UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q/A
                                AMENDMENT NO. 1


(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the quarterly period ended: DECEMBER 31, 2006

[ ]      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. Employer
     incorporation 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
                                JANUARY 31, 2007



<PAGE>
                                EXPLANATORY NOTE



We are  filing  this  Amendment  No. 1 to Form 10-Q for the three  months  ended
December 31, 2006,  as  originally  filed with the SEC on February 14, 2007,  to
restate our financial statements and corresponding financial information for the
three months ended December 31, 2006.



We  are  restating  the  financial   statements  and   corresponding   financial
information  to correctly  reflect the abandonment of the South Bronco  prospect
in  the  Piceance  Basin  of Colorado as of December 31, 2006, and to reclassify
certain costs incurred in  the  drilling  of  five  wells  in the Piceance Basin
of Colorado from Oil and Gas Properties to Amounts Due From Joint Interest Owner
as of December 31, 2006.



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. 1. 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. 1, as a result of the restatement.



This Amendment No. 1 continues to speak as of the date of the original Form 10-Q
for the three months ended  December 31, 2006 and we have not updated or amended
the disclosures  contained herein to reflect events that have occurred since the
filing of the Form 10-Q,  or modified or updated  those  disclosures  in any way
other than as described in the preceding paragraphs. Accordingly, this Amendment
No.  1  should  be read in  conjunction  with  our  filings  made  with  the SEC
subsequent to the filing of the original Form 10-Q on February 14, 2007.













                                       2
<PAGE>

                         PETROHUNTER ENERGY CORPORATION
                             (A DEVELOPMENT COMPANY)
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
                                     ASSETS
<CAPTION>
                                                               DECEMBER 31,           SEPTEMBER 30,
                                                                  2006                    2006
                                                               (UNAUDITED)
                                                          --------------------    -------------------
<S>                                                       <C>                     <C>
Current Assets
   Cash and cash equivalents                              $         2,308,442     $       10,631,776
   Oil and gas receivables - related party                            499,802                 35,656
   Other receivables                                                   34,024                 22,290
   Due from related parties                                           228,173                921,344
   Prepaid expenses and other assets                                   64,430                 30,960
   Subscriptions receivable - related party                           300,000                      -
                                                          --------------------    -------------------
      TOTAL CURRENT ASSETS                                          3,434,871             11,642,026
                                                          --------------------    -------------------

PROPERTY AND EQUIPMENT, AT COST
   Oil and gas properties under full cost, net                     60,716,580             45,972,784
   Furniture and equipment, net                                       635,862                550,213
                                                          --------------------    -------------------
                                                                   61,352,442             46,522,997
                                                          --------------------    -------------------

OTHER ASSETS
   Due from joint interest owner (Note 6)                           6,426,623                      -
   Restricted cash                                                  1,601,793              1,076,793
   Deferred financing costs                                            29,617                      -
                                                          --------------------    -------------------

TOTAL ASSETS                                              $        72,845,346     $       59,241,816
                                                          ====================    ===================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                  $        16,707,549     $        9,644,236
   Accrued interest payable                                            62,342                124,474
   Due to shareholder                                                 545,467                197,785
   Royalties payable                                                  121,859                      -
   Contracts payable - oil and gas properties                       2,900,000                      -
   Convertible notes payable - in default                             200,000                      -
   Convertible notes payable                                        1,705,000                400,000
                                                          --------------------    -------------------
      TOTAL CURRENT LIABILITIES                                    22,242,217             10,366,495
                                                          --------------------    -------------------

ASSET RETIREMENT OBLIGATION                                           528,268                522,054
                                                          --------------------    -------------------

TOTAL LIABILITIES                                                  22,770,485             10,888,549
                                                          --------------------    -------------------

COMMON STOCK SUBSCRIBED                                             1,887,500                      -
                                                          --------------------    -------------------

COMMITMENTS AND CONTINGENCIES (NOTES 4, 5 AND 11)
STOCKHOLDERS' EQUITY
   Preferred stock, $.001 par value
   Authorized - 1,000,000 shares, issued, none
   Common stock, $.001 par value
   Authorized - 500,000,000 shares
   Issued and outstanding - 219,928,734 shares                        219,929                219,929
   Capital in excess of par value                                  72,505,304             70,944,172
   Common stock issuable                                            4,127,770                      -
   Deficit accumulated during the development stage               (28,665,642)           (22,810,834)
                                                          --------------------    -------------------
TOTAL STOCKHOLDERS' EQUITY                                         48,187,361             48,353,267
                                                          --------------------    -------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $        72,845,346     $       59,241,816
                                                          ====================    ===================
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       3
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                             (A DEVELOPMENT COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                        CUMULATIVE FROM
                                                                                                           INCEPTION
                                                              THREE                 THREE                (JUNE 20, 2005)
                                                          MONTHS ENDED           MONTHS ENDED                  TO
                                                           DECEMBER 31            DECEMBER 31              DECEMBER 31
                                                              2006                   2005                     2006
                                                           (UNAUDITED)            (UNAUDITED)              (UNAUDITED)
                                                        -----------------      -----------------      -------------------
<S>                                                     <C>                    <C>                    <C>
REVENUES
    Oil and gas revenues                                $        448,876       $              -       $          484,532
                                                        -----------------      -----------------      -------------------
COSTS AND EXPENSES
    Lease operating expenses                                     161,800                      -                  165,472
    General and administrative                                 3,670,998                711,254               18,544,590
    Property development - related                             1,815,000                700,000                7,205,000
    Depreciation, depletion, amortization and accretion           86,137                      -                  159,274
    Impairment-oil and gas properties                            550,790                      -                  550,790
                                                        -----------------      -----------------      -------------------
        TOTAL OPERATING EXPENSES                               6,284,725              1,411,254               26,625,126
                                                        -----------------      -----------------      -------------------
OTHER INCOME (EXPENSE)
    Interest income                                                8,059                      -                   10,692
    Interest expense                                             (27,018)              (187,434)              (2,535,740)
                                                        -----------------      -----------------      -------------------
        TOTAL OTHER (EXPENSE)                                    (18,959)              (187,434)              (2,525,048)
                                                        -----------------      -----------------      -------------------

                                                        -----------------      -----------------      -------------------
NET LOSS                                                $     (5,854,808)      $     (1,598,688)      $      (28,665,642)
                                                        =================      =================      ===================

