Agreement:




·
            Our
                working interest in all our oil and gas properties doubled (from
                50%
                undivided interest in the properties to
                100%);


·
            Our
                prior obligation to carry MAB for its 50% portion of the first $700
                million in capital costs was
                eliminated;


·
            Our
                aggregate monthly payments to MAB related to the existing properties
                were
                reduced from $600,000 to (i) $25,000 for consulting, plus (ii) $225,000
                for payments under a $13.5 million promissory note as partial
                consideration for MAB’s assignment of its previous undivided 50% working
                interest in the properties;


·
            MAB’s
                3% overriding royalty was increased to 5% (the “Override”), but the
                Override does not apply to our Piceance II properties, and does not
                apply
                to the extent that the Override would cause our net revenue interest
                under
                an oil and gas lease to be less than
                75%;


·
            MAB
                will receive 7% of the issued and outstanding shares of PetroHunter
                Australia, as of the date that we receive PetroHunter Australia shares
                in
                consideration for our assignment of our rights and obligations in
                the
                Northern Territory (Australia) permits to PetroHunter
                Australia.




The
      new
      agreement also provides for the issuance of 50 million shares of our common
      stock to MAB.  MAB has the right and opportunity to receive up to an
      additional 50 million shares, to be issued over a five-year period in specified
      numbers of shares that are tied to our performance in booking
      reserves.  The entire Consulting Agreement, including the monthly
      payments to MAB, terminates after five years, except MAB’s overriding royalty
      continues for the life of the properties.




The
      transfer of MAB’s working interest for our shares (including the carried
      interest), the revised override and MAB foregoing monthly capital cost advances,
      were analyzed by an independent economic evaluator, who, in a report dated
      April
      10, 2007, concluded the transaction was fair to our existing
      shareholders.




Commencing
      July 1, 2005 and continuing through December 31, 2006, we and MAB operated
      pursuant to the Development Agreement, and a series of individual property
      agreements (collectively, the “EDAs”).  The Development Agreement set
      forth: (a) MAB’s obligation to assign to us a minimum 50% undivided
      interest in any and all oil and gas assets which MAB acquired from third parties
      in the future; and (b) our long-term relationship with MAB regarding the
      ownership and operation of all jointly-owned properties.  Each of the
      Properties acquired was covered by a property-specific EDA that was consistent
      with the terms of the Development Agreement.




23


**Proposed
      Acquisition of Powder River Basin Properties**




On
      December 29, 2006, we entered into a Purchase and Sale Agreement (the “PSA”)
      with Galaxy Energy Corporation (“Galaxy”) and its wholly owned subsidiary,
      Dolphin Energy Corporation (“Dolphin”).  Pursuant to the PSA, we
      agreed to purchase all of Galaxy’s and Dolphin’s oil and gas interests in the
      Powder River Basin of Wyoming and Montana (the “Powder River Basin
      Assets”).





Marc
      A.
      Bruner, who is the controlling owner of our largest shareholder, also is a
      14.3%
      beneficial shareholder of Galaxy.  Marc A. Bruner is the father of
      Marc E. Bruner, the President, Chief Executive Officer and director of
      Galaxy.  Marc E. Bruner is the stepson of Carmen J. Lotito, the Chief
      Financial Officer and a director of the Company.





The
      purchase price for Powder River Basin Assets is $45 million, with $20 million
      to
      be paid in cash and $25 million to be paid in shares of our common
      stock.





Closing
      of the transaction is subject to approval by Galaxy’s secured noteholders,
      approval of all matters in its discretion by our Board of Directors, including
      the Company obtaining outside financing on terms acceptable to its Board of
      Directors, and various other terms and conditions.  Either party may
      terminate the agreement if closing has not occurred by May 31,
      2007.





In
      January 2007, we paid to Galaxy a $2 million earnest money payment due under
      the
      terms of the agreement.  In the event the closing does not occur for
      any reason other than a material breach by us, the deposit shall convert into
      a
      promissory note (the “Note”), payable to us, and shall be an unsecured
      subordinated debt of both Galaxy and Dolphin, which is payable only after
      repayment of Galaxy’s and Dolphin’s senior indebtedness.





We
      became
      the contract operator of the Powder River Basin Assets beginning January 1,
      2007.  At closing, the operating expenses incurred by us as the
      contract operator will be credited toward the purchase price, or if closing
      does
      not occur, will be added to the principal amount of the Note.





On
      March
      21, 2007, we entered into a Partial Assignment of Contract and Guarantee (the
      “Assignment”) with MAB.  Pursuant to this Assignment, we assigned MAB
      our right to purchase an undivided 45% interest in oil and gas interests in
      the
      Powder River Basin Assets, which right we obtained in the PSA with
      Galaxy.  As consideration for the Assignment, MAB assumed our
      obligation under the PSA to pay Galaxy $25 million in PetroHunter common
      stock.  MAB also agreed to indemnify us against costs relating to or
      arising out of the termination or breach of the PSA by Galaxy or Dolphin, and
      MAB agreed to guarantee the payment of principal and interest due to us in
      the
      event the PSA does not close.




24


**Production
      and Prices**





The
      following table sets forth information regarding net production of oil and
      natural gas, and certain price and cost information for quarters ended March
      31,
      2007, December 31, 2006 and the fiscal year ended September 30,
      2006.  We did not have any production during the comparable periods of
      the prior year.





**For
                  the quarter ended March 31, 2007**
              **For
                  the quarter ended December 31, 2006**
              **For
                  the fiscal year ended**
                **September
                  30, 2006****Production
                  Data:**Natural
                  gas (Mcf)
              226,795
              142,229
              5,822Oil
                  (Bbls)
              55
              584
              -0-**Average
                  Prices:**Natural
                  gas (per Mcf)
              $5.59
              $5.17
              $6.12Oil
                  (per Bbl)
              $54.13
              $58.29
              --





**Productive
      Wells**





The
      following table summarizes information at March 31, 2007, relating to the
      productive wells in which we owned a working interest as of that
      date.  Productive wells consist of producing wells and wells capable
      of production.  Gross wells are the total number of producing wells in
      which we have an interest, and net wells are the sum of our fractional working
      interests owned in gross wells.





**Gross**
              **Net****Location**
              **Oil**
              **Gas**
              **Total**
              **Oil**
              **Gas**
              **Total**Colorado
              --
              16
              16
              --
              4.2
              4.2Utah
              --
              --
              --
              --
              --
              --Montana
              2
              --
              2
              2.0
              --
              2.0Australia
              --
              --
              --
              --
              --
              --TOTAL
              2
              16
              18
              2.0
              4.2
              6.2





**Acreage
      Positions**





As
      of
      March 31, 2007, we owned interests in the following developed and undeveloped
      acreage positions.  Undeveloped acreage refers to acreage that has not
      been placed in producing units.