NET LOSS PER COMMON SHARE -
    BASIC AND DILUTED                                   $          (0.03)      $          (0.02)
                                                        =================      =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
    OUTSTANDING - BASIC AND DILUTED                          219,928,734            100,000,000
                                                        =================      =================
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       4
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                             (A DEVELOPMENT COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                                  CUMULATIVE FROM
                                                                                                                     INCEPTION
                                                                               THREE               THREE          (JUNE 20, 2005)
                                                                            MONTHS ENDED        MONTHS ENDED             TO
                                                                             DECEMBER 31         DECEMBER 31         DECEMBER 31
                                                                                2006                2005                2006
                                                                             (UNAUDITED)         (UNAUDITED)         (UNAUDITED)
                                                                          -----------------   -----------------   -----------------
<S>                                                                       <C>                 <C>                 <C>
Cash flows used in operating activities
   Net loss                                                               $     (5,854,808)   $     (1,598,688)   $    (28,665,642)
   Adjustments to reconcile net loss to
   net cash (used) in operating activities
      Stock for expenditures advanced                                                  -                   -               100,000
      Stock based compensation                                                   1,561,133             205,678          11,573,177
      Depreciation, depletion, amotization and accretion                            86,137               5,247             159,274
      Impairment-oil and gas properties                                            550,790                 -               550,790
      Stock for financing costs                                                        -                   -             1,422,701
   Changes in assets and liabilities
      Accounts receivable                                                         (475,880)                -              (533,826)
      Due from related party                                                       785,793                 -              (135,551)
      Prepaids and other                                                           (33,470)             (4,600)            (42,421)
      Accounts payable and accrued expenses                                        (50,662)            172,082           1,329,125
      Due to shareholder                                                           347,682             (43,363)            545,467
      Royalties payable                                                            121,859                 -               121,859
                                                                          -----------------   -----------------   -----------------

NET CASH USED IN OPERATING ACTIVITIES                                           (2,961,426)         (1,263,644)        (13,575,047)
                                                                          -----------------   -----------------   -----------------
CASH FLOWS USED IN INVESTING ACTIVITIES
   Additions to oil and gas properties                                          (1,440,012)         (4,189,761)        (34,221,353)
   Due from joint interest owner                                                (6,426,623)                -            (6,426,623)
   Property and equipment                                                          (33,156)             (3,774)           (586,367)
   Restricted cash                                                                (525,000)                -            (1,601,793)
                                                                          -----------------   -----------------   -----------------

NET CASH USED IN INVESTING ACTIVITIES                                           (8,424,791)         (4,193,535)        (42,836,136)
                                                                          -----------------   -----------------   -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from the sale of common stock                                              -                   -            35,442,500
   Proceeds from common stock subscribed                                         1,587,500                 -             1,587,500
   Proceeds from the exercise of warrants                                              -                   -             1,000,000
   Cash received upon recapitalization and merger                                      -                   -                20,949
   Proceeds from issuance of convertible notes                                   1,505,000           4,310,000          22,336,667
   Offering and financing costs                                                    (29,617)            (10,424)         (1,667,991)
                                                                          -----------------   -----------------   -----------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                        3,062,883           4,299,576          58,719,625
                                                                          -----------------   -----------------   -----------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            (8,323,334)         (1,157,603)          2,308,442

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  10,631,776           1,250,242                 -
                                                                          -----------------   -----------------   -----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $      2,308,442    $         92,639    $      2,308,442
                                                                          =================   =================   =================
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
   Cash paid for interest                                                 $            -      $            -      $      1,028,353
                                                                          =================   =================   =================
   Cash paid for income taxes                                             $            -      $            -      $            -
                                                                          =================   =================   =================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
   Stock issued for expenditures advanced                                 $            -      $            -      $        100,000
                                                                          =================   =================   =================
   Contracts for oil and gas properties                                   $      2,900,000    $      7,762,500    $     14,673,960
                                                                          =================   =================   =================
   Common stock issued for debt conversion                                $            -      $            -      $     22,031,667
                                                                          =================   =================   =================
   Common stock issued for commissions on offerings                       $            -      $            -      $      2,900,201
                                                                          =================   =================   =================
   Common stock issued for property and finders fee on property           $            -      $            -      $      2,200,000
                                                                          =================   =================   =================
   Convertible debt issued for property                                   $            -      $            -      $      1,200,000
                                                                          =================   =================   =================
   Common stock issuable                                                  $      4,127,770    $            -      $      4,127,770
                                                                          =================   =================   =================
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       5
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE 1 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS



         In January  2007,  the Company  determined  not to proceed with further
         evaluation or  exploration  of its South Bronco project in the Piceance
         Basin of Colorado. As more fully discussed in Note 5, accumulated costs
         on the South Bronco Prospect as of December 31, 2006 of $550,790 should
         have been  charged to  operations  as  impairment  expense in the three
         months  then ended  (adjustment  (i) below).  In May 2007,  the Company
         determined that, in accordance with the full cost method of accounting,
         certain costs (totaling $6,426,623) previously incurred in the drilling
         of five wells in the Piceance Basin of Colorado and included in Oil and
         Gas  Properties as of December 31, 2006 should have been  classified as
         amounts Due From Joint  Interest  Owner.  Accordingly,  the Company has
         restated its  consolidated  financial  statements  for the three months
         ended  December 31, 2006 to reflect this  reclassification  (adjustment
         (ii)  below).  The  following  tables  set forth the net  effect of the
         restatements on the Company's Consolidated Balance Sheet,  Consolidated
         Statements of Operations and  Consolidated  Statements of Cash Flows as
         of and for the three  months  ended  December  31,  2006,  and identify
         individual line items impacted by the restatement.