**Developed**
            **Undeveloped****Location**
            **Gross
                Acres**
            **Net
                Acres**
            **Gross
                Acres**
            **Net
                Acres**Colorado
            480.0
            102.2
            25,759.0
            19,736.8Utah
            0
            0
            173,738.0
            173,738.0Montana
            80.0
            80.0
            93,515.0
            72,734.0Australia
            0
            0
            7,000,000.0
            7,000,000.0TOTAL
            560.0
            182.2
            7,293,012.0
            7,266,208.8


25


**Summary
      of Development and Exploration Projects and Plan of
      Operations**





The
      following is an update of our
      production and exploration areas and significant projects.  While
      actively pursuing specific production and exploration activities in each of
      the
      following areas, we continually review additional acquisition opportunities
      in
      our core areas that meet our exploration criteria.





***Heavy
      Oil Properties***





***Great
      Salt Lake,
      Utah.***  We have 173,738 net mineral acres under lease
      (covered by approximately 78 leases) on two principal properties, the West
      Rozel
      Field and Gunnison Wedge prospect in the Great Salt lake of
      Utah.  Careful review of our drilling plan has resulted in planning to
      drill six vertical wells in the West Rozel Field.  The six wells have
      been sited according to geology and the Utah State drilling
      regulations.  Permits are being prepared for the six
      wells.  Site visit was conducted to meet with the land owner for
      access to the lake from Little Valley Harbor.





PetroHunter
      is negotiating an extension
      to the current acquisition agreement due to delays caused by the previous
      negotiations between the Utah government and interested
      parties.  These negotiations are complete and this allows for our
      permitting to be undertaken.





***Fiddler
      Creek,
      Montana.***  We have completed major geologic studies on
      the 23,795 net acres on four anticlines on the northern portion of the Big
      Horn
      Basin, which extends from north central Wyoming into southern
      Montana.  These properties encompass significant portions of Roscoe
      Dome, Dean Dome, Fiddler Creek and MacKay Domes, which we believe have
      significant estimated in place oil reserves.  These structures are
      large asymmetric anticlines with proven production from several Cretaceous
      horizons; i.e., the Upper Greybull Sandstone, the Lower Greybull Sandstone
      and
      the Pryor Sandstone.  The geology studies have identified locations
      that appear to have the most potential.  The current program is in
      Fiddler Creek for one re-completion, one vertical well and one horizontal well;
      Roscoe Dome has two re-completions and one horizontal well; Dean Dome is one
      re-completion and two vertical wells.  As the program proceeds
      refinements will be made based on results.





***Promised
      Land,
      Montana.***  We have acquired 49,120 net acres in a
      resource play evaluating heavy oil reservoirs in Jurassic Swift Formation and
      lower Cretaceous Bow Island and Sunburst Sandstone reservoirs in north central
      Montana.  The Swift reservoirs were deposited in a shallow marine to
      estuarine depositional setting.  The Swift sandstones are commonly oil
      saturated in the area, and most well tests report oil shows in the
      Swift.  The reservoirs are up to 60 feet thick and composed of high
      quality sandstone, averaging about 20 percent porosity and permeabilities range
      up to one Darcy.  The oil gravities range from 10o to 22o
      API with
      viscosities of 1500 centipoise to greater than 50,000 centipoise at 125oF.  Additional
      conventional petroleum potential is possible in Devonian Duperow and Nisku
      formations, and in the Mississippian Madison Formation.  We are now
      evaluating a seismic program to better define locations for an initial drilling
      program.





We
      do not have any drilling commitments
      with respect to this property.





***Plan
      of
      Operations.***  We anticipate that, over the next twelve
      months, we will incur the following costs related to our heavy oil prospects
      in
      Montana and Utah:





·
            $5,000,000
                to $7,000,000 to add land in Montana in areas where we have already
                completed acquisitions;




26





·
            $7,000,000
                to $14,000,000 in connection with the Fiddler Creek project, to include
                drilling, completion and production facilities;
                and




·
            $15,000,000
                to $21,000,000 in connection with the Great Salt Lake project, to
                include
                project design, project equipment procurement, site infrastructure
                development and initial drilling.





***Piceance
      Basin, Colorado Properties***





***Buckskin
      Mesa
      Project.***  A 26-square mile 3D seismic survey has been
      licensed, re-processed, and interpreted to focus initial drilling in areas
      of
      thickest pay and enhanced fracturing.  We have acquired approximately
      20,000 net acres of leasehold in Rio Blanco County, Colorado.  We have
      applied for and received six approved drilling permits to test targets in the
      Cretaceous Mesa Verde Group.  We have drilled and cased our first well
      at Buckskin mesa, the Anderson 6-16, with a total depth of 10,785
      feet.  Log analysis indicates a gross pay interval in excess of 3,500
      feet, with a net pay of 600 feet.  Gas shows during drilling averaged
      3,000 units with peaks as high as 20,000 units.  We have drilled and
      cased the Anderson 13-19 to a total depth of 10,835 feet.  This well
      also had gas shows during drilling.  Log analysis of the second well
      indicates net pay of 572 feet.  The third well, Lake 16-21, was cased
      on April 9, 2007 and has net sandstone pay of 590 feet.





***Piceance
        II
        Project.***  As of March 31, 2007, we had interests in 16
        producing wells, 18 wells waiting on completion, and 1 well is being
        drilled.





Production
      is from frac-stimulated
      perforations in stacked sands of the fluvial Williams Fork
      formation.





On
      November 28, 2006, we executed a
      purchase and sale agreement with Maralex Resources, Inc. and Adelante Oil &
Gas, LLC (collectively “Maralex”) for the acquisition and development of 2,000
      net acres in the Jack’s Pocket Prospect in Garfield County,
      Colorado.  Under the terms of the agreement, an initial payment of
      $100,000 was made upon execution and the balance of $2.9 million cash and
      issuance of 2,428,100 shares of our common stock was due on January 15,
      2007.  Effective January 12, 2007, the agreement was amended to extend
      the payment terms of the cash due through March 15, 2007, and increase the
      shares to be issued to 3 million.  These shares have been issued as of
      January 31, 2007.  Effective March 26, 2007, the agreement was further
      amended to extend the payment terms.  We are obligated to drill four
      wells on these leases during 2007.