<TABLE>
<CAPTION>
                                                                      AS REPORTED          ADJUSTMENTS                  RESTATED
<S>                                                               <C>                     <C>            <C>          <C>

         CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2006
         Oil and gas properties under full cost, net              $    67,193,993         $  (6,426,623) (i)
                                                                                                (50,790) (ii)         $ 60,716,580
                                                                  --------------------------------------              ------------
                                                                       67,193,993            (6,477,413)              $ 60,716,580
                                                                  ======================================              =============

         Due from joint interest owner (Note 6)                               -               6,426,623  (i)             6,426,623
                                                                  ======================================              =============

         TOTAL ASSETS                                             $    72,896,136         $     (50,790)              $ 72,845,346
                                                                  ======================================              =============

         Accounts payable and accrued expenses                         16,207,549               500,000  (ii)           16,707,549
                                                                  ======================================              =============

         Deficit accumulated during the development stage             (28,114,852)             (550,790)               (28,665,642)
                                                                  ======================================              =============

         TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY                $    72,896,136         $     (50,790)              $ 72,845,346
                                                                  ======================================              =============



         CONSOLIDATED STATEMENT OF OPERATIONS - THREE MONTHS
         ENDED DECEMBER 31, 2006
         Impairment - oil and gas properties                      $        86,137         $     550,790  (ii)         $    636,927
                                                                  ======================================              =============

         TOTAL OPERATING EXPENSES                                 $     5,733,935         $     550,790               $  6,284,725
                                                                  ======================================              =============

         NET LOSS                                                 $    (5,304,018)        $    (550,790)              $ (5,854,808)
                                                                  ======================================              =============

         NET LOSS PER COMMON SHARE - BASIC AND DILUTED            $         (0.02)                                    $      (0.03)
                                                                  ================                                    =============



                                       6
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE 1 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<CAPTION>
<S>                                                               <C>                     <C>            <C>          <C>

         CONSOLIDATED STATEMENT OF CASH FLOWS - THREE MONTHS
         ENDED DECEMBER 31, 2006
         Net loss                                                 $    (5,304,018)        $    (550,790) (ii)         $ (5,854,808)
                                                                  ======================================              =============

         Impairment - oil and gas properties                                  -                 550,790  (ii)              550,790
                                                                  ======================================              =============

         NET CASH USED IN OPERATING ACTIVITIES                    $    (2,961,426)        $         -                 $ (2,961,426)
                                                                  ======================================              =============

         Additions to oil and gas properties                           (7,866,635)            6,426,623  (i)            (1,440,012)
                                                                  ======================================              =============

         Due from joint interest owner                                        -              (6,426,623) (i)            (6,426,623)
                                                                  ======================================              =============

         NET CASH USED IN INVESTING ACTIVITIES                    $    (8,424,791)        $         -                 $ (8,424,791)
                                                                  ======================================              =============

         NET CASH PROVIDED BY FINANCING ACTIVITIES                $     3,062,883         $         -                 $  3,062,883
                                                                  ======================================              =============

</TABLE>



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").


                                       7
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

NOTE 2 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

         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.
         ("PetroHunter  NT"), as a wholly owned  subsidiary,  for the purpose of
         holding  and  developing  its  assets  in  the  Northern  Territory  of
         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  months  ended  December  31,  2006 are not  necessarily
         indicative of the results that may be expected for the full fiscal year
         ending September 30, 2007.


                                       8
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006



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 $28,665,642  for the period from  inception  (June 20, 2005) to
         December 31, 2006,  has a working  capital  deficit of  $18,807,346  at
         December 31, 2006 and has significant capital expenditure  commitments.
         As of December 31,  2006,  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  $59.4 million of convertible notes and
         common stock through  December 31, 2006, and  management  believes that
         the Company will be  successful in raising  additional  funding to have
         sufficient capital to meet its obligations for its planned  operations.
         The Company has raised an additional  $955,000 (including $600,000 from
         a related  entity)  subsequent  to  December  31,  2006 in two  private
         placements of common stock and  convertible  notes currently in process
         and has received  $7,000,000 from a private investor pursuant to a loan
         commitment. (See Notes 8 and 9.)


         BASIS OF PRESENTATION

         The accompanying  consolidated financial statements include PetroHunter
         for the three  months ended  December  31,  2006.  For the three months
         ended  December 31, 2005,  the  consolidated  financial  statements are
         those of GSL.  All  significant  intercompany  transactions  have  been
         eliminated upon consolidation.

         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.



                                       9
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


         OIL AND GAS PROPERTIES (Continued)

         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 December 31, 2006, 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 December  31,  2006.  Oil and gas sold is not
         significantly different from the Company's product entitlement.


                                       10
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006



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.  As
         of December  31,  2006,  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.


         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
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


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  44,701,500  for  the  three  months  ended
         December 31, 2006.

         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
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006



NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


         SHARE BASED COMPENSATION (Continued)

         As of December 31, 2006, options to purchase an aggregate of 32,295,000
         shares  of the  Company's  common  stock  were  outstanding,  of  which
         10,259,000  are  exercisable.   These  options  were  granted,  to  the
         Company's  officers,  directors and  consultants  in August of 2005 and
         2006, vest 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 employee
         compensation  of $511,133  and  stock-based  non-employee  compensation
         costs  of  $1,050,000   before  tax,  were  charged  to  operations  as
         compensation expense for the three months ended December 31, 2006.

         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 December 31,
         2006 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
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006



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  "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:

         o    The Company's  working  interest in all its oil and gas properties
              doubled (from 50% undivided interest in the properties to 100%);
         o    The Company's prior obligation to carry MAB for its 50% portion of
              the first $700 million in capital costs was eliminated;
         o    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;
         o    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%;
         o    MAB  will  receive  7% of  the  issued  and  outstanding shares of
              PetroHunter  Energy NT, Ltd.  ("PetroHunter NT"),  as  of the date
              that the Company  receives  PetroHunter NT shares in consideration
              for the  Company's assignment of its rights and obligations in the
              Northern Territory (Australia) permits to PetroHunter NT.

         The new agreement  also provides for the issuance of 50 million  shares
         of the Company's common stock to MAB. MAB has the right and opportunity
         to receive up to an additional 50 million shares,  to be held in escrow
         and released  over a five-year  period in  specified  numbers of shares
         that are tied to the Company's  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.

         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
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


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 at December 31, 2006 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 shares to be issued to 3 million.

         On November  14, 2006,  the Company and Lakes Oil N.L.  entered into an
         agreement (the "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
         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).
         PetroHunter  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  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 2 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
         5 years from the Closing. The Company is to assume Lakes Oil's position
         as operator of the permits.


                                       15
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006



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 at the rate of $1.50 per share. 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.  Either party may terminate the
         agreement if the closing has not  occurred by February 28, 2007.  As of
         January 31, 2007,  the Company has paid to Galaxy a $2 million  earnest
         money payment due under the terms of the agreement.


         In January  2007,  the Company  determined  not to proceed with further
         evaluation or exploration of its South Bronco  Prospect in the Piceance
         Basin of Colorado  (the  "Prospect").  Under the EDA, the Company had a
         commitment  on the  Prospect  of $500,000 by  December  31,  2006.  The
         commitment  was  secured  by an  escrow  deposit  of  the  same  amount
         previously made by the Company.  The Company has charged to operations,
         as of December 31,  2006,  an  impairment  on the Prospect of $550,790,
         which includes the  commitment  and costs  incurred  through that date.
         Subsequent to December 31, 2006 the Company  released the $500,000 from
         escrow to settle the obligation.