The
      Company has been in negotiations with an unrelated third party oil and gas
      operator (the “Third Party”) to exchange leasehold interests in certain oil and
      gas leases in the Piceance Basin of Colorado held by the Company for interests
      in certain oil and gas leases held by the Third Party in the Piceance
      Basin.  During the six months ended March 31, 2007, the Company had
      drilled, as operator, seven wells on oil and gas leases which are subject to
      the
      above described negotiations.  The Company’s record title interest in
      the leases on which the seven wells were drilled is currently
      15.4%.  As of March 31, 2007 the Company has recorded only its share
      of costs in the seven wells, based upon its 15.4% record title interest, as
      oil
      and gas properties, and has recorded the 84.6% of costs incurred on behalf
      of
      the Third Party, as Due From Joint Interest Owner.  At March 31, 2007
      this amount totaled $10,618,987.  In the event the negotiations are
      successfully consummated the Company’s interest in those leases will increase to
      100% and the balance Due From Joint Interest Owner will be reclassified to
      Oil
      and Gas Properties.  In the event the negotiations are not
      successfully consummated, the Third Party will be obligated to reimburse the
      Company for all costs incurred for the Third Party’s 84.6% working
      interest.  Management believes the


transaction
      will be successfully consummated in the third quarter of fiscal 2007, and that
      the amounts


27


classified
      as Due from Joint Interest Owner at March 31, 2007 will subsequently be
      reclassified to Oil and Gas Properties.





***Plan
      of
      Operations.***  We expect that the development of our
      Colorado properties will include: (i) continued drilling of wells in the
      southern portion of the Piceance Basin, where we expect to complete at lease
      12
      wells for additional gas production, and design and construction of a two-mile
      low pressure gathering system to connect these wells to market.





Associated
      with the development of our
      Colorado properties, we anticipate that, over the next twelve to twenty-four
      months, we will incur costs of $8,000,000 to $32,000,000 to add leasehold in
      the
      Piceance II and Buckskin mesa project areas.





***Australian
      Properties***





***Beetaloo
      Basin*****.**Plans are to begin drilling in
      the Beetaloo Basin around July 1, 2007.  To date, seven drilling
      locations have been identified based on extensive geological and geophysical
      analysis.  These locations have been cleared through the Northern Land
      Council, responsible for protecting Native Lands, and permits have been
      submitted to the Department of Primary Industries, Fisheries and Mines located
      in Darwin, Northern Territory.  Final drilling approval is expected in
      May.  These locations have been staked and will be formally surveyed,
      also in May.  Preparing drilling pads and access lines will commence
      the last week of May.





Sweetpea
      has signed a Letter of Intent with Century Resources to provide a drilling
      rig
      for the drilling operations.  The rig is currently scheduled to begin
      mobilizing to the Beetaloo Basin on June 15, 2007.  In preparation for
      the drilling program, a drilling yard has been constructed in the permit
      area.  Casing and other necessary materials are being ordered and will
      arrive before the first of June.





From
      July
      through November of 2006, 686 kilometers of new 2D seismic data were acquired
      throughout the Beetaloo Basin.  Additionally, 1000 kilometers of
      previously acquired 2D seismic data were reprocessed.  Along, with the
      other existing 1500 kilometers of 2D seismic data that have not been
      reprocessed, geologic structure maps have been generated for the
      basin.  Ongoing work is proceeding to delineate drilling locations
      beyond the initial seven locations.





The
      exploration drilling program for 2007 will test several play concepts within
      the
      basin.  Hydrocarbon potential exists in shallow, conventional
      structures (in the form of oil), and in deeper unconventional reservoirs,
      including fractured shales and basin centered gas accumulations.  The
      unconventional plays may be gas and/or oil.  All of the exploration
      wells are planned to reach a total depth in the Bessie Creek Sandstone
      formation.  The deepest penetration is expected to be 3000
      meters.





Sweetpea
      currently controls 7 million contiguous acres in the Beetaloo
      Basin.  Applications for another 1.5 million acres have been submitted
      to the Territory’s Ministry.  Sweetpea owns the existing four
      permits.





***Gippsland
      and Otway Basins***.  On November 14, 2006, we entered into
      an agreement with Lakes Oil N.L. (“Lakes Oil”), under which we will jointly
      develop Lakes Oil’s onshore petroleum prospects (focusing on unconventional gas
      resources) in the Gippsland and Otway basins in Victoria,
      Australia.  Under an amendment to the original agreement, completion
      of the agreement is scheduled for June 30, 2007 with PetroHunter, or our
      subsidiary company, Sweetpea, farming into 33-1/3 of Lakes Oil’s permits by
      spending $7 million on exploration efforts.  In addition, we will
      subscribe for $3 million in new shares in
      Lakes
      Oil at 1.5 cents (Australian).  We also have the right to increase our
      position in Lakes Oil’s


28


permits
      with two further 16-2/3% farm-in tranches of $10 million each, exercisable
      within 12 months and 24 months, respectively.





Under
      the
      agreement, Sweetpea will be the operator of the permits, but has signed a sub
      operator agreement with Lakes Oil to take advantage of their infrastructure
      in
      Victoria.





***Northwest
      Shelf Area***.  Effective February 19, 2007, the
      Commonwealth of Australia granted to Sweetpea an exploration permit in the
      shallow, offshore waters of Western Australia.  The permit, WA-393-P,
      has a six-year term and encompasses almost 20,000 acres.





***Plan
      of Operations.***In Australia we plan to explore and
      develop portions of the 7,000,000 acres of the project area in the Northern
      Territory of Australia (Beetaloo Basin).  During 2007, we plan to
      drill a minimum of eight wells in the exploration permit blocks.  We
      anticipate that, over the next twelve months, we will incur $45,000,000 to
      $60,000,000 in costs related to drilling, well completion and a potential
      delineation seismic program.





Under
      the
      agreement with Lakes Oil, we or our subsidiary company, Sweetpea, will initially
      farm into 33-1/3% of Lakes Oil’s permits by spending $7 million in Lakes Oil’s
      permits.  In addition, we will subscribe for $3 million in new shares
      in Lakes Oil at 1.5 cents (Australian).





**Current
      Financing Activities**





To
      fund
      the planned operations described above and our fixed commitments for operating
      leases, delay rentals, property development fees and consulting fees and note
      payments to MAB totaling approximately $2,700,000 for the fiscal year ended
      September 30, 2007, we are engaging in financing activities.  On
      November 6, 2006, we commenced an offering of up to $125,000,000 pursuant to
      a
      private placement of units at $1.50 per unit.  Each unit consisted of
      one share of our common stock and one-half common stock purchase
      warrant.  A whole common stock purchase warrant entitled the purchaser
      to acquire one share of our common stock at an exercise price of $1.88 per
      share
      through December 31, 2007.  As of March 31, 2007, we had received
      $3,067,500 from the sale of units pursuant to the private
      placement.  In February 2007, our board of directors determined that
      the composition of the units being offered would be restructured, and those
      investors who had subscribed in the offering would be offered the opportunity
      to
      rescind their subscriptions or to participate on the same terms as ultimately
      defined for the restructured offering.





In
      December 2006, PetroHunter Australia
      commenced the sale, pursuant to a private placement, of up to $50,000,000 of
      convertible notes.  As of January 8, 2007, the Company had received
      proceeds of $1,530,000 from the offering.  In February 2007,
      PetroHunter Australia terminated the offering, agreeing to refund $30,000 to
      four investors, and converting $1,500,000 from one investor as the initial
      funding under a Credit and Security Agreement entered into January 9, 2007,
      as
      described below.





On
      January 9, 2007, we entered into a Credit and Security Agreement (the
“Financing”) with Global Project Finance AG, a Swiss company, for mezzanine
      financing in the amount of $15 million.  The Financing provides for an
      interest rate of 6.75% over prime, and is secured by a first perfected lien
      on
      the Company’s assets, limited to the specific portion of the assets to which the
      loan proceeds are applied by the Company.  We have applied most of the
      proceeds of this loan to its drilling and development operations in the Piceance
      Basin, Colorado.  The terms of the Financing also provide for the
      issuance of warrants to purchase 1,000,000 of our common shares upon execution
      of the Financing, and an additional 200,000 warrants, for each $1 million draw
      down of the credit facility up to $15 million.  The warrants will be exercisable
      for five years after the date of the Financing.  The exercise price of
      the warrants will be equal


29


to
      120%
      of the weighted average price of our stock for the 30 days immediately prior
      to
      each warrant issuance date.  Global Project Finance AG and its
      controlling shareholder were shareholders of the Company prior to the Credit
      Agreement.  As April 30, 2007, we had drawn down all $15,000,000 on
      the credit facility.





Subsequent
      to March 31, 2007, we received an additional $1.5 million advance from Global
      Project Finance AG, in anticipation of a borrowing facility currently being
      negotiated.  The terms of the borrowing facility have not been
      finalized as of the date of this report, but are expected to be similar to
      the
      terms of the Financing.





**Liquidity
      and Capital Resources**




We
        had
        not commenced principal operations or earned significant revenue as of March
        31,
        2007, and are considered a development stage company.  During the
        period from inception to March 31, 2007, we incurred a cumulative net loss
        of
        $34,530,873 and at that date have a working capital deficit of
        $21,982,877.  In order to fund our planned exploration and development
        of oil and gas properties, we will require significant additional
        funding.  We have sold approximately $72.5 million of notes,
        convertible notes and common stock from inception through March 31, 2007,
        and
        our management believes that we will be successful in raising additional
        funding
        to have sufficient capital to meet our obligations for our planned operations
        for at least the next twelve months.




The
      Company at March 31, 2007 is vastly different from its existence at March 31,
      2006.  At March 31, 2006, we had been operating for approximately nine
      months, had no employees, and had acquired an interest in two properties, West
      Rozel and Buckskin Mesa, aggregating approximately 12,400 net mineral
      acres.  During the 2006 fiscal year and the first six months of the
      current fiscal year, we added 16 employees, moved to offices in Denver,
      Colorado, and acquired an interest in properties aggregating approximately
      7,207,000 acres.




We
        funded
        the acquisition of these properties and the increased level of activity
        primarily through the sale of debt and equity securities for cash.  We
        also issued 8,800,000 shares, valued at $0.50 per share, as partial
        consideration for the acquisition of oil and properties and as consideration
        for
        a finder’s fee on an oil and gas prospect.  At March 31, 2007, we had
        a working capital deficit of $21,982,877 and cash of $1,702,427.  In
        addition, we will need to raise additional funds for our planned operations
        and
        acquisitions.





Prior
      to
      the acquisition of PetroHunter Operating Company in May 2006, we entered into
      five separate loan agreements, aggregating $400,000, due one year from issuance,
      commencing October 11, 2006.  The loans bear interest at 12% per
      annum, are unsecured, and are convertible, at the option of the lender at any
      time during the term of the loan or upon maturity, at a price per share equal
      to
      the closing price of our common stock on the OTC Bulletin Board on the day
      preceding notice from the lender of its intent to convert the
      loan.  As of March 31, 2007, we were in default on payment of an
      aggregate of $350,000 of notes.





***Cash
        Used in Operating Activities.***  Primarily as a result of
        our net loss of $11,720,039, we used cash of $6,511,952 for six months ended
        March 31, 2007.  See “Results of Operations” below for the discussion
        of our operating expenses.  The principal adjustments to reconcile the
        net loss to net cash used in operating activities were stock based compensation
        of $3,616,724, as a result of stock options issued to employees and consultants;
        depreciation, depletion, amortization, impairment and accretion of $763,531; and
        common stock issued for financing costs of $1,440,918.  In comparison,
        we used $4,531,766 of cash in operations for the six months ended March 31,
        2006.


30


***Cash
        Used in Investing Activities.***  We used cash of
        $17,490,599 in investing activities during the six months ended March 31,
        2007,
        primarily for our additions to our oil and gas properties of $4,008,194,
        costs
        incurred on behalf of joint interest owners of $10,618,987, and deposits
        on oil
        and gas property acquisitions of $2,243,777.  Depending on the outcome
        of current negotiations with third party joint interest owners, the amount
        expended on behalf of the joint interest owner will either be reclassified
        to
        additions to oil and gas properties, or will be collected in the form of
        cash
        payments from the joint interest owner.  We also used $525,000 for
        restricted cash, which are certificates of deposit underlying letters of
        credit
        for exploration permits, state and local bonds and guarantees to
        vendors.  During the six months ended March 31, 2006, we used
        $7,847,782 for additions to oil and gas properties.





We
      currently anticipate our capital budget will be approximately between $165
      and
      $260 million for the period ending December 31, 2007, which we plan to use
      for a
      diverse portfolio of development and exploration wells in our core areas of
      operation.  If we are unable to obtain capital through the sale of our
      securities or a credit facility or otherwise, our ability to execute our
      development plans could be greatly limited.  We may consider selling
      down a portion of our interests in some of our exploration and development
      projects to industry partners to generate additional funds to finance our 2007
      capital budget.





***Cash
      Provided by Financing Activities.***Cash provided by
      financing activities in the six months ended March 31, 2007 consisted of
      proceeds from promissory notes sold under a Credit and Security Agreement of
      $12,500,000 and proceeds from the sale of units in our private placement shares
      for gross proceeds of $3,067,500.  Total cash provided by financing
      activities was $15,073,202, resulting in cash of $1,702,427 at March 31,
      2007.