         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 charges 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
         December  31,  2006,  the Company had  received  revenues  from initial
         testing and production on certain of its projects.

                                       16
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


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 three  months  ended
         December 31, 2006, the Company had drilled, as operator,  five 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 five wells were  drilled is currently  15.4%.  As of December
         31, 2006,  the Company has recorded only its share of costs in the five
         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 December 31,
         2006, this amount totaled $6,426,623. 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 December 31,
         2006 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 three months ended December 31,
         2006 and 2005:

<TABLE>
<CAPTION>
                                                                     2006            2005
                                                                -----------------------------
<S>                                                             <C>                 <C>
         Asset retirement obligations, beginning of period      $   522,054         $       -
         Liabilities incurred                                       170,230                 -
         Revisions to estimates                                    (162,845)                -
         Liabilities settled                                              -                 -
         Accretion expense                                           (1,171)                -
                                                                ------------        ----------

         Asset retirement obligations, end of period            $   528,268         $       -
                                                                ============        ==========
</TABLE>

                                       17
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


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 December 31, 2006 the Company
         was in  default  on payment of an  aggregate  $200,000  of notes  which
         matured.

         In December 2006,  PetroHunter  NT,  commenced the sale,  pursuant to a
         private placement, of up to $50,000,000 of convertible notes. The notes
         bear  interest at 12% per annum,  mature one year from date of issuance
         and are convertible,  at the option of the note holder,  at the rate of
         one share of  PetroHunter  NT common stock for each $.50 of debt. As of
         December 31, 2006, $1,505,000 has been received from the offering.


NOTE 9 - STOCKHOLDERS' EQUITY


         COMMON STOCK

         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 consists of one share of the Company's common stock and
         one-half common stock purchase  warrant.  A whole common stock purchase
         warrant  entitles 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.  The Company may pay a commission  of up to 5% to a broker or
         agent in  conjunction  with the sale.  As of  December  31,  2006,  the
         Company has received subscriptions for $1,887,500 for the sale of units
         pursuant to the Private Placement, of which cash of $1,587,500 has been
         received. The subscription  receivable at December 31, 2006 of $300,000
         was received in January  2007. Of the total  subscriptions,  $1,400,000
         was from a related  party.  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 of
         November  6, 2006 will be offered  the  opportunity  to  rescind  their
         subscriptions.  Accordingly,  the Company has recorded the proceeds and
         outstanding  subscriptions  from the  offering at December  31, 2006 as
         "Common  Stock  Subscribed",  and has not included  these  amounts as a
         component  of  Stockholders'  Equity.

         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 December
         31, 2006,  options to purchase  7,705,000  shares were  available to be
         granted pursuant to the stock option plan.

         There were no options  granted,  forfeited  or vested  during the three
         months ended December 31, 2006.

                                       18
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)


         WARRANTS

         The following stock purchase  warrants were outstanding at December 31,
         2006:

           NUMBER OF SHARES           EXERCISE PRICE              EXPIRY DATE

              34,442,500                   $1.00                      2011

         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. As of September 30, 2006,  1,000,000
         warrants  were  exercised,  and no additional  warrants were  exercised
         during the three months ended December 31, 2006.


NOTE 10 - RELATED PARTY TRANSACTIONS



         During the three months ended December 31, 2006,  the Company  incurred
         $1,815,000 in property  development  costs to MAB under the Development
         Agreement  between MAB and the Company  (Note 4). At December 31, 2006,
         MAB was owed $545,467 by the Company.


         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 a 50/50 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.  Marc A. Bruner, the 75% owner of the largest single
         shareholder of the Company,  is also the Chief Executive  Officer and a
         Director  of Falcon.  At  December  31,  2006,  Falcon owed the Company
         $219,313,  for  Falcon's  share  of  costs  incurred  pursuant  to  the
         agreement.

         Due from related  parties at December 31, 2006  includes  $8,860 due to
         the Company from Galaxy Energy Corporation ("Galaxy") for reimbursement
         for charges  paid to a drilling  company for Galaxy's use of a drilling
         rig under contract to the Company.  This amount was paid to the Company
         January 2007.

         At December 31, 2006, the Company is owed $499,802 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.

         During the three months ended December 31, 2005,  the Company  incurred
         consulting  fees  related to services  provided by its  officers in the
         aggregate  amount  of  $172,050;  and  incurred  $700,000  in  property
         development  costs to MAB under the Development  Agreement  between MAB
         and the Company.  At December 31,  2005,  MAB was owed  $605,058 by the
         Company.


                                       19
<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE 11 - 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, 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.

         COMMITMENTS

         On November 14, 2006, the Company,  through its subsidiary,  Paleo, and
         the Box Hill Institute  signed an agreement which commenced a five-year
         research   collaboration  with  the  BioSkills  Specialist  Centre  for
         Biotechnology   Training  at  the  Box  Hill  Institute  in  Melbourne,
         Australia.  As part of the agreement,  Paleo and the Box Hill Institute
         share  laboratory space and offer training  opportunities  for Box Hill
         students.  The team will target a broad array of applications including
         energy/petrochemical,   environmental  remediation,  timber  and  plant
         resources,  agricultural and consumer  products.  Management  estimates
         that it will incur  approximately  $1.6 million under the five (5) year
         term of the agreement between Paleo and Boxhill.








                                       20

<PAGE>
                         PETROHUNTER ENERGY CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006


NOTE - 12 SUBSEQUENT EVENTS


         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 loan
         provides for an interest rate of 6.75% over prime, and is to be 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 plans to apply 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
         one million  warrants of the  Company's  shares upon  execution  of the
         Credit Agreement,  and up to an additional three million warrants, tied
         on a pro rata basis to each draw down of the credit  facility up to $15
         million - that is,  warrants  for  600,000  shares  for each $3 million
         advanced.  The warrants  will be  exercisable  for five years after the
         date of the Credit  Agreement.  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. Global
         Project   Finance  AG  and  its  controlling   shareholder,   Christian
         Russenberger,  were  shareholders  of the  Company  prior to the Credit
         Agreement.  As  of  February  9,  2007,  the  Company  has  drawn  down
         $7,000,000 on the credit facility.
