It
      is
      anticipated that the continuation and future development of our business will
      require additional, substantial, capital expenditures.  We believe
      cash flow from our existing producing wells and wells soon to be connected
      will
      provide sufficient funds to meet our ongoing administration and operating
      expenditures; however, our capital expenditure budget for the period ending
      December 31, 2007 will depend on our success in selling additional prospects
      for
      cash, the level of industry participation in our exploration projects, the
      availability of debt or equity financing, and the results of our
      activities.  We anticipate spending approximately between $165 and
      $260 million on exploration and development activities during the period ending
      December 31, 2007.  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.  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.





**Results
      of Operations**





**Three
      months ended March 31, 2007 compared to three months ended March 31,
      2006**





***Oil
        and Gas Revenues.***We generated our first revenues
        during the last quarter of our fiscal year ending September 30, 2006 from
        initial testing and production of natural gas wells in the Piceance Basin
        of
        Colorado.  Revenues increased significantly for the quarter ended
        March 31, 2007 as the 12 wells, which had commenced production in late 2006,
        produced for the entire three-month period and 8 additional wells recorded
        initial production during the period.  We produced 226,795 mcf of
        natural gas and 55 barrels of oil, generating $889,498 ($5.59/mcf and
        $54.13/bbl) of production revenues for the three months
        ended March 31, 2007, as compared to none for the three months ended March
        31,
        2006.  We recorded lease operating expenses of $223,834 ($.97/mcfe)
        and depreciation, depletion and amortization (DD&A) expense of $126,604
        ($0.55/mcfe) for the 2007 period.


31


***General
        and Administrative.***Due to the substantially increased
        level of activity during the three months ended March 31, 2007 as compared
        to
        the three months ended March 31, 2006, general and administrative expenses
        increased by $3,173,211 or 274%.





For
        the
        quarters ended March 31, 2007 and 2006, we recorded general and administrative
        costs of $4,331,209 and $1,157,998, respectively, as summarized
        below:





**Three
                  months ended March 31,****2007**
              
              
              **2006**Consulting
                  fees
              
              $
              367,539
              
              
              $
              222,688Insurance
              
              
              76,613
              
              
              
              3,040Investor
                  relations
              
              
              151,464
              
              
              
              273,555Legal
              
              
              431,680
              
              
              
              278,675Salaries
              
              
              597,954
              
              
              
              -Stock
                  based compensation
              
              
              2,055,591
              
              
              
              300,678Travel
                  and entertainment
              
              
              313,160
              
              
              
              59,151Director
                  fees
              
              
              22,500
              
              
              
              -Office
                  lease and expenses
              
              
              155,649
              
              
              
              12,708Audit
                  and accounting
              
              
              114,601
              
              
              
              5,912Other
                  expenses
              
              
              44,458
              
              
              
              1,591$
              4,331,209
              
              
              $
              1,157,998





·
            Consulting
                fees increased in 2007 due the significant growth of the business
                after
                successful completion of fund raising activities  and the
                increased use of consultants for fundraising activities, shareholder
                relations, and corporate
                activities.


·
            Insurance
                increased due to medical insurance benefits provided for employees,
                cost
                of insurance to cover office furnishings and equipment, and directors
                and
                officers insurance.


·
            Investor
                relations decreased in 2007 compared to 2006 when we were in the
                process
                of becoming a public company through the Stock Exchange in May
                2006.


·
            Legal
                expenses increased in 2007 due to growth of the business, particularly
                with regard to new financings, the renegotiation of the MAB Acquisition
                and Consulting Agreement, and the costs of public company reporting
                and
                compliance.


·
            Increased
                salary expense in 2007 reflects the fact we had no employees at March
                31,
                2006 compared to 16 employees as of March 31,
                2007.


·
            Increased
                stock based compensation expense in 2007 reflects significantly more
                options granted and vested as of March 31, 2007 as compared to March
                31,
                2006.


·
            Increased
                travel and entertainment expenses reflect the growth of the business,
                the
                level of operational activity both domestically and in Australia,
                and the
                increases in staff.


·
            Increased
                director fees reflect compensation paid to three outside directors
                in 2007
                versus none in 2006.


·
            Increased
                office expenses reflects costs of our existing offices in Denver
                and Salt
                Lake City in 2007.  In 2006, the Company had no office
                facilities.


·
            Increased
                accounting and audit fees reflect the growth of the business, complexity
                of the transactions entered into and the resultant audit
                and  review requirements subsequent to becoming a public
                reporting entity effective May
                2006.


32


***Property
      Development – Related.***During the three months ended
      March 31, 2006, we incurred $820,000 in property development costs to MAB,
      as
      compared to $0 in 2007.  This reduction follows the execution of the
      new Acquisition and Consulting Agreement with MAB, which was effective January
      1, 2007, under which we no longer incur property development costs to
      MAB.





***Depreciation,
        Depletion,
        Amortization, Impairment and Accretion Expense.***We
        recorded depreciation on furniture and fixtures of $43,555, depletion of
        oil and
        gas properties of $82,387, and accretion of asset retirement obligation (ARO)
        of
        $662 during the three months ended March 31, 2007.  For the
        corresponding period of 2006 we incurred no such expenses, due to the early
        stage of our business and having no revenue from oil and gas
        operations.




***Operating
        Expenses.***Total operating expenses for 2007 were
        $4,756,647, as compared to $1,977,998 in 2006.




***Interest
      Expense.***We incurred interest and financing expenses of
      $2,004,412 for 2007, as compared to $499,225 for 2006.  The increase
      in 2007 relates primarily**to financing costs paid in common stock
      to extend the payment terms of pending acquisitions of oil and gas properties
      of
      $1,133,668 in 2007 compared to none in 2006.




***Net
        Loss.***As
        a result of the expenses described above, we incurred a loss of $5,865,231
        for
        2007 as compared to $2,477,223 for 2006, increasing the loss accumulated since
        inception to $34,530,873.





**Six
      months ended March 31, 2007 compared to six months ended March 31,
      2006**




***Oil
        and Gas Revenues.***During the six months ended March 31,
        2007 we produced 369,024 mcf of natural gas and 639 barrels of oil, generating
        $1,338,374 ($5.48/mcf and $5.7/bbl) of production, as compared to none for
        the
        six months ended March 31, 2006.  We recorded lease operating expenses
        of $385,634 ($1.03/mcfe) and DD&A of $763,531 ($2.04/mcfe) for the 2007
        period.




***General
        and Administrative.***Due to the substantially increased
        level of activity during the six months ended March 31, 2007 as compared
        to the
        six months ended March 31, 2006, general and administrative expenses increased
        by $6,132,955 or 328%.




For
        the
        six months ended March 31, 2007 and 2006, we recorded general and administrative
        costs of $8,002,207 and $1,869,252, respectively, as summarized
        below:





**Six
                  months ended March 31,****2007**
              
              
              **2006**Consulting
                  fees
              
              $
              603,313
              
              
              $
              505,579Insurance
              
              
              145,737
              
              
              
              11,367Investor
                  relations
              
              
              431,911
              
              
              
              307,420Legal
              
              
              620,812
              
              
              
              349,826Salaries
              
              
              1,152,096
              
              
              
              -Stock
                  based compensation
              
              
              3,616,724
              
              
              
              506,356Travel
                  and entertainment
              
              
              779,253
              
              
              
              120,510Director
                  fees
              
              
              33,000
              
              
              
              -Office
                  lease and expenses
              
              
              327,731
              
              
              
              28,196Audit
                  and accounting
              
              
              177,221
              
              
              
              35,912Other
                  expenses
              
              
              114,409
              
              
              
              4,086$
              8,002,207
              
              
              $
              1,869,252





33





·
            Consulting
                fees increased in 2007 due the significant growth of the business
                and the
                increased use of consultants for fundraising activities and shareholder
                relations.


·
            Insurance
                increased due to medical insurance benefits provided for employees
                and
                cost of insurance to cover office furnishings and equipment, and
                directors
                and offices insurance coverage.


·
            Investor
                relations increased in 2007 compared to 2006, particularly in the
                first
                fiscal quarter of 2007 during which time we employed several investor
                relations consultants to present our business plans to potential
                investors
                as part of fundraising efforts.


·
            Legal
                expenses increased in 2007 due to growth of the business, particularly
                with regard to new financings, the renegotiation of the MAB Acquisition
                and Consulting Agreement, and the incremental costs of public company
                reporting and compliance.


·
            Increased
                salary expense in 2007 reflects the fact we had no employees at March
                31,
                2006 compared to 16 employees as of March 31,
                2007.


·
            Increased
                stock based compensation expense in 2007 reflects significantly more
                options granted and vested as of March 31, 2007 as compared to March
                31,
                2006.


·
            Increased
                travel and entertainment expenses reflect the growth of the business,
                the
                level of operational activity both domestically and in Australia,
                and the
                increases in professional staff.  Additional travel of staff was
                required during the fundraising activities discussed
                above.


·
            Increase
                in director fees reflects compensation paid to three outside directors
                in
                2007 versus none in 2006.


·
            Increased
                office expenses reflect costs of our existing offices in Denver and
                Salt
                Lake City in 2007 In 2006, the Company had no office
                facilities


·
            Increased
                accounting and audit fees reflect the growth of the business, complexity
                of the transactions entered into and the resultant audit review
                requirements.





***Property
      Development – Related.***During the six months ended
      March 31, 2007, we incurred $1,815,000 in property development costs to MAB,
      as
      compared to $1,520,000 in 2006.  The increase reflects costs
      associated with additional properties acquired in the second half of fiscal
      2006.  All 2007 costs were incurred in the first three months of
      fiscal 2007.  Effective January 1, 2007, we executed a new Acquisition
      and Consulting Agreement with MAB under which we no longer incur property
      development costs to MAB.





***Depreciation,
        Depletion, Amortization, Impairment and Accretion
        Expense.***We recorded depreciation on furniture and
        fixtures of $80,097, depletion of oil and gas properties of $131,839, impairment
        expenses of $550,790, and accretion of ARO of $805 during the six months
        ended
        March 31, 2007.  For the corresponding period of 2006 we incurred no
        such expenses, due to the early stage of our business.





***Operating
        Expenses.***Total operating expenses for 2007 were
        $11,041,372, as compared to $3,389,252 in 2006.





***Interest
        Expense.***We incurred interest and financing expenses of
        $2,031,430 for 2007, as compared to $686,660 for 2006.  The increase
        relates primarily**to financing costs paid in common stock to
        extend the payment terms of pending acquisitions of oil and gas properties
        of
        $1,133,668 in 2007 compared to none in 2006.





**Going
      Concern**





We
        have
        incurred a cumulative net loss $34,530,873 for the period from inception
        to
        March 31, 2007 and at March 31, 2007 have a working capital deficit of
        $21,982,877.  We require significant


34


additional
      funding to sustain our operations and satisfy our contractual obligations for
      our planned oil and gas exploration and development operations.  Our
      ability to establish the Company as a going concern is dependent upon our
      ability to obtain additional financing, in order to fund our planned operations
      and ultimately, to achieve profitable operations.





**Off-Balance
      Sheet Arrangements**





From
      time to time, we enter into
      off-balance sheet arrangements and transactions that can give rise to
      off-balance sheet obligations.  As of March 31, 2007, the off-balance
      sheet arrangements and transactions that we have entered into include operating
      lease agreements.  We do not believe that these arrangements are
      reasonably likely to materially affect our liquidity or availability of, or
      requirements for, capital resources.





**Schedule
      of Contractual Obligations**





The
      following table summarizes our obligations and commitments to make future
      payments under our notes payable, operating leases, employment contracts and
      consulting agreement for the periods specified as of March 31,
      2007.


**Contractual
                  obligations (1)**
              **Payments
                  due by period****Total**
              **Less
                  than 1 year**
              **1-3
                  years**
              **3-5
                  years**
              **More
                  than 5 years**Convertible
                  Notes Payable
                Principal
                Interest
                Notes
                  Payable Principal & Interest
                Related
                  Party (2)
                Other
              $    400,000
                48,000
                
                14,919,778
                17,063,082
              $   400,000
                48,000
                
                3,738,110
                2,174,383
              $                -
                -
                
                6,220,660
                14,888,699
              $               -
                -
                
                4,961,008
                -
              $       -
                -
                
                -
                -Office,
                  Equipment Leases & Other
              830,388
              185,907
              389,129
              255,352
              -TOTAL
              $33,261,248
              $6,546,400
              $21,498,488
              $5,216,360
              $       -




(1)
            We
                have excluded asset retirement obligations because we are not able
                to
                precisely predict the timing for these
                amounts.




(2)
            Interest
                payments were calculated using actual interest rates charged through
                March
                31, 2007 and 5.44% thereafter.





**Critical
      Accounting Policies And Estimates**





We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our Financial
      Statements.





***Oil
      and Gas
      Properties***.  We utilize the full cost method of
      accounting for oil and gas activities.  Under this method, subject to
      a limitation based on estimated value, all costs associated with property
      acquisition, exploration and development, including costs of unsuccessful
      exploration, are capitalized within a cost center.  No gain or loss is
      recognized upon the sale or abandonment of undeveloped or producing oil and
      gas
      properties unless the sale represents a significant portion of oil and gas
      properties and the gain significantly alters the relationship between
      capitalized costs and proved oil and gas reserves




35


of
      the
      cost center.  Depreciation, depletion and amortization of oil and gas
      properties are computed on the units of production method based on proved
      reserves.  Amortizable costs include estimates of future development
      costs of proved undeveloped reserves.