                                       21
<PAGE>

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. PetroHunter formed PetroHunter Energy NT Ltd.
on October 20, 2006 for the purpose of holding and developing its assets in the
Northern Territory of 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
<PAGE>

         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:

             o  Our working interest in all our oil and gas properties doubled
                (from 50% undivided interest in the properties to 100%);
             o  Our prior obligation to carry MAB for its 50% portion of the
                first $700 million in capital costs was eliminated;
             o  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;
             o  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%;
             o  MAB will receive 7% of the issued and outstanding shares of
                PetroHunter Energy NT, Ltd. ("PetroHunter NT"), as of the date
                that we receive PetroHunter NT shares in consideration for our
                assignment of our rights and obligations in the Northern
                Territory (Australia) permits to PetroHunter NT.

         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 held in escrow and released 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, will be analyzed in an independent economic evaluation, and the
closing of this agreement, which is to occur by the end of February 2007, will
be subject to such evaluation concluding that the consideration exchanged by the
parties reflects a fair and reasonable market value for us.

         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
<PAGE>


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 at the rate of $1.50 per share.

         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 February 28, 2007.

         As of January 31, 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.

         MAB has orally agreed to guarantee the performance of Galaxy and
Dolphin under the PSA (including but not limited to all their obligations under
the Note), and has orally agreed to reimburse us for certain losses and damages
which might be incurred as a result of those parties entering into the PSA. We
expect that a written agreement will be entered into by the parties prior to
closing.













                                       24

<PAGE>
PRODUCTION AND PRICES

         The following table sets forth information regarding net production of
oil and natural gas, and certain price and cost information for quarter ended
December 31, 2006 and the fiscal year ended September 30, 2006. We did not have
any production during the fiscal year ended September 30, 2005.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                           FOR THE QUARTER ENDED         FOR THE FISCAL YEAR ENDED
                                             DECEMBER 31, 2006                SEPTEMBER 30, 2006
--------------------------------------------------------------------------------------------------------
<S>                                                      <C>                                <C>
PRODUCTION DATA:
--------------------------------------------------------------------------------------------------------
Natural gas (Mcf)                                        85,922                             5,822
--------------------------------------------------------------------------------------------------------
Oil (Bbls)                                                   79                               -0-
--------------------------------------------------------------------------------------------------------
AVERAGE PRICES:
--------------------------------------------------------------------------------------------------------
Natural gas (per Mcf)                                     $5.17                             $6.12
--------------------------------------------------------------------------------------------------------
Oil (per Bbl)                                            $58.29                                --
--------------------------------------------------------------------------------------------------------
</TABLE>

PRODUCTIVE WELLS

         The following table summarizes information at January 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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                     GROSS                                   NET
------------------------------------------------------------------------------------------------
LOCATION                 OIL          GAS         TOTAL         OIL          GAS         TOTAL
------------------------------------------------------------------------------------------------
<S>                      <C>          <C>          <C>          <C>          <C>          <C>
Colorado                 --           18           18           --           5.2          5.2
------------------------------------------------------------------------------------------------
Utah                     --           --           --           --           --           --
------------------------------------------------------------------------------------------------
Montana                   2           --            2           2.0          --           2.0
------------------------------------------------------------------------------------------------
Australia                --           --           --           --           --           --
------------------------------------------------------------------------------------------------
TOTAL                    --           18           20           2.0          5.2          7.2
------------------------------------------------------------------------------------------------
</TABLE>

ACREAGE POSITIONS

         As of January 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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                            DEVELOPED                                    UNDEVELOPED
------------------------------------------------------------------------------------------------------------------
LOCATION                       GROSS ACRES               NET ACRES            GROSS ACRES              NET ACRES
------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                     <C>              <C>                    <C>
Colorado                             480.0                   102.2               25,759.0               19,736.8
------------------------------------------------------------------------------------------------------------------
Utah                                     0                       0              173,738.0              173,738.0
------------------------------------------------------------------------------------------------------------------
Montana                               80.0                    80.0               93,515.0               72,734.0
------------------------------------------------------------------------------------------------------------------
Australia                                0                       0            7,000,000.0            7,000,000.0
------------------------------------------------------------------------------------------------------------------
TOTAL                                560.0                   182.2            7,293,012.0            7,266,208.8
------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25

<PAGE>

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. Recent
developments are mapping of seismic data and recommendation of three drill sites
on the West Rozel field. Three vertical pairs of wells have been sited to test
the productivity of the field using a dual well strategy. This strategy involves
paired wells with one well being a production well and the other a water
injection (disposal) well. Seismic and geologic maps have been completed and the
permit process has been started for the proposed locations. We anticipate
gathering additional seismic data to test the Gunnison Wedge prospect in the
northwestern portion of the Great Salt Lake. A significant production component
of producing these heavy oils is maintenance of an appropriate gas oil ratio
within the reservoir. We have recently identified a new potential gas sand, up
to 60 feet in thickness at a depth of about 1500 feet, i.e. about 900 feet above
the target reservoir depth, at West Rozel field, which may help to provide in
situ gas and increase the economic viability of the project. The gas horizon
seems to occur over much of the West Rozel acreage.

         Pursuant to the terms of the acquisition agreement, we must commence
drilling of three wells within this project by April 30, 2007. We are currently
working to secure permits for planned drilling operations. The earliest
expiration for the project leasehold is June 2008. Subsequent drilling and
development, as well as any applications to extend the term of one or more of
the leases, will be determined as we evaluate the results of the first test
wells.

         FIDDLER CREEK, MONTANA. We have acquired an acreage position of 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. There is both oil and gas potential
in these sandstones and new technology and techniques have commenced to improve
recovery of oil from two previously drilled wells. We have re-entered two wells,
the Bar B #1 on Dean Dome and the #1 Eggen on the Fiddler Creek structure.
Additional wells have been selected for further testing on Roscoe Dome, the #4
George and the #6 George. Two horizontal tests are planned for the Roscoe and
Dean Dome this year as well as a stratigraphically deeper test on either the
MacKay Dome or the Fiddler Creek structure to test Paleozoic potential in
Phosphoria (Permian), Tensleep (Pennsylvanian), and Madison (Mississippian)
formations. A small 2D seismic program may be required to site the deeper test.

         A portion of the acreage position in the Fiddler Creek Project area was
acquired for a purchase price of $11,250,000 (of which one-half has been paid
through January 31, 2007). We have the option to retain these leases by paying
the balance on or before December 31, 2007. In the event we elect not to make
such payment, we would be required to reassign the properties to the seller, and
there would be no other cost or penalty.