Capitalized
      costs of oil and gas properties may not exceed 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, an
      impairment is recognized.  The present value of estimated future net
      cash flows is computed by applying year end prices of oil and natural gas to
      estimated future production of proved oil and gas reserves as of year end,
      less
      estimated future expenditures to be incurred in developing and producing the
      proved reserves and assuming continuation of existing economic
      conditions.  As of March 31, 2007, we have no proved reserves, have
      received revenue from testing and production on our initial wells, and all
      oil
      and gas property costs are considered to be unevaluated and are recorded at
      the
      lower of cost or estimated fair market value.




***Asset
      Retirement Obligation***.  We apply SFAS 143, “Accounting
      for Asset Retirement Obligations,” which addresses financial accounting and
      reporting for obligations associated with the retirement of tangible long-lived
      assets and the associated asset retirement costs.  This statement
      requires companies to record the present value of obligations associated with
      the retirement of tangible long-lived assets in the period in which it is
      incurred.  The liability is capitalized as part of the related
      long-lived asset’s carrying amount.  Over time, accretion of the
      liability is recognized as an operating expense and the capitalized cost is
      depreciated over the expected useful life of the related asset.  Asset
      retirement obligations (“ARO”) relate primarily to the plugging, dismantlement,
      removal, site reclamation and similar activities of its oil and gas
      properties.  At March 31, 2007, we had recorded an ARO of $326,103 for
      our initial wells under progress.




***Share
      Based Compensation.***On October
      1, 2005, we
      adopted SFAS 123(R), “Accounting for Stock-Based Compensation,” using the
      modified prospective method, which results in the provisions of SFAS 123(R)
      being applied to the consolidated financial statements on a going-forward
      basis.  Prior periods have not been restated.  SFAS 123(R)
      requires companies to recognize share-based payments to employees as
      compensation expense on a fair value method.  Under the fair value
      recognition provisions of SFAS 123(R), stock-based compensation cost is measured
      at the grant date based on the fair value of the award and is recognized as
      expense over the service period, which generally represents the vesting
      period.  The expense recognized over the service period is required to
      include an estimate of the awards that will be forfeited.  Previously,
      no such forfeitures have occurred.  We are assuming no forfeitures
      going forward based on our historical forfeiture experience.  The fair
      value of stock options is calculated using the Black-Scholes option-pricing
      model.





**Recently
      Issued Accounting
      Pronouncements**





In
      June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
      48”).  The interpretation clarifies the accounting for uncertainty in
      income taxes recognized in a company’s financial statements in accordance with
      SFAS 109, “Accounting for Income Taxes.”  Specifically, the
      pronouncement prescribes a recognition threshold and a measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return.  The interpretation also
      provides guidance on the related derecognition, classification, interest and
      penalties, accounting for interim periods, disclosure and transition of
      uncertain tax positions.  The interpretation will be effective for the
      fiscal year beginning October 1, 2007 for the Company.  The adoption
      of FIN 48 is not expected to have a material impact on our consolidated
      financial position, results of operations and cash flows.




36


In
      September 2006, the FASB issued SFAS 157, “Fair Value
      Measurements.”  This Statement defines fair value as used in numerous
      accounting pronouncements, establishes a framework for measuring fair value
      in
      generally accepted accounting principles and expands disclosure related to
      the
      use of fair value measures in financial statements.  The Statement is
      to be effective for the Company’s financial statements issued in 2009; however,
      earlier application is encouraged.  We are currently evaluating the
      timing of adoption and the impact that adoption might have on our financial
      position or results of operations.







In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108 (“SAB 108”).  Due to diversity in
      practice among registrants, SAB 108 expresses SEC staff views regarding the
      process by which misstatements in financial statements are evaluated for
      purposes of determining whether financial statement restatement is
      necessary.  SAB 108 was effective for the Company on October 1,
      2006.  The adoption of SAB 108 had no impact on our financial position
      or results from operations.





In
      December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2,
“Accounting for Registration Payment Arrangements.”  This FSP
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement should be
      separately recognized and measured in accordance with FASB Statement No. 5,
“Accounting for Contingencies.”  This FSP is effective immediately for
      registration payment arrangements and the financial instruments subject to
      those
      arrangements that are entered into or modified subsequent to December 21,
      2006.  For registration payment arrangements and financial instruments
      subject to those arrangements that were entered into prior to December 21,
      2006, the guidance in the FSP will be effective for the fiscal year beginning
      October 1, 2007 for the Company.  The adoption of this FSP is not
      expected to have a material impact on our financial position or results from
      operations.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value
      Option for Financial Assets and Financial Liabilities.”  This
      Statement establishes presentation and disclosure requirements designed to
      facilitate comparisons between companies that choose different measurement
      attributes for similar types of assets and liabilities.  SFAS
      No. 159 is effective for our financial statements issued in
      2009.  We are currently evaluating the impact that the adoption of
      SFAS No. 159 might have on our financial position or results of
      operations.








**ITEM
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





Our
      primary market risk relates to changes in the pricing applicable to the sales
      of
      gas production in the Piceance Basin in Colorado.  This risk will
      become more significant to us as our production increases in this
      area.  Although we are not using derivatives at this time to mitigate
      the risk of adverse changes in commodity prices, we may consider using them
      in
      the future.








37


**ITEM
      4.          CONTROLS AND
      PROCEDURES**




**Evaluation
      Of Disclosure Controls And Procedures**




As
      of the
      end of the period covered by this report, our management carried out an
      evaluation, under the supervision and with the participation of our principal
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of our disclosure controls and procedures (as defined
      in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  Based on this
      evaluation, our principal executive officer and principal financial officer
      have
      concluded that our disclosure controls and procedures lack adequate staff and
      procedures in order to be effective.  Subsequent to the end of the
      period covered bythis report we have
      implemented procedures to remediate this control deficiency by completing the
      implementation of an accounting system designed for oil and gas producing
      companies and will be hiring additional staff.




**Changes
      In Internal Controls Over Financial Reporting**




In
      connection with the evaluation of our internal controls during our last fiscal
      quarter, our principal executive officer and principal financial officer have
      determined that there have been no changes to our internal
      controls over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal controls over financial
      reporting.




38


**PART
      II - OTHER INFORMATION**





**ITEM
      1.          LEGAL
      PROCEEDINGS**





Not
      Applicable.





**ITEM
      1A.       RISK FACTORS**





There
      were no material changes from the risk factors disclosed in our Form 10-KSB
      for
      the fiscal year ended September 30, 2006.





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





During
      the three months ended March 31, 2007, a wholly-owned subsidiary of the
      registrant, PetroHunter Australia Ltd., sold convertible notes in the aggregate
      amount of $25,000 to three accredited investors pursuant to the exemption from
      registration contained in Rule 506 of Regulation D.





The
      registrant sold 986,667 units, each unit consisting of one share of common
      stock
      and one-half common stock purchase warrant, to four accredited investors
      pursuant to the exemption from registration contained in Rule 506 of Regulation
      D.  No underwriters were used.





**ITEM
                3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**





Not
      Applicable.





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





Not
      Applicable.





**ITEM
                5.**
            **OTHER
                INFORMATION**





Not
      Applicable.





**ITEM
                6.**
            **EXHIBITS**





**Regulation
                S-K Number**
            **Exhibit**2.1
            Stock
                Exchange Agreement dated February 10, 2006 by and among Digital Ecosystems
                Corp., GSL Energy Corporation, MABio Materials Corporation and MAB
                Resources LLC (incorporated by reference to Exhibit 10.8 to the Company’s
                quarterly report on Form 10-QSB for the quarter ended December 31,
                2005,
                filed February 16, 2006)2.2
            Amendment
                No. 1 to Stock Exchange Agreement dated March 31, 2006 (incorporated
                by
                reference from Exhibit 10.1 to the Company’s current report on Form 8-K
                dated March 31, 2006, filed April 7, 2006)







39


**Regulation
                S-K Number**
            **Exhibit**2.3
            Amendment
                No. 5 to Stock Exchange Agreement dated May 12, 2006 (incorporated
                by
                reference from Exhibit 10.1 to the Company’s current report on Form 8-K
                dated May 12, 2006, filed May 15, 2006)2.4
            Purchase
                and Sale Agreement dated December 29, 2006 between Dolphin Energy
                Corporation and Galaxy Energy Corporation and PetroHunter Operating
                Company and PetroHunter Energy Corporation (incorporated by reference
                to
                Exhibit 2.1 to the Company’s current report on Form 8-K dated December 29,
                2006, filed January 4, 2007)2.5
            Second
                Amendment to Purchase and Sale Agreement dated February 28, 2007
                (incorporated by reference to Exhibit 2.2 to the Company’s amended current
                report on Form 8-K dated December 29, 2006, filed March 2,
                2007)2.6
            Partial
                Assignment of Contract and Guarantee between PetroHunter Energy
                Corporation, PetroHunter Operating Company and MAB Resources LLC,
                dated
                March 21, 2007 (incorporated by reference to Exhibit 2.1 to the Company’s
                current report on Form 8-K dated March 21, 2007, filed March 22,
                2007)2.7
            Third
                Amendment to Purchase and Sale Agreement dated March 30, 2007
                (incorporated by reference to Exhibit 2.3 to the Company’s amended current
                report on Form 8-K dated December 29, 2006, filed April 2,
                2007)2.8
            Fourth
                Amendment to Purchase and Sale Agreement dated April 30, 2007
                (incorporated by reference to Exhibit 2.4 to the Company’s amended current
                report on Form 8-K dated December 29, 2006, filed May 1,
                2007)3.1
            Articles
                of Incorporation (incorporated by reference to Exhibit A to the
                Information Statement filed July 17, 2006)3.2
            Bylaws
                (incorporated by reference to Exhibit B to the Information Statement
                filed
                July 17, 2006)10.1
            Business
                Consultant Agreement dated October 1, 2005 (incorporated by reference
                to
                Exhibit 10.1 to the Company’s current report on Form 8-K dated October 1,
                2005, filed October 28, 2005)10.2
            Marketing
                Management Contract dated October 15, 2005 (incorporated by reference
                to
                Exhibit 10.1 to the Company’s current report on Form 8-K dated October 1,
                2005, filed October 28, 2005)10.3
            Loan
                Agreement with Carnavon Trust Reg. Dated for reference October 11,
                2005
                (incorporated by reference to Exhibit 10.3 to the Company’s quarterly
                report on Form 10-QSB for the quarter ended September 30, 2005, filed
                November 21, 2005)10.4
            Loan
                Agreement with Carnavon Trust Reg. Dated for reference December 5,
                2005
                (incorporated by reference to Exhibit 10.6 to the Company’s quarterly
                report on Form 10-QSB for the quarter ended December 31, 2005, filed
                February 16, 2006)






40





**Regulation
                  S-K Number**
              **Exhibit**10.5
              Loan
                  Agreement with Carnavon Trust Reg. Dated for reference February
                  2, 2006
                  (incorporated by reference to Exhibit 10.7 to the Company’s quarterly
                  report on Form 10-QSB for the quarter ended December 31, 2005,
                  filed
                  February 16, 2006)10.6
              2005
                  Stock Option Plan (incorporated by reference from Exhibit 4.1 to
                  the
                  Company’s annual report Form 10-KSB for the fiscal year ending March 31,
                  2006, filed on July 14, 2006)10.7
              Management
                  and Development Agreement Between MAB Resources LLC and GSL Energy
                  Corporation (Amended and Restated) Effective July 1, 2005
                  (incorporated by reference from Exhibit 10.4 to the Company’s annual
                  report Form 10-KSB for the fiscal year ending March 31, 2006, filed
                  on
                  July 14, 2006)10.8
              Acquisition
                  and Consulting Agreement between MAB Resources LLC and PetroHunter
                  Energy
                  Corporation Effective January 1, 2007 (incorporated by reference
                  to
                  Exhibit 10.1 to the Company’s amended current report on Form 8-K dated
                  January 9, 2007, filed May 4, 2007)10.9
              Credit
                  and Security Agreement dated as of January 9, 2007 between PetroHunter
                  Energy Corporation and PetroHunter Operating Company and Global
                  Project
                  Finance AG (incorporated by reference to Exhibit 10.2 to the Company’s
                  current report on Form 8-K dated January 9, 2007, filed January
                  11,
                  2007)31.1
              Rule
                  13a-14(a) Certification of Charles B. Crowell31.2
              Rule
                  13a-14(a) Certification of Carmen J. Lotito32.1
              Certification
                  of Charles B. Crowell Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act Of
                  200232.2
              Certification
                  of Carmen J. Lotito Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act Of
                  2002














41


**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 CORPORATION**
              **(Registrant)**Date:  September
                6, 2007
            By:  /s/
                Carmen J. LotitoCarmen
                J. Lotito
              Chief
                Financial Officer and Treasurer (Principal Financial Officer and
                Principal
                Accounting Officer)