                                       26

<PAGE>

         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 10(degree) to 22(degree)API with viscosities of 1500 centipoise to
greater than 50,000 centipoise at 125(degree)F. Additional conventional
petroleum potential is possible in Devonian Duperow and Nisku formations, and in
the Mississippian Madison Formation. Following some detailed geologic and
geophysical investigations to determine the depositional environment and
geometry of the Swift sandstone reservoirs, we anticipate drilling three
vertical tests in the coming year offsetting previously drilled wells that
encountered oil saturated Swift reservoirs if the results of the investigation
support those wells.

         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:

             o    $6,000,000 to $9,000,000 to add land in Montana in areas where
                  we have already completed acquisitions;

             o    $8,000,000 to $15,000,000 in connection with the Fiddler Creek
                  project, to include drilling, completion and production
                  facilities; and

             o    $15,000,000 to $20,000,000 in connection with the Great Salt
                  Lake project, to include project design, project equipment
                  procurement, site infrastructure development and initial
                  drilling.

         We formed a subsidiary, PetroHunter Heavy Oil Ltd., in September 2006
("PetroHunter Heavy Oil"), for the purpose of holding and developing our heavy
oil assets. We anticipate that PetroHunter Heavy Oil will engage in a private
placement of debt securities in the near future, similar to the offering of
PetroHunter Energy NT described below.

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
Mesaverde 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. Mud
weight had to be increased to control the well, which indicates a pressure
gradient in the Williams Fork of 0.56psi/foot. We are negotiating to enter into
a contract for a workover rig to begin completion and testing operations.
Depending on observed reservoir drainage of the wells, we believe there is
potential for 1,000 to 2,000 additional well locations.

         We are obligated to drill four additional wells to test the Iles
Formation by November 30, 2007.


                                       27
<PAGE>

         PICEANCE II PROJECT. We have acquired approximately 1,000 net acres of
leasehold contiguous to Parachute, Rulison, and Grand Valley fields in Garfield
County, Colorado. As of January 31, 2007, we had interests in 18 producing
wells, 13 wells waiting on completion, and 4 wells being drilled. Average daily
production net to us from these wells at January 31, 2007 (the most recent data
available) was 6,984 mcf/day. Initial production rates varied from 1,000 to
2,554 mcf/day.

         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. We
are obligated to drill four wells on these leases during 2007.


         We have 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 us for interests in certain
oil and gas leases held by the Third Party in the Piceance Basin. During the
three months ended December 31, 2006, we had drilled, as operator, five wells on
oil and gas leases which are subject to the above-described negotiations. Our
record title interest in the leases on which the five wells were drilled is
currently 15.4%. As of December 31, 2006, we have recorded only our share of
costs in the five wells, based upon our 15.4% record title interest, as Oil and
Gas Properties, and have recorded the 84.6% of costs incurred on behalf of the
Third Party, as Due From Joint Interest Owner. At December 31, 2006, this amount
totaled $6,426,623. In the event the negotiations are successfully consummated
our 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 us 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 December 31, 2006 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 least 12 wells for
additional gas production, (ii) design and construction of a two-mile low
pressure gathering system to connect these wells to market, and (iii) continued
exploration of our lease position near Buckskin Mesa/Powell Park discovery wells
in the northern Piceance Basin.

         Associated with the development of our Colorado properties, we
anticipate that, over the next twelve to twenty-four months, we will incur the
following costs:

             o   $8,000,000 to $52,000,000 to add leasehold in the Piceance II
                 and Buckskin Mesa project areas

             o   $50,000,000 to $80,000,000 in connection with the Piceance II
                 project, to include drilling, completion and production
                 facilities; and


                                       28
<PAGE>

             o   $35,000,000 to $50,000,000 in connection with the Buckskin
                 Mesa project, to include drilling, completion and production
                 facilities.

AUSTRALIA PROPERTIES

         BEETALOO BASIN. The Beetaloo Basin property in the Northern Territory
of Australia currently consists of approximately 7 million acres. We have
applied for permits covering an additional 1.5 million acres that is contiguous
to the currently-owned permits. Located about 600 kilometers south of Darwin,
the Beetaloo Basin is a large basin, comparable in size to the Williston Basin
in the U.S. or the entire southern North Sea basin. Structurally it has been
viewed as a relatively simple intracratonic, passive margin basin, with minor
extension (strike-slip), filled with sediments ranging from Cambrian to
Mesoproterozoic rocks. However, interpretation of new 2D seismic data acquired
by us in 2006 requires modification of the structural and tectonic history of
the basin. The broad, low relief structures previously recognized in the basin,
probably related to strike-slip movement, represent only a portion of its
history. Significant and possibly multiple compressional events are observed in
the basin. Ongoing geophysical evaluation has identified a more recent
compressional history along the western margin of the basin resulting in a
series of westerly verging, imbricate thrust faults in contrast to easterly
verging, thrust faults discovered in the central basin. All identified
structures are untested and prospective.

         The Basin has many thousands of meters of sediments, but the reservoirs
of interest to us are within 4000 meters of the surface, most less than 3000
meters. The sedimentary rocks include thick (hundreds of meters), rich source
rocks, namely the Velkerri Shale with Total Organic Carbon ("TOC") contents as
high as 12%, and the Kyalla Shale with typical TOC contents of 2-3%. There is
also a number of sandstone reservoirs interbedded with the rich source rocks.
The prospective formations, from stratigraphically youngest to oldest, include
the Cambrian Bukalara Sandstone, and the Neoproterozoic Jamison, Moroak, and
Bessie Creek sandstones. A number of even deeper sandstones are expected to be
very tight and were not prospective in the single well where they were tested
east of the Basin.

         Three primary plays have been recognized within the basin. The first is
a conventional structural, shallow sweet oil play of 35(degree) API gravity. The
Bukalara, Jamison, and Moroak sandstones (and perhaps the Bessie Creek sandstone
along the western margin) have potential for oil accumulations in trapped and
sealed geometries. Most of the eleven previous wells drilled within the basin
had oil and gas shows, and the Jamison #1 well tested oil on a Drill Stem Test.
Detailed petrophysical analyses have been performed on all wells and have
identified significant potential in some of these tests.

         The second play is an unconventional fractured shale play within the
Kyalla and Velkerri formations, not unlike the Barnett Shale play in Texas. It
is unknown whether the hydrocarbons will be gas or oil (or possibly both) for
this exploration target; however, the Barnett Shale model and algorithms in our
petrophysical analyses of these shales suggest they are viable targets.

         Finally, the Moroak and Bessie Creek sandstones offer a Basin Centered
Gas Accumulation (BCGA) play at the center of the basin. It is an unconventional
resource play characterized by a lack of a gas/water contact. Petrophysical
analyses of several wells previously drilled in the basin demonstrate the
presence of a BCGA in the basin.

         The current seven million acres are represented by four exploration
permits. Depending on the permit, we are in the second or third year of an
initial five-year exploration period that can be extended. As part of the work
commitment plan submitted to the Northern Territory Department of Primary
Industry, Fisheries and Mines, 686 kilometers of 2D seismic data were acquired
during 2006 to delineate the previously defined exploration leads. The data are
being processed, interpreted, and mapped in


                                       29
<PAGE>

anticipation of an eight to ten well drilling program in 2007 including both
shallow offset wells to potential bypassed wells and tests of the undrilled
structural features seen throughout the basin.  In the event of commercial
production the exploration permits will have to be converted to production
licenses.

         We are required to drill four wells by August 31, 2007.

         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 on-shore 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 agreement, we or our subsidiary company, Sweetpea
Petroleum Pty. Ltd., 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). We will also
have the right to increase our 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. Under the agreement, we have the right to participate in
the same proportion in any permits which are non-contiguous to existing permits
acquired by Lakes Oil within two years, and any contiguous permits acquired by
Lakes Oil moving forward, and we have a first right of refusal in other permits
acquired by Lakes Oil within five years. We are to assume Lakes Oil's position
as operator of the permits.

         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 Petroleum Pty. Ltd., 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. We may pay a commission of up to 5% to a broker or agent in conjunction
with the sale. As of January 12, 2007, we had received $1,917,500 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 will be
offered the opportunity to rescind their subscriptions.

         In November 2006, PetroHunter Energy NT Ltd. commenced a private
placement of up to $50,000,000 of convertible notes. The notes bear interest at
12% per annum, mature one year from date of issuance, and are convertible, at
the option of the note holder, at the rate of one share of PetroHunter


                                       30
<PAGE>

Energy NT common stock for each $0.50 of debt. As of December 31, 2006,
$1,505,000 has been received from this offering.

         In addition, 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 loan provides for an
interest rate of 6.75% over prime, and is to be secured by a first perfected
lien on our assets, limited to the specific portion of the assets to which the
loan proceeds are applied by us. We plan to apply most of the proceeds of this
loan to our drilling and development operations in the Piceance Basin, Colorado.
The terms of the Financing also provide for the issuance of warrants to purchase
one million of our shares upon execution of the Credit Agreement, and warrants
to purchase up to an additional three million shares, tied on a pro rata basis
to each draw down of the credit facility up to $15 million - that is, warrants
for 600,000 shares for each $3 million advanced. The warrants will be
exercisable for five years after the date of the Credit Agreement. The exercise
price of the warrants will be equal 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, Christian Russenberger, were
shareholders of the Company prior to the Credit Agreement. As February 7, 2007,
we had drawn down $7,000,000 on the credit facility.

LIQUIDITY AND CAPITAL RESOURCES


         We had not commenced principal operations or earned significant revenue
as of December 31, 2006, and are considered a development stage company. During
the period from inception to December 31, 2006, we incurred a cumulative net
loss of $28,665,642 and at December 31, 2006 have a working capital deficit of
$18,807,346. In order to fund our planned exploration and development of oil and
gas properties, we will require significant additional funding. We have sold
approximately $59.4 million of convertible notes and common stock through
December 31, 2006, 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 December 31, 2006 is vastly different from its existence
at December 31, 2005. At December 31, 2005, we had been operating for
approximately six 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, 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 December 31, 2006, we had a
working capital deficit of $18,307,346 and cash of $2,308,442. 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
January 31, 2007, we were in default on payment of an aggregate of $200,000 of
notes.

                                       31
<PAGE>

         CASH USED IN OPERATING ACTIVITIES. Primarily as a result of our net
loss of $5,854,808, we used cash of $2,961,426 for three months ended December
31, 2006. See "Results of Operations" below for the discussion of our operating
expenses. The principal adjustment to reconcile the net loss to net cash used in
operating activities was stock based compensation of $1,561,133, as a result of
stock options issued to employees and consultants and depreciation, depletion,
amortization, impairment and accretion expense of $636,927. In comparison, we
used $1,263,644 of cash in operations for the three months ended December 31,
2005.



         CASH USED IN INVESTING ACTIVITIES. We used cash of $8,424,791 during
the three months ended December 31, 2006 primarily for our additions to our oil
and gas properties of $1,440,012 and costs incurred on behalf of joint interest
owners of $6,426,623. Depending on the outcome of current negotiations with the
third party joint interest owner, 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 three months ended
December 31, 2005, we used $4,189,761 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 2006 consists of proceeds from convertible promissory notes sold
by PetroHunter Energy NT Ltd. and proceeds from the sale of 1,058,333 units in
our private placement shares for gross proceeds of $1,587,500. Total cash
provided by financing activities was $3,062,883, resulting in cash of $2,308,442
at December 31, 2006.

         It is anticipated that the continuation and future development of our
business will require additional, substantial, capital expenditures. We have no
reliable source for additional funds for administration and operations to the
extent our existing funds have been utilized. In addition, 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

         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 December 31, 2006, since we had 12
producing wells as of December 31, 2006. We generated $448,876 of production
revenues for the three months ended December 31, 2006, as compared to none for
the three months ended December 31, 2005.

                                       32
<PAGE>

         A total of 12 wells produced and sold 85,922 Mcf of natural gas and 79
Bbl of oil. The average prices received for gas and oil sold were $5.17 per Mcf
and $58.29 per Bbl. Lease operating expenses were $161,800 or $1.88/Mcf.
Depreciation, depletion and amortization expense ("DD&A"), based on information
currently available to the Company, is estimated at $86,137 or $1.00/Mcfe.

         GENERAL AND ADMINISTRATIVE. Due to the substantially increased level of
activity during the three months ended December 31, 2006 as compared to the
three months ended December 31, 2005, general and administrative expenses
increased by $2,959,744 or 516%.

         For the quarters ended December 31, 2006 and 2005, we recorded general
and administrative costs of $3,670,998 and $711,254, respectively, as summarized
below.

--------------------------------------------------------------------------------
                                         THREE MONTHS ENDED DECEMBER 31
--------------------------------------------------------------------------------
                                           2006                   2005
--------------------------------------------------------------------------------
Consulting fees                     $     235,774            $    282,891
--------------------------------------------------------------------------------
Insurance                                  69,124                   8,327
--------------------------------------------------------------------------------
Investor relations                        280,447                  33,865
--------------------------------------------------------------------------------
Legal                                     189,132                  71,151
--------------------------------------------------------------------------------
Salaries                                  554,143                      --
--------------------------------------------------------------------------------
Stock Based compensation                1,561,133                 205,678
--------------------------------------------------------------------------------
Travel & entertainment                    466,093                  61,359
--------------------------------------------------------------------------------
Director fees                              10,500                      --
--------------------------------------------------------------------------------
Office lease and expenses                 172,082                  15,488
--------------------------------------------------------------------------------
Audit and accounting                       62,621                  30,000
--------------------------------------------------------------------------------
Other expenses                             69,949                   2,495
--------------------------------------------------------------------------------

                                    $   3,670,998            $    711,254
--------------------------------------------------------------------------------

   o  Consulting fees decreased as officers became salaried employees in 2006.
   o  Insurance increased due to growth of the business.
   o  Investor relations increased upon the Company becoming a public company
      through the Stock Exchange in May 2006.
   o  Legal expenses increased due to growth of the business and costs of public
      company reporting and compliance.
   o  We had no employees at December 31, 2005. Amount for 2006 reflects
      officers becoming salaried employees and growth of the business.
   o  Stock based compensation expenses in 2006 include the effect of grant
      date fair value accounting of vested employee stock options in
      accordance with SFAS 123R adopted by us effective October 1, 2005. The
      2005 expense was calculated in accordance with the provisions of
      Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
      Stock Issued to Employees", and related interpretations.
   o  Increased travel and entertainment expenses reflect the growth of the
      business.
   o  Increase in director fees reflects one outside director in 2006 versus
      none in 2005.
   o  Increased office expenses reflect costs of our existing offices in Denver
      and Salt Lake City in 2006 versus one smaller office in Denver in 2005.
   o  Increased accounting and audit fees reflect the growth of the business.


                                       33
<PAGE>

         PROPERTY DEVELOPMENT - RELATED. We also incurred $1,815,000 in property
development costs to MAB in 2006, as compared to $700,000 in 2005. As a result
of the new Acquisition and Consulting Agreement with MAB, which is effective
January 1, 2007, we will no longer incur these property development costs.


         IMPAIRMENT - OIL AND GAS PROPERTIES.  We recorded $550,790 of
impairment expense on oil and gas properties in 2006 following the decision not
to proceed with the evaluation or exploration of our South Bronco Prospect in
the Piceance Basin of Colorado.



         OPERATING EXPENSES.  Total operating expenses for 2006 were $6,284,725,
as compared to $1,411,254 in 2005.


         INTEREST EXPENSE. We incurred interest expense of $27,018 for 2006, as
compared to $187,434 for 2005. We expect that interest expense will increase for
the remainder of the current fiscal year ending September 30, 2007, due to the
credit facility we obtained in January 2007, which is described below in "Plan
of Operations," and due to the interest to be paid to MAB under the terms of the
new Acquisition and Consulting Agreement.


         NET LOSS. As a result of the expenses described above, we incurred a
loss of $5,854,808 for 2006, as compared to $1,598,688 for 2005, increasing the
loss accumulated since inception to $28,665,642.


GOING CONCERN


         We have incurred a cumulative net loss $28,665,642 for the period from
inception to December 31, 2006 and at December 31, 2006 have a working capital
deficit of $18,807,346. We require significant 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
December 31, 2006, 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.

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 of
the cost center. Depreciation, depletion and amortization of oil and gas
properties is computed on the


                                       34
<PAGE>

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
December 31, 2006, the Company has no proved reserves 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 December 31, 2006, we had recorded an ARO of $528,268 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 February 2006, the Financial Accounting Standards Board (FASB)
issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an
amendment of FASB Statements No. 133 and 140."  SFAS No. 155 amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and also resolves issues addressed in SFAS No.
133 Implementation Issue No.  D1, "Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets."  SFAS No. 155 was issued to
eliminate the exemption from applying SFAS No. 133  to interests in securitized
financial assets so that similar instruments are accounted for in a similar
fashion, regardless of the instrument's form.  The Company does not believe that
its financial position, results of operations or cash flows will be impacted by
SFAS No. 155 as the Company does not currently hold any hybrid financial
instruments.


                                       35
<PAGE>

         In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes." The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with Statement of Financial Accounting Standards No.
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 Company will
be required to adopt FIN 48 for the fiscal year ended September 30, 2008. The
Company is reviewing and evaluating the effect, if any, of adopting FIN 48 on
its financial position and 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.


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 by this 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.







                                       36
<PAGE>
                           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 December 31, 2006, a wholly-owned subsidiary of
the registrant, PetroHunter Energy NT Ltd., sold convertible notes in the
aggregate amount of $1,505,000 to one non-U.S. Person pursuant to Regulation S
and to one accredited investor pursuant to the exemption from registration
contained in Rule 506 of Regulation D. Finder's fees of $75,250 were paid.

The registrant sold 1,058,333 units, each unit consisting of one share of common
stock and one-half common stock purchase warrant, to three non-U.S. Persons
pursuant to Regulation S and one accredited investor 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)
--------------------------------------------------------------------------------


                                       37
<PAGE>
--------------------------------------------------------------------------------
  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)
--------------------------------------------------------------------------------
      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)
--------------------------------------------------------------------------------
     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
                February 9, 2007)
--------------------------------------------------------------------------------

                                       38
<PAGE>
--------------------------------------------------------------------------------
  REGULATION
  S-K NUMBER                         EXHIBIT
--------------------------------------------------------------------------------
     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 Thomas Ahlbrandt
--------------------------------------------------------------------------------
     31.2       Rule 13a-14(a) Certification of Carmen J. Lotito
--------------------------------------------------------------------------------
     32.1       Certification of Thomas Ahlbrandt Pursuant to 18 U.S.C. Section
                1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                Act Of 2002
--------------------------------------------------------------------------------
     32.2       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
--------------------------------------------------------------------------------






















                                       39

<PAGE>


                                   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:  June 12, 2007                 By: /s/ CARMEN J. LOTITO
                                        ----------------------------------------
                                        Carmen J. Lotito
                                        Chief Financial Officer and Treasurer
                                        (Principal Financial Officer and
                                        Principal Accounting Officer)




























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